Partnership and House Hacking

[Dillon Taylor Lindsey]

Hi! This is my first time to post anything as I’m a complete newbie to the whole real estate investing world but very curious about it and how to get started in it. I’ve heard about house hacking and have thought about it, how awesome that’d be to not have to pay rent anymore! But im not exactly sure how to get started and so I had a thought…

If I couldn’t afford a down payment for, let’s say a duplex, on my own, but partnered with someone who could help me pay some of that, would it be reasonable and fair at all for me to live in that duplex, rent free (as long as someone else is renting the other half) and let my partner keep all the profit on it (if any is made)? I’m not sure how all of this works but I was just wondering if that would be a fair deal for both of us. I could live rent free, they get the profits and while I save more to invest, eventually I could invest in another property on my own (or with a partner again) and let my original partner either sell or rent out the duplex we bought together? Or if there’s a better way to do that please let me know and correct me if I’m thinking wrong about all this!! Thanks!

[Andrew Postell]

@Dillon Taylor Lindsey thanks for the post!  Always great to hear from a fellow Texan.  I want to clear up a few things here just in case:

1. Cash flow - you will not cash flow on a duplex.  You won't live "rent free" either.  The main reason is because you are occupying part of the property.  One you move out, and that unit you were occupying is rented, then the numbers will look better.  What house hacking does is offset your cost for home ownership.  Things like higher prices/rates are making owning a home very expense.  So, we house hack to REDUCE those expenses.  Could you cashflow on a quad?  Maybe...but there's other issues to that as well (more on that in a moment).

2. Downpayment - To buy a duplex means you just need 3.5% down (that's through an FHA loan). It is possible to have someone "gift" you money to purchase a home to help you buy a home. There are also DOWNPAYMENT ASSISTANCE PROGRAMS here in Texas that help us buy a home. Most will work with single family homes and a few will work with duplexes. You may not have to give up anything to own a home.

3. FHA Nuances - now you might cash flow better if you purchased a lower valued single family home. That's how I got started. I purchase a single family home, rented out the rooms - that's house hacking too. But FHA won't use any of that rental income to help you qualify. It sill might work out...but buying a duplex will allow you to purchase a home that's worth more - but you won't live rent free or cash flow. Some people ask about 3-4 units, and in the past those looked good but right now FHA can't fit on 99.9% of those properties. That's the rub against FHA right now. So, it's either s single family home or a duplex and just use a downpayment program to help. You might be surprised at what you can qualify on your own.

Hope all of that makes sense.  Thanks!