Hi Texas BP community! I'm looking to move to Dallas with my wife and 2 kids in the near future, and we want to house hack a BRRRR (or is it BRRRR a house hack?). Our hope is to build wealth and start our buy and hold portfolio by doing this 3 to 4 times (or however many times my family can take it!). Starting with a duplex and going from there! As we prepare to do this financially and mentally, we wanted to reach out to see if anyone has had any experience doing this in the Dallas market, and wouldn't mind sharing their experience.
Some questions we have are: Is this even possible? Haven't seen too much of it on BP. I'm having a hard time finding out what the mechanics of doing a house hack and BRRRR together are like.
Would also love to hear some of the realities that come with doing this with a family. Any recommendations, difficulties, surprising joys you had from the experience would be great!
Lastly, if any of you don't mind, would appreciate getting at least a ball park idea of what the numbers would be. I know each situation and property will have very different numbers. But if you could share the numbers you worked with for you specific deal (purchase price, rents, refinance rates and if there are any difficulties refinancing while living in the property, etc....) I think that would be very helpful to know what's possible, and be able to start planning around those possibilities.
Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
6y
Well when I think of house hack, for the most part I think of someone buying let's say a 4 bedroom home and living in one bedroom and renting out the other 3 and ideally that income from renting, pays for all of the mortgage or at least a good chunk of it. As long as your income supports it, you could potentially also do that with a 2-3-4plex, but the rub seems to come in for most people who want to do this is their income. Most lenders will require initially your income to cover the entire mortgage payment and not allow rental income to count. A lot of what you hear on the podcasts are pretty old now in a new economy. Won't say it is impossible, but very tough to find everything to fit into place. It sounds great, but for most people it is not realistic or doesn't fit their lifestyle, or what they envision does not exist in every market.
Since you have kids I think it makes it even tougher. In DFW we don't really have a lot of duplexes-3-4 plexes perhaps like other parts of the country, so that is challenge #1. Challenge #2 is finding one that is either vacant, or has one side vacant, or on month-2-month, so you can move in one side. Often these sell occupied with tenants in them to investors. Challenge #3 is finding one in a location you like with schools you like and where the numbers work....these are just like unicorns....when you look at the numbers these days I'll see places for sale that are $400,000 with something like $2800/month rent total...so $1400/side....even if you rehab, what bump up in rent will you expect...$150/month---$200/month...so then you're stuck...maybe you do that over 5-6 years..upgrade/bump upgrade/bump, but tough to do this every year....do one, pull all the money out, find another one in a great place for your kids, move immediately from one to another, do it again, Repeat Repeat.
Everyone mentions FHA, but there are often other better loan options out there. Run from people who are pushing you to FHA....it might be an option, but it might be the most costly for you.
Now that is not to discourage you. I think if you are focused and very very focused, you can do it....they trouble for most is that life gets in the way. You get busy with school and life and soccer practice.
I think your first step is to decide where you want to live....pick a city. Then get a list of 2-3-4plex for sale. Go scout the neighborhoods and the schools and see if that is where you want to live. Then work thru the numbers. Get prequalified for a loan....and then see where you stand with the purchase price....Take the purchase price you can afford and work backwards... what are the rents, what will the rehab be, can you live in one of the units while rehabbing the others, you do those first to get the rents up, what will a rehabbed unit rent for vs where you purchased it, how long are the leases and do the finances work when you don't renew the lease so you can rehab the unit...can you do it in a month or two..and therefore no rent for that unit and rehab costs, after you release 2 of the units, are you willing now to move to one and rehab the one you're in....and if not, are you rehabbing the one you're in while living there? Many 4-plex are 2bed 1bath or maybe 2bed-2bath, so is that what you're willing to live in for this year or the next 5 years with your family. If you don't want to do this with a 4plex, then you can repeat the exercise with a duplex and see if that works for you.
Well and if all that doesn't work...see if you can find a fixer/beater home in a place that becoming popular, live in it, rehab it, and refinance out of it and Repeat.
and #1 rule is make sure your wife understand that dust means money and make sure she is on board with the plan. She will be moving and living in dust and plenty of work for the next 3-4-5-10 years.
Rental Property Investor · Arlington, TX · Member since 2019 · 11 posts · 5 votes
6y
Hi Elliot,
I'm not an expert by any means, just another humble house hacker in DFW, but I did look into this a bit. The problem with the HH + BRRRR strategy is that you're likely not going to be able to find a house for a good enough deal to make the refinance as powerful as it could be. That being said though, any sweat equity you put into a home is valuable.
I think what I would do if I were you is to lock up a duplex with an FHA loan (I believe you save on closing costs with that), and then begin rehabbing it as fast as possible. Once rehab is done, move your family and some tenants in next door (who will be paying at least market rent for their newly rehabbed house). Then, in a year, refinance out of that FHA loan and start your next one. This is where the numbers start to hurt your strategy a bit. Since you only put 3.5% down, you owe the other 96.5%. When you go to refi, you're probably shooting for a LTV of 80% or 75%. You're already required to make up the difference between 96.5% and 80% to refinance in the first place. Appreciation and principal paydown will help with this, but the bulk of that difference is going to come from the equity you made during the rehab. It's not impossible and it's definitely worth doing, but you're going to need a really good deal to make it work the way you're hoping.
I would love if someone else chimed in here because I'm only like 70% sure of what I just said, but long story short: The BRRRR method is powerful because it re-captures the equity that you have in a newly renovated property. The HH method is powerful because you're able to get into an asset for very little equity... Those two things are at odds with one another. It's hard to re-capture a bunch of equity from a house hack because there wasn't much equity there in the first place!
Hope that helps. I would still do it if I were you because the rehab process will give you equity and experience regardless of how much equity you can pull out once you move on to your next one.
Developer · Dallas, TX · Member since 2015 · 84 posts · 79 votes
6y
yes sir BRRRR is definitely a viable strategy here. Quite frankly since we've seen prices go up as much as they have, it's one of the only strategies that still works right now. but there are a few things you have to understand about the financing surrounding BRRRR's and owner occupied properties.
Traditional financing (conventional loans and regular FHA loans) may not fund on most BRRRR properties. These loans are mainly for owner occupants however the bank is going to have stipulations on the condition of the property. They may not fund it, if its not going to meet their standards. So that means you'd have to go for a hard money loan. But hard money loans have high interest and won't allow you to live in the property.
So that leaves you with two options. 1) You could always look for a multifamily property. I would suggest 4 units. The great thing about quads are they still qualify for FHA financing (only 3.5% down) but you get the benefit of living in one unit and renting out the other 3. You cash flow insanely (which is the end goal of a BRRRR anyway) , you're living for free, and if you find a good one you may not need to go through any deep renovations.
Option 2) is you can apply for a FHA 203k loan. You still get to only put down 3% but you get the benefit (or downside whichever way you look at it) of living in the property while doing the rehab. The rehab can be built into the loan and they handle the draws and basically walk you through working with contractors and the whole bit.
Feel free to reach out I'm working with a few house hackers and BRRRR investors now so I know what to look for and what makes a good deal.
Realtor · Dallas - Fort Worth Metroplex, TX · Member since 2016 · 1k+ posts · 925 votes
6y
@Elliot Tan. First off it depends greatly on what kind of financing you can qualify for.
In my opinion a house hack / BRRRR varies to a traditional BRRRR.
It also depends on which part of town you want to live in. There are not a lot of duplexes in DFW and there is tremendous demand for them right now. Some investors paying silly money over ask.
A house hack is meant to live in and upgrade as you go.
Then will you do the work yourself or have contractors?
In my opinion there are more questions to ask and answer to help you make an educated decision.
Lucia and Ryan are spot on in their thoughts. It is very tough to find dupluxes with numbers that work in DFW right now, low inventory and super high demand.
Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
6y
Well when I think of house hack, for the most part I think of someone buying let's say a 4 bedroom home and living in one bedroom and renting out the other 3 and ideally that income from renting, pays for all of the mortgage or at least a good chunk of it. As long as your income supports it, you could potentially also do that with a 2-3-4plex, but the rub seems to come in for most people who want to do this is their income. Most lenders will require initially your income to cover the entire mortgage payment and not allow rental income to count. A lot of what you hear on the podcasts are pretty old now in a new economy. Won't say it is impossible, but very tough to find everything to fit into place. It sounds great, but for most people it is not realistic or doesn't fit their lifestyle, or what they envision does not exist in every market.
Since you have kids I think it makes it even tougher. In DFW we don't really have a lot of duplexes-3-4 plexes perhaps like other parts of the country, so that is challenge #1. Challenge #2 is finding one that is either vacant, or has one side vacant, or on month-2-month, so you can move in one side. Often these sell occupied with tenants in them to investors. Challenge #3 is finding one in a location you like with schools you like and where the numbers work....these are just like unicorns....when you look at the numbers these days I'll see places for sale that are $400,000 with something like $2800/month rent total...so $1400/side....even if you rehab, what bump up in rent will you expect...$150/month---$200/month...so then you're stuck...maybe you do that over 5-6 years..upgrade/bump upgrade/bump, but tough to do this every year....do one, pull all the money out, find another one in a great place for your kids, move immediately from one to another, do it again, Repeat Repeat.
Everyone mentions FHA, but there are often other better loan options out there. Run from people who are pushing you to FHA....it might be an option, but it might be the most costly for you.
Now that is not to discourage you. I think if you are focused and very very focused, you can do it....they trouble for most is that life gets in the way. You get busy with school and life and soccer practice.
I think your first step is to decide where you want to live....pick a city. Then get a list of 2-3-4plex for sale. Go scout the neighborhoods and the schools and see if that is where you want to live. Then work thru the numbers. Get prequalified for a loan....and then see where you stand with the purchase price....Take the purchase price you can afford and work backwards... what are the rents, what will the rehab be, can you live in one of the units while rehabbing the others, you do those first to get the rents up, what will a rehabbed unit rent for vs where you purchased it, how long are the leases and do the finances work when you don't renew the lease so you can rehab the unit...can you do it in a month or two..and therefore no rent for that unit and rehab costs, after you release 2 of the units, are you willing now to move to one and rehab the one you're in....and if not, are you rehabbing the one you're in while living there? Many 4-plex are 2bed 1bath or maybe 2bed-2bath, so is that what you're willing to live in for this year or the next 5 years with your family. If you don't want to do this with a 4plex, then you can repeat the exercise with a duplex and see if that works for you.
Well and if all that doesn't work...see if you can find a fixer/beater home in a place that becoming popular, live in it, rehab it, and refinance out of it and Repeat.
and #1 rule is make sure your wife understand that dust means money and make sure she is on board with the plan. She will be moving and living in dust and plenty of work for the next 3-4-5-10 years.
New to Real Estate · Dallas, TX · Member since 2020 · 94 posts · 20 votes
6y
Hi BP Family
I love the responses you get on BP, there're so insightful and intelligent.
Wes,Lucia, Ryan are dead on point with there assessment on BRRRR and HH I'm not in expert on any of these. But it's great to have experts here to feed you when you get hungry for knowledge that you seek. I do however have a Duplex the you can consider, and I think it fits what you're seeking, as you get situated here in Dallas. It is hard to find multifamily homes as you have heard.
It's a off market property venture, lest than two weeks available. Contact me for more info on this property. I think if nothing else it will solve you first quest, owning a duplex, living in it and, renting out the other unit.
Real Estate Broker · Dallas, TX · Member since 2016 · 248 posts · 240 votes
6y
The folks here are dead on. Your biggest challenge will be finding a small multifamily property. They are not very common in DFW. With an SFR, you would be relying on mortgage pay down and appreciation to enable you to implement BRRR. That means you might have to stay in the first house a bit longer.
In 2013 we turned our first home into our first investment property. By that time we had owned the house for 10 years. During that time period, our salaries increased allowing us to more aggressively pay down the mortgage, refinance and save for the next down payment. After that, we were able to speed things up by saving a 20% down payment every year. It's okay to start slow.
DFW is a great place to invest, build a career and raise a family. If your heart is set on a small multifamily house hack, research Fort Worth. If your focus is on getting a discount you may want to consider a geographic area where small multifamily properties are more common. Good luck!
Property Manager · Dallas, TX · Member since 2020 · 109 posts · 79 votes
6y
I work at a property management company in DFW. We've had several clients #househack, but when it comes to managing tenants on the other side of the duplex it's hard not to get emotions involved. People think that managing the house next door or down the street is easy because of the proximity, but a lot of the time that just makes it even harder! Who wants a resentful or spiteful tenant being a stone's throw from your family? In Dallas and Fort Worth, the competition to get a great duplex for #BRRRR is getting harder by the day. I'm glad to have the team I do to help myself and my clients grow our portfolios. Feel free to reach out for help!
@Wes Johnson how bad is too bad for a bank to consider giving me a loan? Would you mind sharing some examples of what might disqualify the property from getting a loan from the bank? Also, what's the price point of some of the deals you are seeing for your HH and BRRRR clients? It would be good to know what are some of the ball park figures.
@Lucia Rushton my uncle is a lifetime construction worker, who has rehabbed every house he's lived in. So he will be helping me, and we'll sub-contract out anything he isn't comfortable doing. I will live in whatever part of town is safe for my family and will help us get a good deal and tenants :) ! What are some more questions I should be asking myself, and you all, that will help me make a clearer decision when the time comes?
@Bruce Lynn thanks for all those details. Just what I was looking for to get a clearer picture of what it's gonna be like. Good to know that lenders will be looking at my income to see if I can support that mortgage. I definitely thought if I could show likely rent numbers they would be more willing to lend to me. And, it is great to know the challenges we'll have to overcome. I too am hoping to avoid FHA loans. They just seem to add more complications, and I do not like MIP sticking with me throughout the life of the loan.
Again, really do appreciate sharing the details of what it's gonna take, plus your recommendations for each type of property.
My wife is a champ, and willing to do this for a while in order to build a solid foundation for our future. She is not afraid of work and dirt and sweat! I just hope my kids can adjust to the challenges.
@Rob Lee Thanks for sharing your personal experience! You spent 10 years at your first house, so about how long would you think we would have to stay at this first place in order to build up enough equity to refinance and move on to the next place? We'd hope to put 10-15% down on the first place and then just keep recycling that money! Thanks for sharing your support for us choosing DFW and how you think it's a great place!
@Jon Shoop We definitely will be looking for a quality property management company when the time comes to move. I too am a bit unsure about how it'll be living next to our tenants. We won't be moving for probably another 2 years or so. But I'll keep you in mind when we start to look more aggressively. Thanks for reaching out.
@Rob Lee Thanks for sharing your personal experience! You spent 10 years at your first house, so about how long would you think we would have to stay at this first place in order to build up enough equity to refinance and move on to the next place? We'd hope to put 10-15% down on the first place and then just keep recycling that money! Thanks for sharing your support for us choosing DFW and how you think it's a great place!
According to Neighborhood Scout, the average appreciation rate in Dallas is 5.83%. Maximum loan to value (LTV) on a Texas Cash Out Refinance is 80%. If you live in the property you need a 3.5% down payment. If you purchase as an investor you need 20% down. Use an amortization calculator to do the math.
It's good to know that it will be challenging to find good deals in the small multifamily market in DFW. I'm up for a challenge, but also very willing to follow a path with less resistance! Do you all have any recommendations of towns/cities within an hour or so outside of DFW that has more multifamily readily available? Or maybe if mother in law units are more or even less available than multifamily units in DFW right now? Trying to explore all options!
@Rob Lee Thanks for sharing your personal experience! You spent 10 years at your first house, so about how long would you think we would have to stay at this first place in order to build up enough equity to refinance and move on to the next place? We'd hope to put 10-15% down on the first place and then just keep recycling that money! Thanks for sharing your support for us choosing DFW and how you think it's a great place!
According to Neighborhood Scout, the average appreciation rate in Dallas is 5.83%. Maximum loan to value (LTV) on a Texas Cash Out Refinance is 80%. If you live in the property you need a 3.5% down payment. If you purchase as an investor you need 20% down. Use an amortization calculator to do the math.
I bought a BRRRR home fix it up over the course of the year, then rented out the rooms.
anyone can do it just have to have reserves for the repairs and being okay living in a construction zone. You might have to move living in different rooms as you fix them up.
I lived there without others for about 6 months while i fixed it up before renting out rooms.