First Time buyer / House Hacker in high cost area

[Matthew Crump]

Hi all,

I'm a new real estate investor, and I'm looking to get started on my first house hack! Two major problems though:

1. I'm in a very high-cost area (NYC)

2. I have no cash

Through the power of Bigger Pockets though, I know that I actually have a multitude of options! Normally I would be on the conservative side, and wait until I had saved the money needed for a deposit over the next year or two before deciding to buy, but I need to buy NOW. With COVID finally having an end in sight, people aren't fleeing the city anymore and the prices are starting to bottom/flatten out (I've been watching my neighborhood for a few years while I paid down my debt). The other reason to buy now is the 2020 census. I've watched my neighborhood grow over the past six years, and its a well known secret that it is no longer %92 minority like it was in 2010. This 'official' change is going to bring out of town investors focus, and I have the feeling that my options are going to dry up quickly. Census numbers drop on March 31st.

I do have a couple things going for me though:

1. I have a credit score over 720

2. I have a pretty good job (just broke 6 figures for the first time in 2020! woohoo!)

3. I just finished paying off all of my debt

4. I worked as a General Contractor for years, and can do any/all repair and maintenance work short of plumbing and electric (I'm just not licensed for them)

5. I have at least 5 rooms pre-rented from people I know and trust with stable jobs. With rent moratoriums in NYC till at least May, that is huge right now.

So, with all that being said, I've come up with 3 ideas on how I can put in my first offer before the end of the month for my first house hack. I already have an agent, and am waiting to get pre-approval till I settle on my method of approach, but the round numbers I'm looking at for an FHA loan are ~$55k deposit plus closing costs (%8) for a ~$700k loan. Have you done any of these methods in a high cost area before? Which would you recommend to a newcomer? Did I miss anything important?

1. Liquidate my 401(k)

Not a big fan of this, since I put that money aside for a reason and theres no undo. I've talked with my company's financial advisor, and even with the new COVID rules, I can't take a loan unless I can show "hardship", so I would basically have to cash out the whole thing. This is the most straightforward but absolutely least preferred option.

2. Find a personal investor.

I've done research on house hacking with multiple investors, and while I can get the loan with the favorible rate and low down payment if I had a silent financial partner, it looks like the cosigner would be %100 financially liable. Which for a house that expensive is probably gonna be a bad deal for about anyone. Instead what I'd have to do is something like sign a personal contract with an investor to pay off ~55k with interest over the next 2 years. Basically get a stranger to loan me the money. Before you tell me to ask friends and family, I have and it's not happening.

I think this is actually potentially a great deal for both myself and the investor, but how would I go about finding an individual to borrow from? I don't have a deal in mind (no pretty numbers from the calculators), and would need the money upfront before I could even be pre-approved to buy, so basically they wouldn't have any part in the real estate, their loan repayal would be based on me continuing to have a job. If they were involved in the dispersal of monies from rent, I believe the partnership would qualify as a Security under the Howey test, which would be great to avoid on my first house hack.

Any and all direction here is appreciated. Websites or forums you've used? Best approach? I might know some very distant people who I could potentially approach with an 'actual deal', but how do I package, uh, myself here?

3. Ignore the FHA / House hacking and go straight for a BRRRR deal

With my GC skills, good credit, and being in a high cost area, the BRRR strategy seems like a great fit for the city. I know New York has some special rules about how long before you can refinance (generally 6 months), and what kind of work can be done with what permits (don't you dare touch the outside without those big green plywood fences!), but I have already been talking to contractors and agents around the city, and I think these could be overcome with planning. I'm willing to take what others would consider 'terrible deals' for BRRR, because i'll be house hacking there too (e.g. a deal that at the end loses $400 a month; that means my rent just went down to $400 a month in NYC! Thats amazing!)

This is going to forefit that cushy first-time home buyer FHA loan, but if the right deal came along it could be worth it. I would also be a bit worried on estimating all of my BRRR calculator numbers though on my very first venture into real estate, dealing with three-quarter-million dollar townhouses. A %5 incorrect guess could bankrupt me.

So if you've made it all the way through, let me know what you think! Which strategy would you use to get started? I am actively seeking a base hit, not a home run, so that I can feel confident to move forward. Once the dust on this house hack is settled, I intend to immediately get started on my first (second?) BRRRR in a bit less expensive neighborhood nearby before the end of 2021.

In the spirit of all the info I've gained form this site and the forums already, I'll loop back around to this post with my results once I close on a place to let you know how it went!