All Forum Posts by: Austin Negron

Hi everyone. Here are what I believe to be the most important qualities of an exceptional realtor for your first house hack. 

1. Running Numbers

At a bare minimum, it's important find a realtor that generally understands the numbers, but it's even more helpful to find a realtor that will take the time to sit down with you and run the numbers together to ensure you know exactly how the financials of the deal look. If they don't know how to run the numbers of a house hack or aren't willing to take the time to sit down with you, then they probably aren't a great choice when you are making the largest financial investment of your life.  If your realtor says that 'everyone home is an investment', slap them on the face and run as fast as you can. That is a nightmare waiting to happen.  

2. Isn't Pushy

Realtors should be more transparent with their self-interest. They are looking to make money. They certainly would not be helping you pull together your house hack if they weren't going to profit on the back end. This isn't a bad thing - it's just important to be transparent about the situation. If someone says "I really don't care about the money! I care about providing value to you!" - The lie detector determined that is a lie. Ask them if they'll help you for free and see how quickly they don't care about you making a lucrative investment. 

Like I said, it's not a bad thing - the bad thing is not being aware about the reality of the situation. With that being said, if you feel like your realtor somehow thinks every property is a good deal or pushes you in a direction that makes you feel uncomfortable, then please find a realtor who is patient, calm & empathetic of your situation and emotions. 

3. Extra Mile & Responsiveness

Find a realtor that is extremely responsive that is willing to go the extra mile for you. There will be times throughout the house hack process when you have a question, and not hearing back from your realtor for 20 minutes may feel like 20 hours. It's not necessarily the end of the world, and more often then not the situation isn't as urgent as you may think, but regardless, having a realtor that is empathetic towards the fragility of the situation and responds quickly to mitigate your stress is extremely valuable and important. It may be worthwhile to ask your realtor how many clients they are currently working with. If they have 10 clients and you are the 11th, you may not get the attention and responsiveness that you need, especially if you are not a seasoned investor that's been through the process many times. 

Hope this helps! 

Good morning my sweet people. This is a real example of a property that I checked out with a client - and I believe it provides insight into how the numbers can look on these type of deals.

I will breakdown the spreadsheet in 3 ways:

Figure 1 - While Living There

Figure 2 - When Moved Out

Figure 3 - After Private Mortgage Insurance (PMI) (This deserves its own article, I shall write on this in the near future. In the meantime, I linked a general description of what PMI is and how it works)

OK...I am going to show you a picture of the spreadsheet...promise me you won't freak out or get overwhelmed. Promise? Let's begin...

Figure 1 (While Living There)

Hey! You told me you weren't going to freak out. But it's ok. I will break it down for you. I don't mean by dancing either. For those that know me are well aware dancing has never been one of my strong suits. But enough of my nonsense.

Also, I must give credit where it's due - this spreadsheet was in large part created by Will Rawlings, one of my best friends. So we can blame Will for this stress inducing piece of art.

At the end of the day, the main things to keep in mind are Cash ROI (also called Cash on Cash Return) and Total ROI. Learn more about CoC and ROI here.

Oh, I forgot to mention that the dark blue boxes are the fields that require inputs to spit out the final numbers we care about.

Here are the assumptions we make:

Purchase Price: $485,000

Improvements: $3,000

Interest Rate: 2.6%

Downpayment: 3.5% (this is the downpayment for an FHA loan)

Vacancy Rate: 3% (usually 5-10% but this was an area of Boston that is almost guaranteed to always be occupied)

Total Rent: $3,000 (this isn't an assumption - this is what it's currently getting per month)

Here are the related expenses:

Taxes: $2,500

Insurance: $1,700

Maintenance and Repairs: $1,000

CapEx (Reserves): $270/mo

Private Mortgage Insurance (PMI): $500/mo

Note for PMI, this is only paid until you have 20% of equity in the home. Can you guess the amount of equity you have at the beginning of acquiring the home? 3.5% - the initial downpayment - and this increase every month as you (& your tenants) pay your mortgage.

When you get 20% equity, you stop paying for PMI - which will be a huge factor into turning this into a cash cow.

So, if you were to move into this house, the initial Cash on Cash would be -7.36% (assuming our assumptions are correct). But what really matters is that you would be paying $167/mo to cover the rest of the expenses related to the property after the tenants paid rent. This essentially means you are living for $167/mo - so you're not exactly cash flowing quite yet, you are living in Boston for next to nothing. OK. Time for Round 2.

Figure 2 (After Moved Out)

Congratulations! You've lived here for a year as your primary residence and you are now allowed to live elsewhere (and house hack another property!!!)

The main thing we changed here was increasing the rent from $3,000/mo to $3,600/mo.

There were 6 tenants in this home, including yourself. You charge an extra $25/tenant/mo which is $125/mo and rent out your old room to another tenant for $475/mo. And bam - $3,600/ mo.

And now look at our Cash ROI - higher than 20% in Year 2. Things are starting to look good. Oh, and a 116% return is just bonkers. This is because you only put 3.5% down on a ~$500,000 property and had the tenants pay the mortgage for the most part. Welcome to real estate!

But wait... the best is yet to come...we haven't even gotten rid of the PMI payment yet.

Figure 3 (After Private Mortgage Insurance)

Good things come to those who wait. Based off of these assumptions, around Year 6 or 7, you will have paid the 20% of your mortgage that is necessary to remove the PMI payment (this is assuming you don't use your extra cash flow towards paying off the mortgage quicker, so in reality you can probably get to 20% equity by Year 4 or 5). But at this point, the numbers just look ridiculous - nearly 56% Cash ROI in Year 7. The numbers yield $14,463/year or about $1,205/mo of straight cash flow. That's a pretty good deal!

Now take into account, there may be years where you have to use some of this cash flow to maintain the property.

Overall, this is how I run the numbers at a higher-level overview and gives a good gauge of what to generally expect.

It's clear that this is a pretty good deal, assuming our numbers are correct. In fact, it might be one of the best deals I've seen so far. However, we ended up not placing an offer for a few reasons. We learned that it would be difficult to attain financing because of the leases that were already locked in and wouldn't be able to close on this until late June. On top of that, the house was pretty crammed and didn't come with any parking. But oh well, there's plenty of deals out there.

In a nutshell, that's how it's done. I understand it might be a bit overwhelming, but like anything, it becomes a lot more digestible the more you practice.

I hope this article helps!

Goodmorning my sweet people. I hope you enjoyed your weekend. I wouldn't say Monday is my favorite day of the week, but it's certainly up there. Most of the days feel pretty similar to me nowadays - my schedule for a Monday is more or less the same as my Saturday schedule. I like it that way - it helps me look forward to most everyday and not dread the typical 'bad days.

I make the assumption that the spectrum of people reading this article ranges from 'I've already house hacked my first property' to 'I have never heard of such a thing.'

There are many different ways to house hack your first property, and a key thing to think about going into your first acquisition is if you want a single family or multi family property.

For a single family (also denoted as SF in the real estate world), essentially you would be renting out by the room. If you are acquire, say a 5 bedroom home, you can live in one room and rent out the other four.

In this context, a multi family (also denoted as MF) refers to properties with 2-4 units. In this instance, you would live in one unit and rent out the other units. For the record, let's say each of these units are 3 bedrooms, you could rent them each out by the room, if you so choose.

There are some pros & cons to both of these strategies. I've seen both single and multi family properties perform extremely well but the approach may be slightly different.

Single Family Pros & Cons

Pros

Renting by the room has a higher likelihood to cashflow (renting individually produces more revenue than renting in 'bulk')

Being that you'd be living in the same house as your tenant, it is easier to ensure that you are receiving your rent on time and you have supervision of your dwelling.

It is generally easier to get approved for a single family and the doesn't apply. Also, cash reserves aren't a requirement to attain the mortgage. (Note that this is the case for both single-family and 2-unit properties: 3 & 4 units are a bit trickier)

Cons

• Living with your tenants until you move out
• Will likely have a lease for each tenant which is a bit more complex to manage. If you have 5 bedrooms (and assuming you've moved out already), you might have 5 leases for each of the 5 tenants, as opposed to if you had a 2-unit property where you could just manage 2 leases (however, you could also rent each of the bedrooms in the 2 units if you wanted, but you at least have that flexibility with multi-families).

Multi Family Pros & Cons

Pros

• Live in one unit and rent out the other unit (assuming you don't want to rent out the bedrooms in your unit as well)
• Easier to manage the leases if you are renting out by unit

Cons

• Might be a bit trickier for extreme cashflow because you're charging rents by the unit instead of by room (unless you choose to rent by room)
• You're not living directly with the tenants so there is slightly less supervision (but then again, you're eventually going to move out of the investment property whether it's a single family or multifamily so this 'con' is inevitable)

All in all, the house hacking process is generally the same, but as I noted, there are some slight variations which lead to slightly different strategies. Here are the biggest takeaways:

For SF's, you may have to manage multiple leases if you are renting out per room, which is a bit more tedious than renting out by the unit, but this ultimately presents an opportunity for greater returns.

For MF's, you have the flexibility to either rent per unit, or rent by the room in each of the units. If you choose to rent per unit, you may realize a slightly lower return but this very well may be worth the opportunity cost of easily managing a single lease per unit as opposed to per room.

I hope this article gave you some insight into house hacking a single family vs. a multi family. Of course, this is a high-level overview - there are a bit more specifics with each choice but these are the general things to keep in mind. They both can work extremely well - and they both provide a great opportunity in terms of getting your foot into the real estate investing world.

These are some really good points - I often harp on the important of keeping the SST in mind - especially because it seems to be an important concept that isn't mentioned enough. 

In regard to reserves - this is also true - I've been told to generally use 70% of the 401K amount because of the taxes for dipping into those funds.

Can you expand on the idea you brought up about qualifying for a largest loan by occupying the 'least expensive' unit - from my understanding - it doesn't matter which units are being occupied by whom. But I could be incorrect. Please let me know what you've learned from your experience. 

Learnt some interesting stuff today. For using an on 3&4 unit MF, you cannot use a gift as cash reserves. I believe you need at least 3 months of cash reserves (at least according to 1 lender). BUT! You can use the gift to make the downpayment - and use your capital saved as the reserved instead of using that as the downpayment. Just a fun little thing I thought was interesting and will definitely come in useful down the line. Do you guys know of some other funky maneuvers in regards to gift and pulling off househacks w/ FHAs?

There are a few things in life I am willing to bet on.

Here are 3 of them:

The pope is Catholic.

The sun will rise tomorrow.

I will never stop acquiring real estate rentals.

One thing I am able to do well in recognize long-term trends.

Some examples of this was my ability to see Lemonade at $46 (now at $120), Palantir at $10 (now at $23), and XL Fleet at $11 (now at $22).

And now I am seeing something again: the upside & future of real estate rentals.

It's difficult for me to see a situation where those who start acquiring rental properties now will lose long term. Saying rental real estate is a good bet is not some sort of Skip Bayless-style hot take - it is generally pretty sensible - and most investors would agree. However, what I'm starting to see and the future I envision makes me even more bullish of rentals than the typical investor. These are 3 reasons I will personally be continuing to acquire rentals for the rest of my life.

1. Trend

Let's take a look at this graph. This is the percentage of homeownership in America over the last 20 years. The general trend shows that homeownership has been

going down. There's been a recent spike over the last five years, but my intuition tells me this trend will continue downward. And this is for a few reasons. I think the biggest is Gen-Z.

We no longer live in a world where the idea of a good life is getting a stable, 9-5 job, coming home to your family, and living in your house for 25 years. The future young adults want to be YouTubers, TikTok stars, and life style influencers. We're also getting away from a world where it's necessary to be in a still location to do your job effectively. Technology advancements are enabling us to do mostly everything remotely, and there is no reason to think this will slow down. People want to travel & experience different places - not live in the same crusty home for the rest of their lives.

This is great news for the rental property owner because there will be increased demand for renting (especially in desirable areas). This positions rental property owners to charge a premium for their humble abodes. That is reason #1. And you may be asking, but what if these people don't want to live in these rentals for very long? Then what? In comes reasons #2.

2. Airbnb

I am very bullish on Airbnb. I love their leadership & believe their business model is shaped for the future. If people don't want to live in these rental properties for say, 5 years, which typically would yield a reliable, stable return for the investor, that is fine. It turns out, Airbnb has been able to yield even higher returns for investors because they can charge a premium for the short stays. With that being said - I see a win-win for the investor. If they find someone that wants to live in the rental long term, then great. But if not, Airbnb comes in to save the day. The key is that the general trend is less home ownership, more renting. Our generation loves flexibility. And in both situations, winner is the investor. This leads me to reason #3.

3. Generational Wealth

With these strong convictions, I would be a fool to not take advantage of the opportunity at my finger tips. Keeping reasons one & two in mind, it is clear to me that continuing to acquire rental properties will lead to generational wealth. This is why I am adamant about getting started as soon as possible. One match can start a whole fire - and in this case, acquiring that first househack is the match and generational wealth is the fire.

@Todd Wheatley

Hi Todd. Hope you've been doing well since we last spoke. I do plan to put them on MLS in the new year but sellers are interested in the opportunity to move some of these before then if possible. I was trying to come up with some strategies to target these individuals that are interested in these deals w strong rents but haven't come up with a clear game plan. But to your point, if they don't get traction, definitely will just go to market. Talk soon.

I have a problem. I have multiple off-market 3-family listings in the dorchester area. They all have extremely strong rent rolls and are in good condition, but they are not for the typical "value-add" investor who is looking for huge renovations or under market rents. They are priced according to their cap rate and their strong rents. I was thinking about getting in contact with some family offices to see if they'd be interested in these "safe" investments. Does anyone have any advice? Thanks in advance. - Austin

Was reading more into Masshousing Conventional Loans this morning...there are definitely some favorable aspects to this type of loan. 

Some things that it provides:

- low-and no-down payment 

- downpayment loan of 5% or $15,000

- applies on properties 1-4 units

- $2,500 closing credit

- mortgage payment protection (if you lose your job)

This, and a few other articles, mention that a key feature is that there are income limits to apply to these loans with seemingly little-to-no clarity about how these income limits are decided.

Does anyone have any insights on how they go about addressing income limits? Does it vary person to person? Neighborhood to neighborhood? Is there a general rule of thumb to use when guesstimating how much the income limits on specific properties would be?

How has your experience with these Masshousing Loans been?

Thanks in advance!

Oh, and here's the article I read: https://www.mymassmortgage.org...