Expecting lil' one. Live-in Flip, or House Hack?

Question

Hello BP Fam! I'm new to the community. Im a 32 yr old creative. I live in Longmont, CO just outside Denver/Boulder. I've been producing music for over twelve years. Alas, we are expecting our first child in May, and I'm seeking to transition my primary revenue flow to real-estate. I've read up quite a bit, and have lots of business experience to boot.

The Situation: I have $50k set aside to initialize this process. We have a baby girl coming in May. We are seeking to purchase our first home w/ an FHA loan. I should shortly have my credit to a place to be able to do that. My intention is to have this initial seed investment be both a way to provide security for my new family, ideally security that requires little to no out-of-pocket expenses for us monthly, and eventually can cash flow upon our exodus. My thought is that something like finding a property with house, that has basement w/ separate entrance to be able to rent to tenant to cover capital, insurance capEx, vacancy, etc. If I was able to put 3.5% down via FHA loan, and utilize much of the rest of capital for rehab, we could increase equity across perhaps 4-5yrs, reduce monthly expenses and begin to see this start turning profit via appreciation, tax benefits, etc.

This, to me, sounds way better than taking the risk out time and money to live-in flip. For my particular circumstances, I would much appreciate any feedback in past experience, advice, etc. I am also seeking someone who flips in the area to do a joint assignment with. I could help take on closing/rehab costs, oversight of contractors, etc, and would be open to discussing the proper assignment with someone of that nature.

Thanks!

Clay Hollingsworth · Answer

@Mindy Jensen Thanks for your reply. I'm just considering the FHA route. Honestly, to achieve a lower monthly, I'd rather put down something like 10%, although I know FHA doesn't necessarily work that way. But, I just paid off all debt TODAY. Whew! So, my credit is going to qualify for either FHA or conventional. I'm comfortable with most any rehabs that aren't CapEx. Price point is between 250k-350k. I've been monitoring Zillow, landsofcolorado, CL, as well as establishing relations w/ local agents. Thanks for your feedback!

Connor Anderson · Answer

@Clay Hollingsworth Welcome to BiggerPockets! I think you have a fantastic strategy and likely will see great returns. You should reach out to @Mindy Jensen, not only is she the queen of the live in flip, she just so happens to know a thing or two about Longmont. Best of luck Clay!

Clay Hollingsworth · Answer

@Evan Polaski haha my partner and I are SO ready to have our world turned upside down. We've both been forged in the fires of the music industry, so bring on the sleeplessness, HA! Excellent information. Have definitely been scouring the duplexes and multiple living houses that need some rehab, but not too daunting.Thanks!

Clay Hollingsworth · Answer

Great. Thanks for the intel everyone. Does anyone have any creative approaches in the direction of 'style' of house hacking. I'm about to dive into books obviously. But thoughts any formulas outside the typical duplex, house/separate basement thoughts? Also considering FHA vs conventional loans. I think if I'm going to be amortizing the loan pay down, the added PMI will necessarily be an issue w/ FHA. I'd like to be able to put down 20%, but don't see that as feasible AND have rehab capital. Thanks for your thoughts here! Building a special dream for an AWESOME family.

Mindy Jensen · Answer

Hey @Clay Hollingsworth.I would check in with lenders to see if they're still doing 3.5% down loans right now. Lending just tightened way up.Longmont definitely has opportunities for house hacks, there are duplexes to be found. What area are you looking in? Do you have a price point? What sort of work are you comfortable with?

Evan Polaski · Answer

@Clay Hollingsworth, I agree with the house-hack option, since live-in flip will be dusty and noisy. You are about to have your whole world flipped upside down. When's the last time you didn't sleep for more than 3 hours straight for about 6 months in a row? :)House-hacking will likely be a better option, but with that said I would encourage finding a good value-add option. Something livable but needs updates. Get one unit updated while you live in the other, then switch sides and update the second. You will get a better deal due to outdated nature, and get the benefits of a flip with the appreciation in rehab. Additionally, the updated units should be able to get a higher rent than outdated, so you can have more income.

Shane Cummings · Answer

@Clay Hollingsworth - congratulations on the baby! I'd have to agree with you here. A live-in-flip could be cumbersome with a newborn involved. I wouldn't want the noise, dust, garbage, etc. in my primary residence while also caring for a newborn.House hacking is a great idea! If you're able to find a property that offers a basement (or maybe even a duplex) that would be the way to go, in my opinion.Good luck!