Want to house hack and looking for tips and advice

[Mamadou Ngom]

Hello everyone, I am a newbie to all of this but I have been doing some research for some time now. I am leaning towards multifamily properties, duplex or triplex. I live in Minneapolis Minnesota and I want to soak in as much tips and advice as I can before jumping the gun. Any recommendations on down payments and anything else I should consider?

[Daniel A.]

Hello Mamadou,

I want to start by saying that you are making a great choice in considering house hacking with a multifamily property, and you have made a wise choice by reaching out to the BiggerPockets community for some guidance. While I am by no means "seasoned," I still thoroughly enjoy throwing out ideas in the hope that you (and anyone else reading this) will find something of use. A lot of this information bounces around in my head, so I find it somewhat therapeutic to write it down in a public forum. It also provides others a chance to correct my mistakes.

Me personally, I prefer house hacking in a multifamily setting because of the privacy it affords you while still generating income. Even if you obtain a property that doesn't give you a monthly cash flow, you still gain equity and you still save the difference were you to rent an apartment or get a mortgage on a house. I generally espouse the belief that if you are planning to live in the multifamily, you really can't go wrong, even if your tenants' rent doesn't fully cover the payments. If it's close enough, you always retain the ability to make a profit were you to decide at some point to get another property and then rent out the unit you plan to live in.

As to the down payment, it all depends on the lending route you choose. I also say that it depends on what you plan on doing with real estate. If the extent to which you plan on getting into the world of real estate is buying one multifamily property to live in, then really, you shouldn't concern yourself too much over the down payment. The larger the down payment you put down, the lesser your monthly payment will be. (Of course, if the purchase price is high, then putting down an extra ten to twenty thousand isn't going to bring that monthly payment down to an exciting degree.) But on the other hand, the larger the down payment, the less money in your pocket. If you have your sights set on buying up more properties and building a portfolio, then you want to consider some constructive financing options so you can keep as much hard cash on you as possible. The last thing you want is to see another property that meets your fancy, only to not have the cash to go for it because it's all tied up in one property. There is always the Opportunity Cost to take into mind. Then again, you really have to consider your options - which can be largely dictated by the lending institution's criteria.

Another thing to take into consideration is how you plan to manage the tenants. Are you going to take on the role of the landlord, or are you thinking about hiring a property management company? If you want to be a landlord, make sure you understand what that entails. You could always hire a property management company and then present yourself to the tenants as just another tenant. That way the tenants aren't bothering you with their problems and you might even get a little insight into the property that you otherwise wouldn't. But if you want to be a landlord, make sure your lease is solid. I personally downloaded a standard lease that was designed for my state and then I went through countless webpages outlining the "necessities" for a lease. I spent the better part of a week working out my lease and ensuring that it covers things that other landlords have dealt with. You know, making sure the lease has provisions outlining severability, noise, exterior banners, etc. I also have a House Rules Addendum which goes over things such as acceptable things to flush down a toilet. It also says in large bold letters near the top that 911 is who you call for emergencies like fire, police or medical matters. Not me. And then you've got the clause about how I'm not responsible if the TV goes out or if your power gets shut off (as tenants pay for their own power at my units).

Really, though, if you have a drive to take on the responsibilities of a landlord, that drive should propel you to be the best landlord that you can. I just want to stress the importance of making sure that your paperwork is in order, because tenants will press you and they will see how far you will let them go. You must be courteous but firm. Always enforce the rules uniformly unless you want to risk a discrimination claim. 

Having tenants, be it through house hacking or having investment properties, can be a very rewarding experience ... if you do it right. You stand to gain a lot of money, but you must also be aware of the risks if you want to cut corners. Think of having tenants and an investment property as driving a car through the city. So long as you follow the rules of the road, you'll be good. So long as your tenants follow the rules of the road, they'll be good. The thing to remember is that some tenants need to be taught what the rules of the road are. This can be done through a thorough explanation of the lease and its provisions (rather than either having them just sign it or letting them read over it on their own). If they didn't comprehend something and violate a rule down the road, you'll have to remind them of the rules by means of a written violation. Each subsequent violation should increase the verbiage to imply heightened severity. Even if you follow the rules and they follow the rules, sometimes an unexpected incident occurs. A deer jumps out in front of you - the sewer backs up; you get a flat - someone backs into the power pole; a rock cracks your windshield - some wind blows a large tree branch through a window. If you violate the rules of the road (the laws a landlord must know), you stand to get a ticket. And those tickets can come in the form of a lawsuit. 

Understand the laws and take steps to protect yourself so your investment works for you rather than against you.

I am sure my response isn't precisely what you had in mind, but I pride myself on providing a diverse array of information to any particular response. I feel like there are so many things that prospective landlords don't think about, and I want to help broaden the scope to the best of my ability.

I wish you the best of luck and I hope that you find a property that will bring a sense of pride to you.