House Hacking Single Family House

[Gerardell Brown]

Hello Experts - 

I am ready to purchase my first single-family home this year. I have one roommate willing to pay half the mortgage, so I am trying to figure out how to structure my deal. My plan is to use a first-time buyer's loan program, live in the property for a year, and then turn it into a rental property. Has anyone used this strategy before and had success? Thanks!

[Mark Fries]

Yes, this is a very popular method among investors. 

[Chris Kersey]

Great idea to utilize a lower interest rate for it being your primary residence and a lower down payment. If you live in it at least 2 years, you have the option to sell within 3 years after move out and not pay capitol gains taxes on up to $250k in profit as a single person. I like having options so something to consider as well!

Link to explain more: https://www.investopedia.com/ask/answers/06/capitalgainhomes...

[Alecia Loveless]

@Gerardell Brown I’ve house hacked for close to 30 years. This is a great strategy and if my spouse wasn’t averse to moving I would be moving into a different house hack property every 13-14 months. If you can keep the amount of physical possessions you own to a smaller amount it will make the frequent moves easier.

[Daniel Tanasa]

Quote from @Gerardell Brown:

Hello Experts - 

I am ready to purchase my first single-family home this year. I have one roommate willing to pay half the mortgage, so I am trying to figure out how to structure my deal. My plan is to use a first-time buyer's loan program, live in the property for a year, and then turn it into a rental property. Has anyone used this strategy before and had success? Thanks!

 Hey Gerardell,

You're thinking the right way about this. Househacking is an excellent option to get your foot in the door of investing, especially since you have a willing roommate that you get along with and that is fine paying half of your mortgage. I used this strategy a couple of times and is really powerful to take advantage of a lower interest rate and lower down payment. 

I would be happy to help you with your search if you need any guidance. 

Good luck!

[Cody Anderson]

Hey Gerardell - This strategy is indeed effective and to one of the previous comments, staying there for two years will qualify you for the section 121 primary residence tax exemption at the time of sale. 

Curious how you and your friend will be managing the financial contributions and ownership structure? Is he just going to pay half the mortgage in the form of rent are is he going to hold equity/title in the property?

[Lindsay Tucker]

I've done this too and it's a great strategy. Have you talked to a few lenders yet about your financing options? When you say you're trying to figure out how to structure your deal, do you have any specific questions we can help answer? 

[Gerardell Brown]

Quote from @Cody Anderson:

Hey Gerardell - This strategy is indeed effective and to one of the previous comments, staying there for two years will qualify you for the section 121 primary residence tax exemption at the time of sale. 

Curious how you and your friend will be managing the financial contributions and ownership structure? Is he just going to pay half the mortgage in the form of rent are is he going to hold equity/title in the property?

 They will pay half of the mortgage without an ownership stake, so we will split all bills 50/50. 

[Gerardell Brown]

Quote from @Lindsay Tucker:

I've done this too and it's a great strategy. Have you talked to a few lenders yet about your financing options? When you say you're trying to figure out how to structure your deal, do you have any specific questions we can help answer? 

Yes, I have contacted a few lenders to find the best terms/rates. In terms of structuring the loan - I am in the Houston market looking for a deal that will cash flow. For most of the numbers I am running for an SFH 230 - 300K (with less than 20 percent down), I would have to be super aggressive with negotiating with the current interest rates. I am thinking since this is my first deal, I will be living in the home to find something that will potentially cash flow 2-3%, then refi in 12 - 18 months to get 5 - 7% cash flow. As a beginner, I just want to know if this is a good strategy.

[Lindsay Tucker]

Have you looked into any wholesalers in your area? Or working with an agent who can help you find off-markets? 

[Morgan Tondre]

Quote from @Gerardell Brown:

Quote from @Lindsay Tucker:

I've done this too and it's a great strategy. Have you talked to a few lenders yet about your financing options? When you say you're trying to figure out how to structure your deal, do you have any specific questions we can help answer? 

Yes, I have contacted a few lenders to find the best terms/rates. In terms of structuring the loan - I am in the Houston market looking for a deal that will cash flow. For most of the numbers I am running for an SFH 230 - 300K (with less than 20 percent down), I would have to be super aggressive with negotiating with the current interest rates. I am thinking since this is my first deal, I will be living in the home to find something that will potentially cash flow 2-3%, then refi in 12 - 18 months to get 5 - 7% cash flow. As a beginner, I just want to know if this is a good strategy.

 For a short answer, yes! It's a good strategy. I agree with @Chris Kersey on staying 2 years if possible to avoid higher taxes if you can - welcome to the REI world nonetheless!

[Anthony Swain]

Hey @Gerardell Brown,

These are two great strategies you're combining. You will be house hacking and benefiting from your primary loans. These methods will allow you to use leverage for a large asset, reduce living expenses, gain appreciation, and benefit from loan amortization. 

If the house hack is drastically reducing your living expenses and you like your living situation, then you don't necessarily need to be in rush to turn it into a rental. Also, I'd make sure your investments pencil out to still cashflow even if you took yourself out of the equation. This will give you more options to rinse and repeat house hack formula, stay put, or move/continue to rent out. 

Good luck with your investing journey!

-Ant

[Wale Lawal]

@Gerardell Brown

Moving from owning a home to investing in real estate starts with a loan for first-timers, making you live there for a year minimum. Smart steps include studying the market, planning your money, thinking about law stuff, and looking after the property. Successful investors have experienced success in leverage, house hacking, and property appreciation, but may face challenges like vacancy risk and property management.

Good luck!

[Gerardell Brown]

Quote from @Anthony Swain:

Hey @Gerardell Brown,

These are two great strategies you're combining. You will be house hacking and benefiting from your primary loans. These methods will allow you to use leverage for a large asset, reduce living expenses, gain appreciation, and benefit from loan amortization. 

If the house hack is drastically reducing your living expenses and you like your living situation, then you don't necessarily need to be in rush to turn it into a rental. Also, I'd make sure your investments pencil out to still cashflow even if you took yourself out of the equation. This will give you more options to rinse and repeat house hack formula, stay put, or move/continue to rent out. 

Good luck with your investing journey!

-Ant

 Thanks for the insight Ant! You confirmed what I was thinking. 

[Carlos Scarpero]

Mortgage lender here.....

Careful with this. Works for the first few deals but after a while the underwriter will catch on. If you are buying every year in the same metro area it can get problematic from a lender perspective. 

[Drew Sygit]

Yes, did this on several properties to grow my portfolio.