First House Hack Decisions

[Thomas Larsen]

I need some advise biggerpockets community! I have been learning about REI for 2 years now. I've read countless books and 100s of hours of podcasts. The number 1 reason guests have said people don't get started is because they don't do their first deal. I am ready for this and I wanted to post my thoughts incase some of you see any flaws but I feel my plan is pretty solid.

I am living in Everett, WA and I am planning on being here another year before I move to Boise, ID (I want to find a different job, maybe sales or RE and be close to family) I am living in a travel trailer where total expenses are $1800 for space rent, payments on truck and trailer, and insurance ($800 in principle). A particular duplex i am looking at is $350k and could rent for $2800 before fixing (just am example of house prices, pretty high). If I live in one of the units, I could be saving close to $1000 a month, even if the other units don't completely cover the mortgage.

I am looking at fixer upper multifamilys that I can get an FHA loan to house hack. My wife and I can manage it ourselves. I work four days a week and I am always looking for projects to do on my time off. I make $140k a year as a foreman for a utility for 3 years and saving $4k+ a month so I can handle unexpected events. I have $40k cash, $30k stocks, $30k 401k/Roth IRA, $10k in principle on my truck and trailer. I have a paid off car to keep.

I plan on holding the property for a year and then selling it when/if we move. My concern I heard on the podcast is that it's not ideal to FHA a house hack. That would be my only concern. I am also a newbie and am thinking maybe a cheaper house in my hometown in Eastern Oregon might be safer because I have a lot of connections and family but its 6 hours away.

I would love if anyone could tear this apart or tell me how this will not work but I think it is a pretty solid plan.

[Jon Schwartz]

Originally posted by @Thomas Larsen:

I need some advise biggerpockets community! I have been learning about REI for 2 years now. I've read countless books and 100s of hours of podcasts. The number 1 reason guests have said people don't get started is because they don't do their first deal. I am ready for this and I wanted to post my thoughts incase some of you see any flaws but I feel my plan is pretty solid.

I am living in Everett, WA and I am planning on being here another year before I move to Boise, ID (I want to find a different job, maybe sales or RE and be close to family) I am living in a travel trailer where total expenses are $1800 for space rent, payments on truck and trailer, and insurance ($800 in principle). A particular duplex i am looking at is $350k and could rent for $2800 before fixing (just am example of house prices, pretty high). If I live in one of the units, I could be saving close to $1000 a month, even if the other units don't completely cover the mortgage.

I am looking at fixer upper multifamilys that I can get an FHA loan to house hack. My wife and I can manage it ourselves. I work four days a week and I am always looking for projects to do on my time off. I make $140k a year as a foreman for a utility for 3 years and saving $4k+ a month so I can handle unexpected events. I have $40k cash, $30k stocks, $30k 401k/Roth IRA, $10k in principle on my truck and trailer. I have a paid off car to keep.

I plan on holding the property for a year and then selling it when/if we move. My concern I heard on the podcast is that it's not ideal to FHA a house hack. That would be my only concern. I am also a newbie and am thinking maybe a cheaper house in my hometown in Eastern Oregon might be safer because I have a lot of connections and family but its 6 hours away.

I would love if anyone could tear this apart or tell me how this will not work but I think it is a pretty solid plan.

Thomas, I'm a duplex househacker in Los Angeles, and my verdict is... PRETTY SOLID PLAN!

OR, like CA, is an expensive state, so unless you're out in the boonies, don't set positive cashflow while living there as the goal. Saving $1000/month on living expenses is fantastic! That's an extra $1000/month in your bank account to put toward the next property.

You also have principle paydown to account for, which is an immediate boost to your net worth. If you bank account has $1000 extra for the month, and your loan is, say, $800 lower for the month, then your net worth has just grown $1800 for the month. Even without cashflow, the financial benefits of househacking are tangible.

I'd recommend the househack over a cheaper house 6 hours away because it sounds like you have the savings to whether a few months of vacancy. My attitude is to go bigger provided you have a safety cushion to protect you -- and it sounds like you do. The cheaper house 6 hours away isn't going to impact you positively as much as this duplex, I bet.

Two questions:

Firstly, why is it not ideal to FHA a househack? I know several people who used the FHA loan to househack. There are disadvantages, like more expensive mortgage insurance, but there are also advantages, like putting less down even on a multifamily. What was the thinking behind cautioning against FHA loans on a househack.

Secondly, one year is not a long time to hold a rental, especially in this climate. It's anybody's guess where prices will be in September 2021. Have you considered holding for longer?

The key is to find a property that will cashflow when you move out (and be sure to account for a year's worth of rent increases in that calculation). If the property will cashflow when you move out, I'd recommend keeping it and, if the value has grown through your elbow grease, refinance out some cash for your first acquisition in Boise.

If you're committed to selling in a year, you may want to consider a live-in flip; you'll likely have an easier time selling the end result on the retail market.

Either way, if you timeline is only a year, be sure to factor in closing costs on the purchase (usually about 2%) and selling costs on the backend (6-8%).

Good luck!

Best,

Jon