Road Map to a successful HouseHack

Road Map to a Successful HouseHack

The set up. Its a clear day, the birds are chirping, and the light cool breeze is carrying the fresh smell of cut grass, and the sound of children playing through the street. Only problem is, your barricaded inside your dark office about to start brewing your 3rd pot of coffee for the evening. The deeper you dive into the realm of cashflow, cash on cash returns, property expenses, market rents, interest rates, ect. The more you come to the obvious solution it would just be best to continue to live in your parents house or maybe under a nice bridge. We have now entered the realm of analyses paralyses! 

This blog post is specifically for first time investors taking the leap into not just home ownership, but investing as well. The first leap IS THE HARDEST. When you have zero frame of reference of what to expect in your market. All that leaves you is your trusty spreadsheet, forum posts of what others are experiencing, and your unflinching trust in your agent.(Which I know you have) 

By the time your done reading this you will have a clear set of guildlines you need to confidently move into your first househack! as well as some grounding beliefs that you can fall back on when your offer gets accepted, everything gets very real, and the room starts to shrink as the universe slowly implodes.  Without further ado...

First stop on the road map! 

1. Getting pre approved!                   

Getting Pre approved is always the first step. How much you can afford will tell us where/what you can afford to buy. 

HouseHackers are a unique group in my opinion. Your investors and homeowners. This gives you an interesting vantage point. You can take advantage of Government loans like  low down payment VA, FHA, FHA203k, 3-5% Conventional loans. Putting little money into the deal Boosts your Cash on cash return, provides little risk, and gives you cash left over to make repairs and boost rent!   

PRO TIP: Low down conventional loan makes for the most competitive offer. Make sure when buying FHA, that the seller is willing to accept an FHA offer. Generally this means they have to make repairs, which seller don't like doing.(especially in this market) If you can't get this loan, don't be discourage! the benefits of an FHA loan still out way going the 20% down route in my opinion.   

2. Locate an Area you ACTUALLY LIKE 

This is so important! Life is uncertain. You could be living in this property for more than just that one year you planned on originally. Don't settle, or live somewhere you feel uncomfortable in the pursuit of chasing cashflow.

If you are priced out of your market or confronted with low inventory issues, a good option is to switch up what your looking for. Maybe I can't afford a multi unit. But what about a single family home that needs some work? 

Remember to be honest with yourself. Identify what type of buyer you are. Busy husband/wife with high paying w2 job? Or young grinder looking to maximize the money you have? Or somewhere in between? The amount of time you have, the life style you enjoy, and your budget will ultimately determine the best property for you. Make sure your agent has a clear vision of who you are, and what your looking for.

PRO TIP: It's best to drive around the area to get a feel for it. Ride a bike or go for a walk. 

3. The Tenant Situation

 The next two points are in regards to multi unit housing. Dealing with tenants. It's usually in the best interest of the buyer, to purchase a home that is... 

vacant (or has one vacant unit). This will allow you to make any immediate repairs/upgrades and capture market rent, with tenants YOU selected. All without having to be the guy that jacks up everyone's rent or kick people out. Act fast on these properties, they tend to move off the market faster! 

 month to month lease is also okay. This way you can ask them to vacate or raise rents when the lease is up at the end of the month. Not the end of the year.  

Make sure you READ the lease from the seller! it's also best practice to meet the tenants you will be inheriting in person. Make sure they are paying regularly and don't seem to be causing issues. 

Last ditch effort is to make the deal contingent on the property being delivered vacant. This will allow you to submit a competitive offer and take the risk off you. Sometimes this works. Sometimes it can take months to close!! plan accordingly  

PRO TIP: Make sure you ask your agent about tenant laws. Some state are more landlord friendly(GOOD) and some are more tenant friendly(BAD). You need to know your exact legal recourse, should things go off the rails. 

4. The Utility Situation

Ask if the utilities are split! If not, you will be paying an extra bill (reducing Cashflow) and will usually strain the tenant relationship if you have to put a governance system into place. (Say if they like it REALLY warm/cold). You can always ask for a cash credit towards utilities in a new lease, but its easier if everything is split in the first place.

5. The Bottom line 

Here is where the rubber meets the road! How can I tell if I'm getting a good deal?!?! This is where a lot of people freak out. I'm going to keep this simple. Ask yourself these basic questions....

1. When I live in the property is my current bottom line better than market rent? If so that is a win 

2. When I move out will I break even or cashflow? hopefully your drowning in cashflow! however not every market is primed for strong cashflow, and doesn't necessarily make a deal a "bad investment."  

Pep Talk Time! 

You did it. You made it through the technical part. Your motivated! Your discipline! Your drop dead sexy and everybody knows it! Even though you are a model citizen and a fine specimen of a human being, at times you may feel unsure. Its in those moments of self doubt you must rise above and keep pushing. When your brain has totally taken over and is running through every negative scenario. I encourage you to FIGHT BACK and ground yourself with this!...  

HouseHacking is the best first investment! 

If your currently paying rent. Buying a househack that doesn't cashflow is still better than what your doing. 

Househacking is better than living in a primary residents because mortgage company will lend you more money if you have paying tenants. In a time when people are losing buying power you are maximizing your leverage!

You could buy other investments. But a Househack will lay the foundation for success. It will provide you with real life experience no book or course can give you, building confidence. Most importantly it will reduce your living expenses, making it that much easier to save for your next investment! 

In Conclusion 

   Everyone has different needs based on their life style, and lives in a different market. This is why Househacking is so dynamic, and not as cut and dry as purchasing a "regular" investment property. Focus goes from "is this a good investment?" to "is this a good investment for me?" (My Market/My life style/My budget) 

simple check list summary. If a property meets all of these, confidently put in an offer!

1. Is property vacant or nice tenants on month to month lease? 

2. can I purchase with FHA loan? 

3. Are the utilities Split? 

4. Is this property good for me? 

5. Will I cashflow when I leave? 

Hope you enjoyed reading this as much as I enjoyed writing it. 

Sincerely, Austen Mueller