Help! Seasonal Employee In Expensive Market Looking To Buy Primary Res Out of State

[Dan DeGroff]

Hello everyone and thank you in advance for taking the time to help me with a personal situation. This is my first time making a post on Bigger Pockets so bear with me.  

My end goal is to house hack a multifamily home in Washington State as my Primary Residence. My unique situation has me running into dead ends. Wondering if some community wide knowledge could shed light on potential solutions. 

My life situation:
I live and work in Aspen, CO from December - April. I have had this job for 3 years. This is the job that would support a conventional loan. I work random jobs and/or travel May-November. I rent in Colorado. I have never owned a home. I don't want to purchase a primary home in Aspen, CO. 

My question:

Is there any way that I can get a Washington State property to qualify as my Primary Residence (PR) if my job supporting the loan is in Colorado? For clarification I actually intend to live in this property for the majority of the year. My understanding is that for a lender to offer PR financing I have to live in the unit within 60 days after closing (Not a problem), I have to live in the unit for the majority of the year (I would live there 8 months May-Nov), and the property needs to be near my place of work or a place I have multiple family members (This is the dead end for me). I have spoken with lenders who also say I would need to live in the residence consecutively for 12 months after I move in.  For clarification, Aspen job is NOT a remote job.  

I have considered partnerships with a Washington friend who could hold the loan and live there for a year and in return receive partial ownership in the property. Not ideal. I have also considered just getting an Investment Property loan and dealing with the less favorable rates and terms. Although, I would like to have first access to foreclosure properties with HomePath's First Look Program, income/capital gain tax benefits from my PR, and more favorable loan terms. 

Any thoughts and considerations would be greatly appreciated. 

Thank you, Bigger Pockets Community and happy investing out there!  

Feel free to reach out with any questions you have about the Aspen, CO area. I was a mountain guide there for 7 yrs. and know of some really amazing hikes, climbs and other exciting activities.  

[Nicholas L.]

@Dan DeGroff

definitely don't 'partner.'

you say you've talk to lenders.  how many?  2, 5, 8?  I'd call a whole bunch more.

[Dan DeGroff]

Quote from @Nicholas L.:

@Dan DeGroff

definitely don't 'partner.'

you say you've talk to lenders.  how many?  2, 5, 8?  I'd call a whole bunch  

Great point, thank you. 

[Bill S.]

@Dan DeGroff you are over valuing the access to foreclosure listings. They are few and far between. All those with equity are scooped up by investors or sold by those being foreclosed on before it is finalized. My family just sold a property in Aspen. The price of real estate there is off the charts and completely insane.

[Dan DeGroff]

Thanks for your in-site Bill! 

I have noticed while searching the Fannie Mae site there is very limited foreclosure inventory, especially in Washington State where I am interested in living. I have also read about acquiring properties through researching NODs and creating a mail campaign. Thanks for your input regarding foreclosures. I will definitely keep this in mind. 

You are not kidding about the price of real estate in Aspen. ! They call it Hollywood of the Rockies for a reason. 

[Koren Lavi]

Hey @Dan DeGroff

Buying as an investment property with a 0.75-1.0% higher interest rate and needing to put a minimum of 20% down (its actually 15% but the rates are so much worse at 15% that its not really an suitable option) when the home would actually be your primary residence is brutal.

Partership are a bad idea 80-90% of the time, but could work out in some scenarios. Not sure if this scenario would warrant it. 

I’m not a mortgage broker but my wife is. She deals with all kinds of unconventional scenarios like these. I’ll DM you her info.

[Seth Wilcock]

@Dan DeGroff - I think you can probably do this as a primary residence since the scenario makes sense (e.g. you travel to Aspen for work during ski season), however, there are some major red flags here that you will need to explain and support during underwriting (e.g. I imagine there are some ski resorts in Washington you could work at that are closer to the subject property?  Why are you traveling  all the way to Colorado for work?). 

It sounds like you will actually occupy the home in Washington for a majority of the year, and then travel to Aspen during ski season. I think if you can write a solid letter of explanation stating that you are going to commute to Colorado from Washington for 4-5 months out of the year for your job (and why), that should be sufficient enough to run this as a primary residence. You need to ensure the letter you are writing is truthful and that you are not making misrepresentations. If you don't have the intention to actually occupy the home in Washington as your primary residence for the majority of the year, then that is occupancy fraud (investigated by the FBI), which would likely include some jail time if you are found guilty of making misrepresentations. The underwriter is likely going to ask you about housing expenses in Colorado for the 5 months (December - April) when you're in Colorado. Do you have employer-paid housing, or do you need to pay rent while you're in Aspen for 5 months? If you pay rent while in Aspen, that housing expense will be factored into your DTI ratio (e.g. total rent paid in 5 months divided by 12 months).

You should be prepared for your loan file to go to an underwriting manager for second-level review on account of the occupancy risk associated with your primary home being located so far away from your work. This is a very risky scenario to a lender. 

I don't think any lender will approve you if you are trying to buy multi-family in WA as your primary residence with your work being in located in CO.  Additional units will add a HUGE layer of risk that will be accounted for during underwriting with this scenario as you are very clearly purchasing the home in WA with the intention of renting it out for cash flow (that's not a primary residence, but an investment).

Personally, I would advise you to do this as a second home transaction, as the second home scenario makes a lot more sense to me from an underwriting/guideline perspective.  The second home transaction would require 10% down, carry a higher rate, and you can NOT use rental income to qualify.

[Dan DeGroff]

@Seth Wilcock - Thank you. 

I loved your response and have been thinking about it for a few days now. I have a few questions and a few ideas. 

I believe recapping my big picture goal and current lifestyle at this point will help. 

My Goal: To generate a real estate portfolio that produces $15k cash flow per month. 
Also to eventually own a home within 50 miles of the Aspen CO area (winter/employment location). Ideally, I would rent a room++/unit while I am there and rent the place while I am away (May-Nov).

My lifestyle: I work at an on-mountain restaurant in Aspen during the winter and I travel around the US to different places to live and work during the off-season (May-Nov). Right now, I have 100k to invest, 17k in reserves, 40k in retirement and I can realistically save 30k a year in my current position (60k/yr when I am promoted in a year or two)

Back to the discussion topic. Assuming I buy a single-family home in Washington as a primary residence (better chance of being approved than a Multi-family). Close on the deal in Spring, move in May, live there May-Nov then commute to Colorado to work. Could you legally begin to rent this unit in December? Or, would you be required to wait 12 months from move in day of your PR. Causing the unit to sit vacant with no income for the winter. Doesn't seem like a good plan..

This brought me to another idea, and I'd love to know what everyone thinks. Let's expand beyond WA now. 

Cash offer on distressed home in the Winter, rehab finished by April, live there for the summer with no mortgage (maybe paint the place), search for/place tenant around the time I leave, cash out Refi when tenant is placed. Repeat.

Find a market that supports my 100k budget? Is 100k enough $$? Continue saving until I have enough? Would it be logical to STR instead of LTR after project is finished and I move out (I no longer have to U-Haul furniture across the US 2x a year and I can look for markets beyond the Southeast and Midwest)? I have been leaning towards LTR with my education, but STR seems to make sense in the scenario.

I know I left out a lot of the technical details in my plan and first steps idea. I really wanted to open this idea up to discussion if anyone was interested. Thanks in advance and I look forward to your response. 

[Seth Wilcock]

@Dan DeGroff - I appreciate the reply and additional details.  From a lending perspective, the home in Colorado should be purchased and occupied as a 2nd home (yes, even if you're a first-time home buyer and don't own a primary residence currently). The scenario as a 2nd home will make the most amount of sense to an underwriter (traveling to a different location for work and the property is located in a resort-type area).  The truth is, you don't have the intent to occupy this home year-round as a primary residence, but you do have the intent to occupy it for a portion of the year (during ski season).

A primary residence is a place you plan to live for pretty much year-round. A primary residence is not intended to be a rental property. Even Robert Kiyosaki calls a primary residence a liability, but we all need a place to hang our hat, right?  If you're getting a roommate to help cover the costs of bills and expenses, that's one thing, but you would need to be living there. 

House hacking: you would actually occupy the home for a minimum of the first 12 months. You can get roommates during this time, but YOU need to live there too. After 12 months, you've met the occupancy requirement on your deed of trust, and you can convert the property to a rental property after that.

There's nothing in the Fannie Mae/Freddie Mac guidelines that says you can't rent out a 2nd home when you're not occupying it, and you could rent it out as a short-term rental or long-term rental when not in use (double check the local laws regarding short-term rentals). You can not rely on rental income to help you qualify on a 2nd home transaction, and you can put as little as 10% down on a 2nd home.

As for the 2nd part of your question: "Cash offer on distressed home in the Winter, rehab etc" - if you're paying cash, there isn't a loan, so you don't need to declare/specify occupancy when paying cash. On the refinance (take-out loan) you would need to declare occupancy, and I'm guessing the plan is to fully rent the property at that time (e.g. BRRRR), so you would run the cash-out refinance as an investment property/occupancy on that loan. $100K is enough to get you started. I've done multiple deals for that amount or less, and I actively have clients working in that range right now too.

In short, you get one primary residence.  If you decide to house hack, you must live there for the first 12 months. You can have roommates while you're living there, but you can't occupy the home for only 5 - 7 months, move out, and completely rent it out.  After 12 months, you can fully rent out the property if you desire, without needing to occupy.

2nd homes are designed to have another place to live in a "resort type" area or when commuting to a different state for work. You can rent these out (STR or LTR) when not in use, but you can not use rental income to help you qualify for the loan.

Investment properties = you have no intention of ever occupying the home. You can use rental income to help you qualify for the loan.

Additional Resources:

Occupancy Types | Fannie Mae
Occupancy Fraud May Be the Next Risk for the Mortgage Industry | CoreLogic®

Feel free to reach out if you have any additional questions.

[Wale Lawal]

@Dan DeGroff

To achieve a house-hacking dream in Washington, consider lender flexibility, documenting intent and income stability, applying for an investment property loan, partnering with a Washington State resident, exploring creative financing options, and considering FHA or VA loans. Local credit unions or portfolio lenders may have more flexible guidelines. If lenders don't budge on classifying the property as a primary residence, you can still get an investment property loan. Network with local investors and lenders.

Good luck!