Home Hacking First Time Advice

[Matt T.]

Hi everyone,

I’m new to Biggerpockets and real estate investing in general and am looking forward to learning from you all!

I’m looking at buying my first home and am interested in house hacking since my partner and I don’t have a family (and therefore too many privacy needs) just yet. I’ve saved up a significant sum of money from a well-paying job while living at my parents house for a few years, and am getting some inheritance money as well - I will soon have approximately $300k liquid. 

I'm hoping to buy a duplex for ~$700k and to rent out the other side. Here's where I need some help: I'll have plenty of cash for a conventional loan with a 20% down payment. But, is it still better to use an FHA loan with 3.5% down and put my remaining cash to work somewhere else? Pros and cons to both approaches? I'm having trouble figuring out if the PMI requirement with 3.5% down is worth the smaller capital outlay.

Alternatively, are there any other beginner RE investment strategies that you think would be a better fit for my situation? I’m not a handyman or DIY enthusiast by any means, so I’m not particularly attracted to flipping. I just like the idea of having cash flow to cover my living expenses!

Thank you all for your help. 

[Miller McSwain]

If you are interested in a duplex, I would DEFINITELY use the FHA. The less money you put down, the lower your cashflow (because your mortgage payment is higher and you pay PMI); however, your cash-on-cash ROI is higher because you put so little down. PLUS, like you said, you would then have lots of cash left over to invest elsewhere OR purchase another house-hack duplex a year later.

One thing to note: for duplexes, Conventional requires that you put at least 15% down if you are an owner-occupant. For a single-family, Conventional allows you to put 5% down. 
So if you were interested in single-family, I would recommend Conventional (like @Karl McGarvey said) because the inspections/appraisals are more stringent for the FHA, and because 5% down is pretty close to 3.5% down.
But in the case of the duplex, even though you may have more strict inspections/appraisals, 3.5% down will yield much higher cash-on-cash ROI than the 15% down.

Let me know your thoughts!