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Updated over 4 years ago, 05/01/2020
House Hacking Research #2- Ask/Answer any House Hacking Question!
Hello everyone,
This is part 2 of my research project for house hacking. Please let me know any questions you have surrounding house hacking. If you have the answer to any question you see, feel free to answer.
Thank you!
- Craig Curelop
- [email protected]
- Podcast Guest on Show #350
My husband and I are in SE Florida and are thinking about selling our SFH to purchase a duplex in a very safe intercoastal community. Currently we make 180,000 pre tax as a couple. Our current residence is on schedule to be pain off in 10 years (20 years ahead of our 30 year conventional loan). We spend 38% ($3700 a month, excluding our $325/month HOA fee) of our take home pay on housing alone in order to pay off our house faster. If we move to the duplex and live in one side we would have housing expenses of $2900 and could conservatively rent out the other half for $2000 leaving us a balance of $900. We really love our privacy which is why we are considering a duplex lifestyle over renting out rooms in our house. In the long term (10 years) we could still pay off this duplex but have a much larger cash savings to buy more real estate, and we could also move out and rent both sides. If the place is paid off it would cash flow about $2500-3000. Anyone have thoughts on the decision? We are 30 years old, newbies to landlording/RE investing, but more than ever see the long term benefits of working towards greater financial freedom.
@Andrew Wright I write a twelve month lease. By the time folks are leasing apartments, they're usually settled in town and want to be there during the summer. Works pretty well.
My husband and I are in SE Florida and are thinking about selling our SFH to purchase a duplex in a very safe intercoastal community. Currently we make 180,000 pre tax as a couple. Our current residence is on schedule to be pain off in 10 years (20 years ahead of our 30 year conventional loan). We spend 38% ($3700 a month, excluding our $325/month HOA fee) of our take home pay on housing alone in order to pay off our house faster. If we move to the duplex and live in one side we would have housing expenses of $2900 and could conservatively rent out the other half for $2000 leaving us a balance of $900. We really love our privacy which is why we are considering a duplex lifestyle over renting out rooms in our house. In the long term (10 years) we could still pay off this duplex but have a much larger cash savings to buy more real estate, and we could also move out and rent both sides. If the place is paid off it would cash flow about $2500-3000. Anyone have thoughts on the decision? We are 30 years old, newbies to landlording/RE investing, but more than ever see the long term benefits of working towards greater financial freedom.
@James Faillettaz Find a different banker. I did just what you'd talking about, and was able to get 5% down through my credit union.
@Lamar Jean I'm not sure of other options as I funded my first property with a conventional mortgage. Do you have a lender you could talk to about your options? I've heard that it's pretty difficult to get approved for multiple FHA loans. If I stumble across something I'll definitely be sure to let you know!
@Jassen Bowman
Thank you, for the information!
@Michael Belenos
I was able to find a different banker that let me use the MHFA, Step Up loan. This Loan allows me to put 5% down on any MFH with 2-4 units.
@Lamar Jean It might vary with different lenders, but in my case, as long as I live there for a year, I don't need to pay 20% down, only the conventional 5%. So after a year, if I bring my signed leases for the next year to my lender, showing that both units will be under contract for the year, he will wipe away 70% of the debt from that mortgage from my debt to income ratio. Enabling me to go buy another one, and do it again, with only 5% down, making my ROI through the roof.
Hi everyone, I am looking to house hack and want to buy with an FHA loan but the house I can afford is a wreck!!! Needs siding, roof and all new windows. Is it possible to get a hard money loan for 2 months to get the work done and then refi into an FHA loan?
@Doug Phillips I'm with you on the PMI. Waste of money! If the house is outdated or ugly, buy w/ the FHA and then fix it up and have it re-appraised to show 20% equity in the home so you can drop the PMI. Comp ARV before buying to make sure you can increase value to re-appraise. Also remember, FHA won't allow peeling paint, leaky roof, broken windows etc. so you'll have to get a good deal or a house that's been maintained but hasn't been updated.
That's a good point, and may consider going that route actually, thank you @Kim Handelman !
@Craig CurelopAny tips to house hacking in Clearwater.Fl, looking for something on or close to beach. Would love to find something to rehab.
@Craig Curelop
I've read your blog posts and j believe you started off with an estimated 800% COC return or something. Then you realized that the sleeping arrangements weren't the best (noisy and you didn't like just having a curtain) so you moved to your own room.
I could've confused you with someone else, so if so, I apologise.
How are things now? Any update?
@Adam Widder they know I'm the owner. And they pay me directly. Never had an issue.
@Charlie Granados why are you doing a commercial loan? You're pay higher interest and do you really want your first ever property to be 5+ units? More power to you if you can handle it just be cautious. Make sure you have MORE than enough reserves
@Andrew Wright year long contracts are typical for college rentals. Solely to not leave the landlord empty handed in the summer.
@Nicholas Munford the difference would be dead equity vs money working for you
@Mike Roy does 1.5 usually work out for a 4 Plex? Even the 1% rule cash flows, but doesn't get 10%+ COC
Originally posted by @Jassen Bowman:
Originally posted by @James F.:
HI Craig & Others,
I am currently owner occupying a triplex that I bought with an FHA 3.5% loan at the end of September 2018. I'm trying to move into another multi-family property and keep the triplex I'm living in now as a rental property. I have talked with a few bankers, and they said that I would not be able to get another FHA loan and that a conventional mortgage on a multi-family property would start at 15% down for a duplex and go up from there for every additional unit up to four. I was wondering if there is a way to move into the next property with a smaller down payment ideal under or around 5%.
Thank you!
Hi James,
Borrowers are generally limited to having only one FHA loan at a time. If you have to move more than 100 miles away for job change or some other extenuating circumstance, you can get another FHA loan, maybe. But generally, limit one per customer, period.
On the Fannie/Freddie side, 5% loans are only available for SFRs. 2-4 units require an investor loan, even if owner occ one unit, so down payment minimum is 15%.
The only way to do another low/no down 2-4 unit in your area would be to use a VA loan if you're eligible.
If you can only do 5% down, buy an SFR.
My first property was a duplex, zero down, VA. Second was another VA, but SFR. Third was 5% conventional, fourth is 10% conventional. All owner occupied. I'm "saving" my one and only FHA loan spot for the perfect 4-plex.
@jassenbowman your first loan does not have to be a fha
You can do it later on
Hey everyone, my question is regarding long term house-hacking and moving away from it. I see a lot of people commenting on here that they are treating house hacking differently since instead of trying to profit it, their goal is just to have to pay a minimal amount of the mortgage, like 10% or so. This is great for a few years, but what happens long term? I see others commenting not to worry as much about the 1% rule in these situations.
The way I look at it, no one is going to want to live in a house hacking environment for 30 years until their mortgage is up. So shouldn't you be treating a house hack exactly the same as a potential rental? Once you move out, you are going to want to be getting some cash flow off of it, or at least break even to gain some equity buildup/ HELOC advantages to use as leverage for another cash flowing property correct?
Originally posted by @Shane Short:
Hey everyone, my question is regarding long term house-hacking and moving away from it. I see a lot of people commenting on here that they are treating house hacking differently since instead of trying to profit it, their goal is just to have to pay a minimal amount of the mortgage, like 10% or so. This is great for a few years, but what happens long term? I see others commenting not to worry as much about the 1% rule in these situations.
The way I look at it, no one is going to want to live in a house hacking environment for 30 years until their mortgage is up. So shouldn't you be treating a house hack exactly the same as a potential rental? Once you move out, you are going to want to be getting some cash flow off of it, or at least break even to gain some equity buildup/ HELOC advantages to use as leverage for another cash flowing property correct?
As someone who has house hacked a few times. By house hack, I mean we have done the buy a duplex live in one side thing. And we also have moved into a SFH, lived a year or two, thenbought a new house and rented the one behind us.
I generally say that "returns" are not as important in a house hack, and I believe it to be true for a few reasons.
Usually a house hack is being done by someone trying to get into real estate investing for the first time. Just getting into the game with a so/so property you dont mind living in for a couple of years does the most important thing, it breaks the ice and gets you into the game. I would rather someone new get started with a so/so deal than not do any deal at and never get started.
There isnt anything wrong with taking a semi low cash flow for a little nicer property that you dont mind living in. And if you live in the house for a couple of years, the costs are fixed, the rents hopefully are going up 2-3% a year, and the price of the property goes up 2-3% a year, and you have a couple of years of paydown of the mortgage. Those couple of years take a mediocre deal and likely turns it into a decent deal in terms of financial returns.
And if the market goes negative, the worst case is you are in a house that you are willing to live in.
You are able to put less down, so there is an increase in leverage that you can employ which all other things being equal improves your return.
I believe if you are looking at a house that you will live in, you will end up as a more discriminating buyer and will be pushed to up and coming neighborhoods.
Overall, you dont want to buy a "bad deal" just because you are house hacking, but at the same time if you plan on living in the property with an affordable mortgage, you can buy a year or two until the property is actually making a decent return
@Doug Phillips I recently found out about single payment mortgage insurance where you pay the PMI upfront rather than month to month. You'll have to work with your lender to see if you qualify but thought I'd just throw this out there since I didn't know when I applied for my first mortgage! From what I understand this only applies for conventional loans (not sure if you are only considering FHA or not) and typically you'll pay less with the upfront payment as long as you live in the property for about 3 years but you'll have to calculate your own break even point for your specific loan. After my lender mentioned this to me this was the article that I read to understand more:
https://www.bankrate.com/finance/mortgages/single-payment-mortgage-insurance.aspx
Thank you for that @Lisa Irimata I will definitely look into this and had no clue about it honestly.
Hi Craig!
Found a duplex with an in-law suite in Virginia for $300k. Looking to rent out both sides of the duplex and live in the in-law suite by myself (I'm in the military and live apart from my family for the next year). Property description says duplex rents for $2,685 combined, so it sounds like it could cash flow. Just trying to figure out how to finance it with little/no money down.
I think I'm having an "AHA!" moment of creative financing, but figured it'd be a good idea to get a reality check. Could a lease option sandwich be a viable solution? Could I lease option, get tenants in place and then get a bank loan to pay the option?
Originally posted by @Adam Widder:
How do you go about being an owner and neighbor? Do you tell them you're the property manager for a group of owners? Like they know who they're paying, unless a third party app handles that.
I've gone both ways, sometimes saying I'm the PM, and other times the owner. Thinking about it now, telling them you are the PM is probably better, since you are just the middle person. However, tenants can still be plenty aggravating regardless of what you tell them.