Should I House Hack?

[Nick Coons]

I've been hearing on the BP Podcast that every investor should house-hack at least one house per year. I assume this is a general guideline as circumstances may prevent that. And that's what my question is regarding.. my circumstances.

I'm getting (re)started in investing using BRRRR. But I'm wondering if I should use house-hacking as often as possible to add to my portfolio. Here's my situation:

- I own an IT business with several employees, which does very well, and I have someone that does most of the management for me, so my schedule is flexible. We've closed our office (since I was the only one really using it, everyone else is working from home) to go to a full work-from-home model. This means that my current house (1500sf, 3/2) is my residence and my home office (one bedroom and most of the garage dedicated to my work space).

- I'm a full-time single father of a 23-month-old son. So one of the bedrooms is his (though he thinks the whole house is his).

My thought was as most others; to purchase something multi-family (2-, 3-, 4-plex), move into one unit, rent the other(s). At the same time, I'd rent my current house. But my circumstances make moving a real pain (there's a lot to move), and I probably need more space than what I'd be able to find in a unit of most any multi-family dwelling (at least in the area where I'm living, and I can't leave the Phoenix area from a primary residence perspective, still too tied to this location for clients for my business, resources for my son, etc). I also really like my house, and moving into virtually anything multi-family is going to be a downgrade, so I have to decide if I want to accept that lifestyle impact.

My conclusion so far is that a house-hack might not be a good idea; with the difficulty in finding enough space and proper layout for work, with the disturbance to my son's life (may not be an issue, kids can be resilient, but something to think about), and with the expense of moving each time. But I want to make sure I'm looking at this from all the angles and so I'm not missing some creative solution (like living in one of the house-hack units, but renting my current house to my business so I can keep possession of it as an office.. if that would make financial sense, not sure yet). I don't want to dismiss the idea prematurely, since the benefit of being able to buy one investment property each year with only 5% down is enticing.

[Grant Schroeder]

@Nick Coons thank you for posting! If you could still utilize a low downpayment option, like 10% down and no MI on a 2-4 unit instead of needing to move your young family and house hack, would a loan solution like that help you get started with REI? For a conventional loan, you need to put 25% down on a 2-4 unit investment property, but with an Academy Mortgage portfolio loan, you could be just 10% down with no MI on a 2-4 unit so you would not need to move. You could still utilize a low downpayment solution like a house hack owner occupied loan, but you would not need to move from your current house you like and totally shift you and your family's lifestyle.

[Eric Bilderback]

You should househack.  

I should to.  I eat sleep and breath this stuff all day every day.  However before the rule of everyone needs to house-hack comes an even more important rule happy wife happy life.  And she is not down so that’s that.  

If you are just running numbers though there is nothing I know of more powerful for building wealth and more accessible accessible then house-hacking.  

Good luck,

[Nick Coons]

Quote from @Grant Schroeder:

@Nick Coons thank you for posting! If you could still utilize a low downpayment option, like 10% down and no MI on a 2-4 unit instead of needing to move your young family and house hack, would a loan solution like that help you get started with REI? For a conventional loan, you need to put 25% down on a 2-4 unit investment property, but with an Academy Mortgage portfolio loan, you could be just 10% down with no MI on a 2-4 unit so you would not need to move. You could still utilize a low downpayment solution like a house hack owner occupied loan, but you would not need to move from your current house you like and totally shift you and your family's lifestyle.

That sounds very interesting. I have a few questions:

- Could I also refinance into such a loan, or does this only work as a purchase loan? How about a cash-out refinance? I ask because I might be interested in this loan option for other things as well.

- In what ways (like term, interest rate, points, credit, etc) does this differ from a conventional loan besides the down payment requirement?

I'm definitely interested in learning more about your products.

[Nick Coons]

Quote from @Eric Bilderback:

You should househack.  

I should to.  I eat sleep and breath this stuff all day every day.  However before the rule of everyone needs to house-hack comes an even more important rule happy wife happy life.  And she is not down so that’s that.  

If you are just running numbers though there is nothing I know of more powerful for building wealth and more accessible accessible then house-hacking.  

Good luck,

Agreed on the "happy wife happy life" rule. That doesn't apply here as I'm not married, but I can see how that would definitely impact your setup. I am actively dating, and that's important to me.. I'm not yet sure how that would impact this decision.

[Joshua Janus]

@Nick Coons I would definitely consider house hacking. Many of the successful investors that I know in my area used this strategy to get started and springboard their investment expansion. You are able to save a larger proportion of your income every month to use as down payments or leverage for a further investment! Study the requirements for an FHA loan like a book and make sure to set yourself up for success. Examples would be building up your credit, getting the most recent tax returns for the last 2 years in the same field, building up capital for the down payment, closing costs and 6 months in reserves so you can use as much of the rental income from the other units as your own income when you getting qualified. These are some barriers I had to make sure to be able to climb over. Let me know what questions you have.

[Nick Coons]

Just for completeness, I spoke with @Grant Schroeder, and he informed me that a house hack is likely not doable in my situation, largely stemming from some misconceptions that I had.

First, I'm aware that a conventional loan on a primary residence can be acquired for 5% down, but this only applies to a single family swelling, not a 2-, 3-, or 4-plex. For any of those with a conventional loan, 20% down is required, thereby eliminating the benefit of a house hack.

So, investors typically use FHA financing with 3.5% down, which applies to properties up to a 4-plex. However, FHA requirements are pretty specific. Since I'm wanting to keep my current residence as a rental, and buy what would be considered a "downgraded" property in the same market as a residence, FHA would recognize that I'm trying to use this as a way to build an investment portfolio and deny to loan.

So it looks like house-hacking is out for me. However, given his 10% down product that in other ways is like a conventional loan, it seems that this comes pretty close without having the restrictions of a house hack.

[Andrew McGuire]

@Nick Coons

I started my career with a house hack but not in the traditional sense, I had a young family and my wifes compromise was no one was living in our house and she wanted to own. My plan at the time was to sell our primary and use the equity to buy my first 2 rentals. What ended up happening to meet "the compromise" we still sold our pimary and took all the equity out finding a new construction townhome in an area we liked. This was 3 years ago so it cost 300K we went in at 5% down or 15K + 4K closing so we got in for under 20K. This left me with 100K which was plenty to get my first rentals going. Essentially we turned 1 house into 3 which for me counts as a house hack :). I definitely would say do it if you can find a situation that works for you but don't put your family in a situation where there is a lot of discomfort, some might say do whatever it takes and that's how I was at the time but I'm glad we went the way we did. Good luck. 

[Nick Coons]

Quote from @Andrew McGuire:

@Nick Coons

I started my career with a house hack but not in the traditional sense, I had a young family and my wifes compromise was no one was living in our house and she wanted to own. My plan at the time was to sell our primary and use the equity to buy my first 2 rentals. What ended up happening to meet "the compromise" we still sold our pimary and took all the equity out finding a new construction townhome in an area we liked. This was 3 years ago so it cost 300K we went in at 5% down or 15K + 4K closing so we got in for under 20K. This left me with 100K which was plenty to get my first rentals going. Essentially we turned 1 house into 3 which for me counts as a house hack :). I definitely would say do it if you can find a situation that works for you but don't put your family in a situation where there is a lot of discomfort, some might say do whatever it takes and that's how I was at the time but I'm glad we went the way we did. Good luck. 

I'm a little unclear on the "we turned 1 house into 3" part. From what you wrote, it sounds like you sold your primary residence and bought another primary residence (a townhome), which is just selling one property and buying another. Where do the other two rentals come into play? Were you able to get them with 5% down as well? Or do you mean that you used the remaining $100k (after buying your new primary residence) to buy them traditionally with 20% down, but you consider it a house-hack because you used the equity in your former primary residence to purchase the investment properties?

Sounds like a good strategy, I'm just trying to understand what you meant. :-) It sounds similar to what I'm working on, which is a home equity loan on my primary residence to use those funds as a down payment on additional property. The advantage in my case is that I get to keep my current residence. The disadvantage is that I can't use all of my equity (the loan would be 90% CLTV, so I'd be leaving 10% equity in, whereas you sold so you were able to pull out everything).

[Grant Schroeder]

Thanks for sharing our conversation for everyone to benefit @Nick Coons! It was great talking with you. Please do not hesitate to reach out if you need anything in the meantime. I am glad to help!