All Forum Posts by: Danni Catambay

Conventional, owner occupied.

Hi fellow Investors,

I'm really excited to tell you that I'm ready to make my first offer on a first investment property! I'm nervous, scared, excited, eager -- so many emotions! I wanted to share with my community to see what insights you all came up with, and maybe get some encouragement to help me get over the fear of taking this huge step.

This is the property that I'm looking at:

https://www.realtor.com/reales...

It's a 3-1 built in 1964. It's got a full sized basement with parking for one vehicle (garage-basement?) and it sits on a 1-acre lot. The basement has a garage door and a separate entrance so it could reasonably be converted into living space for AirBnB'ing or a multi-family setup. The lot is large enough to divide and build a tiny house or a single-wide mobile home, of which there are many in the area. They're asking $169.9K and I'm planning to offer $147.5K and see if they bite. It's going to be a house hack, but what excites me most about it is that while it's immediately livable (an EXTREMELY hard find in my area for anything under $200K), it also has lots of potential room for expansion in a part of town that seems poised for a growth spurt in the near future. Here's some more background about the property and the market that I'm working in.

First, the rental income. Within 18 minutes of downtown Asheville (like my property-to-be) I've seen a LOT of people renting out bedrooms in their primary residences. For $450/mo you can get a tiny bedroom in a dump of a house that uses the living room for storage, shares the bathroom, and offers "furnishings" that look like they've been dumpster dived. For $750/mo you can get a similarly tiny room in a nicer house with shared bathroom and decent common area furnishings. I estimate that I can get $550/mo conservatively for two of the three bedrooms, which puts me at $1100/mo. If I were to rent the third bedroom out, that would get me up to $1650, which is well into the 1% rule range, even if I paid the full asking price, but this is a house hack...

My current living arrangement is $640/mo including utilities. So comparing this house, financed for a $800/mo payment and rented to capacity, will immediately reduce my living costs by $940/mo. Screaming deal!!!

Now, I know that I haven't budgeted maintenance or capEx into this equation, but if you take 1% of the purchase price as estimated maintenance you get $1470/yr for maintenance. So I put the first two months' savings into my maintenance fund and the next ten go towards a deposit for my next house. In two years I've recouped my initial down payment of $20K and I'm ready to start the process again.

As a first deal, I'm very, very nervous. My income is barely enough to live on so there's a lot riding on getting this right. But when viewed as a choice between positive cash flow and renting for an indeterminate period of time, I think it's  no-brainer. I just got prequalified so I'm ready to move...whenever I'm ready to move! Haha ^^

Thoughts? Input? Words of caution?

Thanks y'all! Really glad I could share here and tap your insights. 

tl;dr-the-responses beyond page one but... what about co-borrowing a homeowner's mortgage with your husband? You'd have to move in to your investment property to qualify, but it would in all other ways be a first investment deal in your portfolio which you could use to gain experience and convince lenders that your business acumen is up to par.

Can I bump this thread? I have exactly the same question: What are the concerns and challenges with house hacking with regards to personal liability? If you're qualifying for the mortgage based on your personal credit, can you still own the property through an LLC? Does it make sense if it's your first investment?

Hi @Matt Castle! 

I confirmed they're on m2m's and are aware the property is up for sale. It's a good point to ask them if they'd be willing to relocate and offer as much flexibility as possible. I suppose that's just par for a (renter's) course?

I've been living in my truck for a while and love it. Would it violate "owner occupied" if I parked the truck on the property and continued to rent out both? Just trying to wrap my head around options here （＾ω＾） 
 

Since I'm trying to house hack I'm restricted to where I can reasonably commute to. I've got a search parameter set for 30min from my job. It includes some countryside, but the market here is just out of sync with the economics. Too many retirees and vacation home owners

What's the benefit of a USDA in this situation?

So, I finally found a deal that interests me in my area. A 4/2 duplex 1500 sqft with 100% occupancy @ $1550/mo. Asking $169.9K. I'd offer $150 and see if they bite...

But here's the catch: I need to live in it to qualify for financing. If I tell one family to leave I worry that I'd create a negative vibe with the remaining tenants. But kicking both out and putting it all up for rent again seems wasteful.

I want this to be an option, but I'm stuck. Any ideas how I could make this work?

I see where you were going with this. And I agree -- house hacking has slightly different cost/benefit analysis than a straight up rental. Basically you have to compare what your cash flow is in your current rental situation vs. in a hack. For example:

Current: Renting a tiny apartment for $150/wk utilities included

-> Current cash flow = -640/mo

VS.

House hack @170K purchase price, (say) 1000/mo rental income. PITI = $850. Utilities 150. Maintenance etc est = 150 (for easy math) vacancy = 0% (for easy math)

-> Alternative cash flow = 1000 - 850 - 150 - 150 = -$150/mo

So in this set up I'd still be negative cash flowing, just way better than if I was in a rental.

Now, the only part of this comparison that I haven't quite gotten my head around is the ROI -- the rental purchase requires an outlay of several thousand in cash down payment that the rental doesn't. This is where I'm not sure how far to deviate from the 1% because as long as I'm net positive for the month with all my other expenses (food, gas, general living etc), it could be a better use of my funds to wait in the rental until I have a larger down payment/better ROI deal. Just not sure how that math works out.

@Carrie K. -- That's about the game plan I have been considering. Although, with your example I'm a little confused 400/mo x3 rooms = 1200 income and 1400 outflow in PITI only. Am I missing something?

What I'm understanding from reading yours and other people's examples is that the 1% rule is a rough guide to get you to a point of positive cash flow, but that the amount of net income you take home at the end of the month (year) is really a personal choice. If the markets offer you 1% -- whoopie! because it means you're beating the stock market in returns. If the market doesn't offer you 1%, but you're still taking home something decent, you could still beat the stock market or achieve some other goal, such as matching the stock market but with less volatility, and be ok.

Thanks to everyone for their comments! I'm feeling a little more positive about my options now. Off too see a house this morning!

Hi All,

We've all heard of the 1% rule by now (and if not, duckDuckGo it). But we're also in a weird housing market where urban areas all over the country are facing housing shortages leading to sky high home prices that just can't seem to command their fair share in rent.

I heard another investor on Bigger Pockets say that too many people let the 1% rule prevent them from getting started.

So I thought I'd start a discussion to hear stories from people who have made a deal that didn't at first meet the 1% rule for a rental property nonetheless turn into a profitable investment. I'm curious to know:

1. If it didn't meet the 1% rule when you made your initial offer, what made you think it was a good deal?
2. What were your market conditions that made 1% properties scarce enough to consider the deal?
3. Did you have any specific goals for the property other than just stellar cash flow?
4. Did you do anything creative to turn a humdrum property into something profitable?

I'm hungry to know everything I can learn! Please share your stories.