House Hacking in Fort Lauderdale

[James Ross]

My goal this year is to purchase my first multi-family and I plan on house hacking it to learn the business before scaling. What has been your experience with multi-family properties in the greater Fort Lauderdale area? Any insights would be greatly appreciated. 

My guidelines thus far are:

- Purchase with a conventional loan with 20% down (waiting for the sale of my condo) 

- Live in Victoria Park, Wilton Manors, Pompano Beach, or Coral Springs (or another good area)

- Have the cash flow cover at least the mortgage, insurance, and property tax (using the rental calculator on BP)

- I'm mostly looking on Redfin for deals

[Chace Fraser]

@James Ross If you have the ability to put more down than the minimum down payment required you may want to consider your options as to why putting the minimum down maybe your best option for scaling your investment portfolio and increasing cash flow.

If you aren’t required to, what does putting more down really get you? 3% to 5% down works great because the less money you put down, the higher your overall returns will be (not to mention the appreciation rate on the property will be the same regardless of the amount borrowed). If you increase your down payment, all you are doing is buying cash flow. It usually reduces your return on investment.

Leveraging up will give you the greatest return, even though it's not the best cash flow. If you want to help with cash flow, then prepay PMI. Typically it'll be $5,000 or so to pay it up front if you have good credit and a house around the $400k price. PMI is wonky - talk with your lender.

If you only put 3.5 percent down you should have enough cash available for repairs and reserves and unforeseen expenses that always come up. Then, when you're living for right around free, save up more money to invest in your next property (either another house hack or a stand-alone rental).

Of course, make sure when you are calculating cash flow that you don't just use rent-payment. You need to include vacancy, utilities, repairs, CAPEX and management allocations. This is another reason to put less cash in and hold reserves. You want an emergency fund to cover the unexpected.

It’s all about leverage.. Do the math.. 3.5% of $700k is $24,500... 20% is $140k.. Is it worth it to invest the additional $115k to pay that much less of a mortgage even though you are out of pocket every month? Can you put this $115k to better use?

Could you have your cake and eat it too? By that I mean do minimum down with your house hack and then turn around and buy an investment property with the remaining $115k (of course making sure you have ample funds for repairs, reserves, CAPEX, etc)?

A key principle is to invest for cash flow. As long as there is sufficient cash flow and you maintain reserve capital, leverage can be a great tool that allows for exponential growth.