All Forum Posts by: Katherine Serrell

I have never heard of such a process. I moved out of my owner-occupied home I used a USDA loan on after 12 months to pursue another househack (just like you are doing) and I had zero issues. As long as you have lived in the home for 12 months you should have met your loan requirements and can rent it out. 

1. Your best option will be to use 5% down FHA loan for the duplex/triplex/quadplex househack. You used to be able to do 3.5% down FHA on a multifam or a 5% down conventional on a multifam. Recently, this was changed so now the guidelines state that for owner-occupied multifams (duplex/triplex/quadplex) you have to have 5% down for an FHA loan or 15% down for a conventional loan. (I had a client run into this issue last week on a duplex.)

2. Get a new lender!! and tell that new lender you will be renting out your owner-occupied home to purchase a new home and ask if there is anything you need to do since you have already met your minimum occupancy requirement. While I am 99.9% sure there wont be a problem, it has been a while since I have dealt with this so doesnt hurt to double check with your new lender. 

Just throwing this out there so maybe you can avoid this mistake.. on my second househack, I used an FHA loan. Unexpectedly, the underwriters made me justify why I was moving (didnt have anything to do with the USDA loan) and long story short, after speaking to a few lenders, you normally need a "jump" when you go from househack to househack because underwriters want to make sure your intent is to owner occupy for a minimum 12 months and not turn it into an investment property right away. This is apparently true for conventional loans as well.

That being said, I was told that if I went from my 1800 sq ft renovated 3 bed 3 bath home with a fenced-in, .25 acre backyard in a sought-after area and tried to buy a quadplex in an okay-ish area in the same city.... that wouldnt work. However, if I went from that 1800 sq ft house to a 1000 sq ft house but it was closer to downtown, walking distance from work, or moving to be closer to family etc etc that would probably be okay. You just have to have a good reason. 

Maybe you could get lucky and get around that "jump/upgrade" requirement somehow or maybe something has changed in the past couple of years but it is a good question to ask your lender prior to making offers. Feel free to message me and I can go into more detail if something doesnt make sense. 

@V.G Jason I do invest in my area but it is virtually impossible to BRRR in Raleigh, I was low on cash, and I didnt want to partner with anyone. Even if I could get lucky in my market, I wanted to BRRR where it was somewhat scalable. I would definitely go the out-of-state route again if I wanted to do another BRRR. The learning curve was just a bit rough.

@Lance Stokes Thanks, Lance! 

I had to come up with 90% of the ARV. At the time, the HML was estimating ARV would be 117k. (ARV ended up being 145k.)

I did find it difficult finding and dealing with a hard money lender without getting completely screwed over in the process. I was very happy with who I chose but it definitely wasn't the economical way to go. I was ultimately able to get approved by 2 or 3 different ones but every HML wanted you to have 3 deals under your belt. I was able to make a case for myself to where I believe they had some degree of confidence in me. I had two properties, I am a CPA and Realtor, and I had worked on large commercial REITs in the financial services space so I really harped on "I havent done this before but these are the things I HAVE done before" and when I sent over deals I ran the numbers conservatively and basically tried to make them "no-brainers" and served them on a golden platter to try and be easy to work with.

After I got through the first one, the HML said if I found another one where the numbers worked he would let me do 0% out of pocket. Unfortunately, in Jacksonville, its hard to find one of those deals again in this market.

@Drew C Grossman Thanks for reading! Yes it was quite the experience. Now that it has been a year and I have emotionally recovered.. maybe soon but I also have a few other options on the table to consider. Not sure if I will continue investing in Jacksonville since the appreciation plateau has made it a different playing field or if I will try venturing into a different market. 

Investment Info:

Single-family residence hard money loan investment.

Purchase price: $65,000
Cash invested: $22,000

I completed my first out-of-state BRRR on a 3 bed, 1 bath single-family home in Jacksonville, Fl zip code 32254. I used hard money and bought it site-unseen off the MLS after making dozens of offers. It wasn't a "perfect" BRRR but not bad for the first one (especially out-of-state). Here are the cliff notes:

Purchase price $65,000
Rehab $55,000
Appraised for $145,000
Monthly payment (PITI) $600
Monthly rent $1200
5 year ARM @ 5.00% (interest only for the first 3 years)

Had it rented in two days and had the tenant move in within 5 days of posting the add.

The long story...

Interviewed 3 contractors I connected with through referrals. Got quotes for all of them. Ended up going with the highest bid based on reviews and referrals (from my lender, realtor, and the local REIA). He was great. Had the work mostly completed within 4 weeks (less bathroom tile, and punch list items) and I drove down there to "trust but verify" it was in good shape. Everything was as-represented and I dove home to NC. Unfortunately, a few days later (on Thanksgiving Day), the property was broken into by a disgruntled electrician the contractor had fired (electrician had done this at other sites the contractor had him work on). I say it was broken into but in reality, it wasn't necessary to break in since the contractor never changed the locks or anything so the electrician let himself in with the lockbox and key. Now, I am sure you are thinking "why didn't you have an alarm system" well, we did, but the electrician was fired before he completed the work so the house was left without electricity or wifi. The electrician stole the INSTALLED GRANITE COUNTERTOPS (destroying the brand new cabnits), the INSTALLED kitchen sink, electrical panel (meticulously taken apart), the interior doors, HVAC, and all materials the contractor had left in the home. That being said, we had to start over and the contractor almost didn't get it done as a result of growing his business too fast and one poorly managed project snowballing into the next (Word on the street is that he has since skipped town and there are over 10 pending lawsuits.)

Lastly, the contractor assumed that this property was on city sewer. Its not. Its on septic. So, he drove heavy equipment through the backyard to clear the debris on the lot and crushed the septic tank and drain field. Didn't realize this until after the tenant moved in and texted "tubs not draining, toilets, not flushing, sinks aren't draining"... We couldn't prove it was the contractor so had to come out of pocket to fix.

Because we had to replace the tank and fix the drain field, we had to covert the system to an above-ground system to bring the property up to code which meant we had to install a sump pump, upgrade the electrical and run a new electric line to the sump pump. We had to have the tank pumped every week until we could get on the septic so our tenant could live a normal life. Apprx. $10,000-12,000 later, the septic system was fixed. Our tenant was naturally super upset and rightfully so, however, she was understanding and we sent a $200 amazon gift card to keep the relationship on track. She's been great and in good spirits ever since (and even renewed her lease).

Since then, the property has been self-managed remotely and I have had virtually no issues due to proper vetting, only accepting online payment methods, quarterly virtual inspections, and treating the tenant like a customer and not a tenant. I sent flowers on mother's day ($30) and sent her kid a birthday present ($25). Not that its necessary but I think a $55 investment into a 12 month relationship is worth it. As a result, I have received several calls from people asking if I had any properties available and stating that my tenant had referred them.

My key takeaways:
1. I am never buying a house on a septic system again.
2. Immediately after the demo, I will have the electrical done and a security system installed.
3. I will sub out the big-ticket, straightforward items myself (electric, plumbing, roof, HVAC, hot water heater) and leave the kitchen and bathroom remodels and other cosmetic stuff to a contractor or handyman.
4. If feasible, I will self-fund the rehab and buy the property with a normal loan that has a short seasoning period for refinancing
5. I will always send flowers on mothers day

Hi Zachary! Congrats on your journey. Just PM'd you. Would love to connect. 

First off, thank you for your service! ... If you can take the class for free, I personally believe it is worth taking just from a generic education standpoint even if you dont end up taking the exam or wanting to get licensed. I know a couple of people who did this and it was really worth it to them.

Even if you can get the license for free, if you want to get licensed... every year you still have random dues, fees, etc that you have to pay that can add up to thousands of dollars (MLS dues, Realtor dues, continuing education, license renewal, insurance, state business/privilege licenses, etc etc) to maintain your license (depending on what state you are in). You normally have to work under a broker for a while and go through the corporate red tape to do so. You also have to disclose that you are a licensed agent during any transaction (including off-market ones). Additionally, being a licensed agent can also open you up to a world of liability with your state's real estate commission and from a personal liability standpoint.

If what to be a realtor, then get your license. If you think you may be doing a high volume of deals, then it might be worth considering also. Its just a personal cost vs benefit. I love being an agent, but if I didn't... my time would be better spent focusing on other income-producing tasks or learning/improving relevant skills.

Just my two cents!! 

Hi Alaura - I would check out Rentometer. I really like it and use it when running rent comps for my clients and for myself. You can search for comps using several factors such as square footage, number of bedrooms, bathrooms, type (single fam, condo, etc). You can use it for free or pay for a more detailed version that actually pulls the addresses of the recently rented properties they are using as comps so you can look them up and see if they are similar to yours. This is especially helpful for those "unique" properties you mentioned. 

Your realtor is getting paid to provide you with decision-making information so dont feel bad about asking. If your realtor doesnt want to assist in providing rent data for their clients, they shouldn't be working with investors. Granted, I wouldn't ask your realtor about every single property you came across but for any that meet all of your other criteria and for ones you are seriously considering you should feel comfortable asking. I will say, based on my experience investing out-of-state, I have had realtors only use the MLS for rent comps and the reports they pulled were not accurate so just a friendly reminder to "trust but verify".

• CPA here. If the property isn't used for any rental purposes... You can generally deduct the mortgage interest, mortgage insurance premium, and property taxes on a second home. Things such HOAs, home owners insurance, depreciation, utilities, maintenance, repairs, title company fees, attorney's fees, and most closing costs are not deductible. Additionally, the IRS limits the total deduction for all state and local taxes (ex: real estate taxes, personal property taxes, state income taxes, sales taxes) to $10,000; or $5,000 if married filing separately.
• If this is a sale, the selling costs such as advertising, realtor's commission, broker fees, legal fees, and certain repairs can be deducted among other things but that is only if you are selling - not when you are buying.
• (As always, you should consult with your CPA regarding your personal tax situation.)

I use Google Voice for my tenants and company. One thing I really like about it is that you can have the same number on your phone as well as other phones so if I go out of town or on vacation... anyone who I put in charge in lieu of my absence can easily communicate with my tenants via text and i can see all the communication incase I need to step in. Its also very cheap and all messages can be sent to your email as well which is handy.

I still use my personal number as a real estate agent and for banking, vendors, pretty much everything else ... but as far as tenants, rental ads, etc I use Google Voice.