Quote from @Randall Alan:
From a financing perspective, you can only do a residential loan for a 1 to 4 unit property. Above 4 units and you are now talking about a commercial loan. So ideally you will want to stick with 1-4.
House hacking is definitely the cheapest way into multiple units... you only need the 3-5% down, versus 20%. Your next step would probably be to reach out to a mortgage broker and let him tell you what you can afford and sort of pre-qualify you both for the size of the loan, as well as tell you all the things to do / not do as far as getting you positioned to buy. He can also pull your credit, let you know where you would stand with a rate, any challenges they see, etc. Budget is important. One thing to ask is if and when they will count the additional rents on the other units of a multi-family house. Sometimes the lender wants a track record of those rents. So if you were buying into a multi-family that is vacant... that can be a problem. Underwriting always asks us for our leases on the units to allow us to offset the debt with the income the other units provide. No leases = no income offset = harder time qualifying, as your own income has to be used to support the purchase of a larger property. It can run into issues with debt to income ratios.
The other big challenge right now is that real estate is more expensive than it's been, AND money is more expensive, and will probably remain that way for at least the next year or two if I had to guess as prices try to reset from their recent run-up. Prices will start to ease off the higher the Fed cranks the interest rates if basic market dynamics play out. But unfortunately the lower housing prices will be offset by your payment going up because of the higher mortgage rates. Mortgage rates aren't tied directly to the Fed's rate changes - they track the 10 year treasury note more closely... but with that said, they do seem to follow along loosely with the Fed's actions.
I will tell you from my experience that finding single family homes are easier - just because there are more of them. With more investors looking for multi-family, and there being fewer of them, they are just a little harder to buy just due to the competition - especially if they have deeper pockets to be able to buy with cash, versus your financed offer. You can execute your plan the same way with a single family house though as you could with multi... live in it for a year, then move into a new single family. Yes - multi gives you extra income, and a little more stability if one side goes vacant... but don't write off single family if the deal is there. Given a choice - multi is a quicker way to get you where you want to be... but if you aren't finding any that work... maybe not. So just keep in mind there is a path with single family as well.
Wish you all the best!
Randy
Hi Randy,
Thanks for the awesome perspective and advice. I was hoping for a response exactly like that when I posted.
A couple of brief follow up questions for you -
House hacking is definitely the cheapest way into multiple units... you only need the 3-5% down, versus 20%.
This means living in the house allows you to put less down, correct? Or is it due to being a first-time home buyer?
Your next step would probably be to reach out to a mortgage broker...Would you suggest diversifying mortgage brokers options somehow? I've heard it's best to explore big banks vs small banks, etc. When we're ready to buy, do people typically leverage loan offers against each other to get a better deal?
You can execute your plan the same way with a single family house though as you could with multi... live in it for a year, then move into a new single family.
Can you suggest a good resource, or what should I search for learning how to invest in, and live in, single family homes for the purposes of investing rather than just for living.
I like your point on considering the cost of money right now although from what I've heard, affordability is getting better. It seems like the market is at a crossroads right now and is responding to the fed funds rate hikes in some atypical ways. My newbie feeling is that I would prefer to see housing prices come down even at the cost of rising mortgage rates, although that may be the "wrong" thought to have.
Thanks again and nice e-meeting you.
James
