All Forum Posts by: Aric Van Iterson

Fair enough, I guess what I was getting at is that if you're getting higher rents, is it a little easier to bend on the 1% rule?

This is a question in regards to adhering to the 1% rule.  I've been looking for a home to house hack in the Baton Rouge area and I've been struggling to find anything that would come close to achieving the 1% rule.  Now I know that finding a property at a great deal and doing DIY work to boost rent would help close the gap, but how stringent should I be with this?

For instance let's consider two cases that utilize my most likely financing strategy. Case 1 is a $100,000 property that rents for $1,000/month and Case 2 is a $160,000 property that rents for $1,500/month. Case 1 meets the 1% while Case 2 falls just short at 0.9375% (I handled all that hard math for you guys). Using the FHA Mortgage Calculator on usmortgagecalculator.org at 4.375% with 10% down, Case 1 would have a monthly payment with MIP of $520 and Case 2 would be $830 with MIP. Since CapEx and maintenance costs are pretty fixed (a roof isn't cheaper to replace just because the house is cheaper), let's assume I put aside $100/month for repairs and $200/month for CapEx for both cases. So, before considering taxes, insurance, and vacancy, Case 1 is $820/month while Case 2 is $1130/month. If you add in some estimated values for those costs, Case 1 actually cash flows -$50/month while Case 2 achieves an unimpressive, yet positive cash flow of $110/month.

So, although 1% is nice to have, it can't really be the only thing that you use to analyze a property.  Is there a monthly rent limit to where dropping below the 1% rule is ok?  Also, is there a similar rent where anything below it is considered a bad investment regardless of how good of a deal you got on the property?

@Brandon Johnson, thanks for the encouraging words.  I had already convinced myself that this was a solid plan, so hearing success stories from someone in the same market is reassuring.

@Jason Ruiz Do you mind giving me some contact information for the lenders?

Thanks for the advice @Robert Leonard, I started a forum earlier in the week in regards to purchasing a REO home for this exact reason. Do you happen to know any real estate agents in Baton Rouge that are experienced with REO properties?

I'm looking to buy a property within the next 5 months and want to get pre-approved for a loan before talking to any real estate agents.  Are there any recommendations in the Baton Rouge area for doing this?

My plan is to buy a SFH and house hack it with a few roommates for a few years. So, I'm pretty confident that I'll be using an FHA loan to get started. I have a great credit score and employment history, so there shouldn't be any issues with actually getting approved. Any advice is appreciated. Thanks.

@Brian Person I was speaking about the 1% rule in terms of if I wasn't house hacking the property.  So I'm also analyzing it so when I move out in the future, will the property still be a good investment and worth keeping.  Ideally I'd like to keep the property long term as an income stream, but if the numbers don't make sense I'll just sell the house once I move.  Like you said, breaking even for 3 years of house hacking is still a good investment versus losing 3 years of rent.

Thanks for your advice, I'll start looking into my financing options and I'll speak to a few real estate agents.  Hopefully I'll be able to get something that makes sense, but I'm not going to force a bad deal.

@Brian Person I hadn't planned on buying a property that needed extensive repairs.  Did you purposefully purchase a property that needed a lot of repairs or was that the only property that made sense from an investment perspective?  From what I've seen in my area, it's going to be pretty difficult to get a foreclosed house that still meets the 1% rule.  If buying a house in need of extensive renovations is the only way to achieve that, I may reconsider purchasing a home in this market.  Also, as a first time buyer, would you suggest not putting a large down payment down and leaving me more cash on hand to do upgrades to the house (new paint, vinyl plank flooring, minor repairs, etc.)?

@Kevin Hunter Thanks for the advice. I'll look into different financing options like you said as well as analyzing any deal based on one or two rooms becoming vacant. In your experience, is the process for purchasing a REO take additional time or is it comparable to a normal real estate sale? Also, thanks for the explanation on the process banks go through for listing properties.