Newbie Looking to House Hack in NE/SE Portland

[Jacob Alastra]

Hey everyone this is my first post. I am in the saving stages of my investment journey and am trying to figure out what the best path to success would be.

I am interested in my first deal to be one that I can house hack. I am not interested in large single family homes ( girlfriend wants privacy), so really am interested in duplex, triplex, and quadplex's. I have been analyzing deals of duplex's that have sold in the NE/SE area and am not seeing a way to get close to breaking even on the mortgage cost let alone taxes, repairs ect while occupying one of the units.

I will be looking into an FHA loan, so hopefully that means I would only need 3.5% down. Would I be wiser to save a higher downpayment and look for a 3-4 plex that will be likely to break even/ cash flow? My hope is to not stay more than a few years, so eventually that occupied unit will be rented out as well.

I would love to hear from any investors in the area who have any advice, or have gone through the sort of path I am looking to take.

Thanks, Jacob

[Chace Fraser]

Hi @Jacob Alastra 

Welcome to the BP community! Just by joining you are taking the first step to financial freedom. I think house hacking is a great way to get your feet wet in rental investing... that's how my wife and I did it here in the Portland area (We purchased a duplex in Milwaukie).

If you are using a low down payment option, it's not really realistic to expect to be cash-flow positive while you’re house hacking and living in the property. However, the property must cash flow after you move out for the deal to make sense (in most scenarios). Like @Brad Hammond said, when an investor is looking at being cash flow positive, they are typically putting down 20 percent or more. If you are in a high demand metro area like we are, it's simply not realistic to expect to be cash flow positive if you are putting down 0-10%.

Now if that is all the capital you have, that is what it is. Is it better to keep renting than to buy? Typically it is better to buy. Better to build your own equity through the debt paydown, enjoy the tax benefits of ownership, and garner the equity of an appreciating asset. You just can't expect to cash flow on an initial purchase with a low down payment. Now with time and rent growth, what could be a negative cash flow property might very well become a cash flow king, but that takes patience.

When I’m analyzing the numbers on a house hack I go through this progression. These “hurdles” typically go from easy to clear to harder and harder to clear. Better “deals” will clear more of the hurdles.

1. The buyers housing cost must be lower than it was before. This one doesn’t always apply. What if you were living with your parents rent free? What if you were living with a friend and they were charging you way under market rent?
2. Will the buyers portion of the mortgage payment be LOWER than the market rent for the unit they plan on living in. If you are renting a 2/1 and the market rent for that type of rental in the area is $1,000, then the amount of the mortgage payment you will be responsible for must be lower than $1,000. Otherwise, why would you pay more to live there? Remember, the goal of house hacking is to reduce your housing costs
3. The property must be cash flow neutral or cash flow positive at the current rents if you were to never move in. If a unit is vacant I use current market rent.

This is where I start. If a property clears these hurdles, I’ll then start to dig a little deeper.

And the 1 percent rule doesn't really apply here. When I'm running 1 percent calculations, if I get something that is 0.6 percent or higher that is usually a sign to, again, look deeper into the property.

Besides figuring out what your goals are, how you want to get started, and meeting like-minded people, the first action item would be to talk to a lender. In my experience working with house hackers, the majority of the questions center around financing the deal.

When it comes to finding the right lender there are a few things you’ll want to keep in mind. Lenders, like realtors, are not all created equal. In order of importance, here’s what I think is important to look for in a lender. You want to make sure your lender:

• Has worked with house hackers before; the rules change depending on what loan type you use and how many units you purchase. There are A LOT OF TRAPS along the way that can/will make the deal fall through (and cause you to lose your earnest money). You want to be sure the lender you choose has navigated them before.
• Can help you strategize the lending piece for this purchase AND purchases in the future
• Is an investor themselves

If you’d like a recommendation for a lender DM me. I have one that I have closed many house hacking sales with (my own house hack included), and checks off all of the boxes above as well.

Happy Investing and reach out when you need help.