TX: Living for free by converting the garage for me :)

[Pierce Fonville]

We all know what the BRRRR strategy and house hacking are. Now, watch closely as I do a 360 twist combo and buy/live for free in DFW Texas where duplexes are in short supply and high demand.

*I am looking for guidance primarily in the financing portion of this strategy, but if you would like to proof it for other items to be aware of, be my guest.

The idea is to buy a single family house near Fort Worth with a 2 car garage, convert the garage into a living space including a kitchen and bathroom and remove the attic space to be replaced with a loft. I am relatively fresh out of college where I am used to splitting a 400sq/ft space with another person, so this will be an upgrade for me :) 

Buy, rehab, rent, reside

The plan would be to live in the garage conversion and rent the rest of the house. I have called many cities around me and have not run into a situation where this would be a problem. The tenants would basically be renting rooms from me, but I would prefer to rent to only 1 family or person. I have not found any rules preventing that within a mortgage situation. I would almost be living for free. 

The appraisal should note the added living space and the quality of it as an added benefit of the property. This will help when it comes to owning this for free or close to free.

Now, here is where it gets a bit more complicated. In order to buy a hard money deal and refinance into a long term conventional loan, it is technically a cash-out refinance. This takes 6 months of seasoning and usually requires leaving 25% equity in the home. 

My options are:

Buy on hard money, leave 25% in, and hopefully generate ~20% via forced appreciation

FHA 203k Loan, wait 6 months and then cash out refinance (Unknown whether or not this type of renovation would be approved)

Renovation loan or 203k and no refi, just pay PMI and tons of interest and accept the higher living expenses due to a higher payment

I would love to hear from someone with more knowledge and experience than me.