How Can I Escape my House-hack and do a Live-in BRRRR?

Question

I am currently house-hacking a duplex on a 0% down conventional loan that has me as the primary occupant. I closed on this deal September 30th, 2022. I really want to move out and buy a SFH that needs cosmetic upgrades only (carpet, paint, flooring, cabinets/counters), but can be moved into on day 1. My vision is to live in this via a FHA loan or a similar loan product, and spend the year requirement fixing it up. At the end of that year, I’m hoping to do a cash out refinance and then rent it out, using whatever money was created in equity to buy more property.

There are a few issues that are holding me back, although I refuse to be told “You CAN’T do it” and instead want to ask “HOW can I do it”….

1) My current loan on the duplex has me as an owner occupant or primary residence… I would like to move out and rent out my unit but I feel like I wouldn’t be able to get away with this…. Is there a way I could move out before the year is up? And use another owner-occupant loan on a SFH?

2) I am really low on funds and currently can’t afford a down payment on a SFH by myself right now…. But if I continue to live in the duplex, it will be draining me of any savings due to the high portion I owe towards the mortgage/expenses... I know this sounds stupid ("If you are low on funds, how can you expect to fix up the SFH?".... this is why I'm asking for advice and tips on here... to see HOW I can make it work)

3) If I was able to move out and rent my side, then use a FHA loan to get a SFH and do a live-in BRRRR, what are some ways I could finance the materials and rehab costs? I Don’t have the funds to tackle something like this but I don’t want that to stop me, since I fear I may never have the funds if I continue to live in the duplex… and I would be learning to do a lot of the work myself (but also contracting some out) I would love any advice or input you guys have for me. I REALLY would like to rent out my side of the duplex ASAP, and use a low downpayment loan product to do a live-in BRRRR with my girlfriend. Looking forward to getting creative and doing whatever it takes. Thanks!!

Thomas O'Donnell · Answer

This was a loan product being offered by my lender in 2022 that is no longer available for obvious reasons.

William Broxson · Answer

Im not sure what your market is like but here, everyone still wants a lipstick flip. Its gonna be awfully hard to compete with cash investors while using a fha loan imo unless you find something off market.

Scott Allen · Answer

@Thomas O'Donnell

Focus on building up more capital for the time being. You should be renting out the other rooms in your side of the duplex to people on month to month terms or until September 30, 2023 so that they know you plan to fill the whole side after that date with another group or just another person to fill the last room.

FHA is usually a more strict loan to use because of the appraisal process so consider using a conventional product that will let you put 5% down to stick a lower interest rate now to BRRRR or hard money so that you can refi when you finish up the renovations that'll be needed.

Circle back to your lender for more financing questions

Jeff Puciato · Answer

I'm still new in my investing career but if I was in your situation, I would try to make your current duplex more profitable by doing some improvements, getting that below market rent higher. While doing this if you can reduce your expenses and live below your means, you'll be able to save more money.

I'd put the second home on the back burner for now. You can value add your current house, cash out refinance (or heloc) if you have enough equity, and use that money for your new house.

A way to get rehab money for the new home is to do a 203K rehab loan, through FHA. Lastly, if you had an extenuating circumstance such as a baby on the way and you need more space, you may be able to get another owner occupy loan.

DM for more advice/questions

Greg Scott · Answer

Seems like you put handcuffs on yourself.  It shouldn't cost you more to live in a duplex house-hack than an apartment, unless you bought too expensive a property.

To get out of your situation you need cash.  There are many legal ways to get cash, most of which involve either time or effort or both.  The only ways to do it quickly involve skill and effort, such as finding a good investment property you can wholesale to someone else.

Your situation may seem uncomfortable but unless you solve your cash situation, jumping ship to a SF fixer-upper is just going to make your situation worse.  You know what they say, when you are in a hole, stop digging.

Anthony Freeman · Answer

It may come back around

Anthony Freeman · Answer

How did you get approved for 0% down?

Thomas O'Donnell · Answer

Understood. The current tenant's lease is not up until March 2024. They are at $1,195 and estimated market rents for my area 3b/1ba are $1,350-1,500 but seeing that my duplex has already been renovated in the past and is in pretty good shape, I can see $1,450 for each side happening (water is included with rent). Current PITI is $2,496

Thomas O'Donnell · Answer

Definitely understand. I purchased with 0% down and 7.5% interest rate which is why my payment is so high. The other side is rented below market value. If I had both sides rented at market value, the duplex would actually break even or I'd have to put away about $100/mo of my own money towards expenses. I knew from the start I'd be paying more than I was comfortable with, but it was to get my first property in an area that has upside. I know in the long run it will be fine. Just looking to escape it right now.

How Can I Escape my House-hack and do a Live-in BRRRR?

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