Owner Occupied Multi family

[Rania Mutumhe]

Hello everyone,

I just got preapproved for a conventional owner occupied multi-family investment property loan and am currently looking for deals. I'm putting my current home up for rental and still need to find a tenant, facebook marketplace has not been very productive as I've been getting more scammers than serious people. Anyways my question is more on how to analyze a deal and decide if its good or not. Initially I thought if the rents cover my mortgage that's a good deal but I'm realizing there is more to it than just that. What are some other things that I should factor in to make sure I don't make too many costly mistakes with my very first investment.

Another thing I watched a youtube video that said to get pre approved by at least 3 lenders to try and get a better rate, is this the recommended thing in the industry?

thank you for all your help as I navigate these unfamiliar but exciting streets of REI

[Sarita Scherpereel]

Hi @raniamutumhe House Hacking is a wonderful strategy to get start into real estate investing. Since I cannot speak to your market in St. Louis, I can only share my experience. I am currently house hacking in Chicago. The area I purchased in, in Chicago is very expensive. It was my goal to live in a nicer area and target properties that would cash flow after I moved out. While I live in the home, I required my portion of the mortgage to be lower than were I was renting (and the market rate for renting my unit). Which I was able to find. Some areas of Chicago people can live for free- or live for pennies. 

Every market and even neighborhoods in cities are very different. Real estate is street by street. Your analysis, goals and purchase should reflect that. I recommend finding a realtor in your market that specializes in house hacking so they can help you take your goals and assemble them into the market. They should also have good local recommendations for lenders to talk to. I think it's a great idea to have a few in your pocket for when the time comes. 

[Anthony Swain]

Hey @Rania Mutumhe,

You're asking a lot of great questions. The pre-approval is a great step towards purchasing your house hack. It isn't a bad idea to get pre-approval from more than one lender. Some lenders are brokers that shop between multiple (10-15 lenders) or more, so that can help you get the best rate/terms too.

To market your current home/future rental, I'd make sure to have professional photos, list on multiple listing sites (FB, Zillow, Apartments.com, etc.). 

For your future house hack, download a good calculator (Chad Carson has a free one) to analyze your deals. I think it is important to calculate your overall return on investment (ROI), so include appreciation, loan amortization, and your housing expense savings. The higher ROI is better, but you'll have to determine the minimum ROI that you want in a deal.

I hope this info helps! Feel free to reach out if you have any questions.

-Ant

[Wale Lawal]

@Rania Mutumhe

Congratulations on getting preapproved and taking the next steps in your real estate investment journey!

To analyze a deal, consider factors like cash flow, cap rate, GRM, vacancy rate, maintenance, property management, and appreciation potential. A good cap rate is 8-12%, while a lower GRM indicates a better deal. Estimate maintenance costs, reserve funds, and property management. Get preapproved by multiple lenders for the best rates and terms.

Good luck!

[Andrew Postell]

@Rania Mutumhe Keep in mind that house hacking REDUCES my cost of home ownership. You will NOT cash flow on any property that you purchase. I'm not sure if anybody has said anything different to you but I need this to be your expectation. Remember, you are occupying one of the units...it would be impossible to cashflow in that scenario. Ok, maybe if you rented out each room and maybe did everything Short Term or something like that. But if it's long term renting, then you won't cashflow. But it will still allow you to afford a SIGNIFICANTLY higher price point than if you did not house hack.

So, if real estate appreciates 5% per year, then a $500,000 property will have $138,000 in additional value after 5 years. A $1million home will have $276,000 in value increase after 5 years (using that same 5% appreciation per year). The higher our value, the higher the equity gain is - even if the % of gain is equal between the properties...the dollar amount is higher on the higher valued home because the property is worth more. That's how house hacking helps us gain wealth. We certainly aren't gaining $276,000 with $200 of cashflow. So, don't sweat the "no cashflow" thing. Just focus on purchasing a good home that you feel comfortable with living in. Your commitment is to live in it for 12 months...and then you can do it again and again!

On the same thought, when I buy my primary home it has to fit my PERSONAL needs. Maybe I personally need a good commute time. Maybe I personally need a certain school zone. Maybe there's some other "personal" needs that I have.  I'm addressing a primary home with a different perspective.  It's not JUST about numbers here.  If the numbers work...but I feel unsafe living in that neighborhood...then guess what gets to take priority?  Keep in mind that this is your personal home.  It's not JUST about the numbers.

Hope all of that makes sense.

[Drew Sygit]

@Rania Mutumhe 

1) Try Zillow for tenant prospects

2) Check out the BiggerPockets Calculators. They have one for analyzing rentals.

[Rania Mutumhe]

thank you for all each and every response gives me something to glean from and learn to become a better investor. Thank you

[Rania Mutumhe]

hey guys, quick update we finally got our quad and we are super excited. As I mentioned before it is my friend and her husband and I. Each contributed a third of the amount for down payment, since I'm single I'm moving into one of the units and we got it at 5% down. As I have been listening to a lot of real estate youtube videos I realized that my moving into the unit is a major contribution to this deal and instead of us paying 20% we got 5% yet we are contributing the same amount of money. We are in agreement that my moving into the apartment is a huge contribution but dont know how to factor it into the deal. Any suggestions or recommendations? thank you