All Forum Posts by: Michael K Gallagher

I'll beat the same dead horse that is....if you can make the conventional work do it, its the better option, but if you can't there is nothing wrong at all with FHA, and it's a great tool to get into a House hack. Thats what we did. You can always refi later back to conventional.

I do all of the reading, the looking at deals, the analyzing, but the main reason that my wife and I are in a position to have a duplex and a single family is because of my wife. She is my REI secret weapon. So in order to hopefully help others engage their spouse or partner in REI...below are some key life events and how my wife, and partner, was so key to our success.

1) Bought out first house, sold our first house two years later for a large profit, because my wife works and has such a great income we were able to afford that first house in the burbs. 

2) house in the burbs appreciates in value in 2 years, we sell it, take that money, buy a duplex, house hack it, and drop our living expenses by more than 50%.  The only reason I could house hack the duplex was because my wife was ok enough with the idea of long term wealth and our future, that a couple years in a duplex was worth it to her. She didn't have to really understand or care about the fine details, all she needed to know and be ok with is that living in a duplex would let us cut costs and save more for the future.

3) I was able to start my on LLC. With our costs were so low, because of the house hack, and because my wife still has a great job, last year I was able to start my own LLC and take a risk that, had we not been living in a duplex, I would not have been able to take.

4) My wife literally bought the new house.  We just closed on a single family to be a primary residence, and because my wife has a great W2, and we have income from the duplex, she was able to buy our current home in her own name, and qualify for some credits because my income as a 1099 didn't count.  

Long story short, I would not be where I am currently in life without a key life partner who may not know anything about cash on cash returns, or the BRRRRR method, but she has been the most important part of the investing we've been able to do so far.

@Chris Parker this is fantastic I love the plan.  I recently read "the pumpkin Plan" and your idea strikes me as something along the lines of a "giant pumpkin" taken from the book.  It's specific, its niche, and it is repeatable and standard enough that you could build systems around it to scale it.  From a numbers point of view perhaps its worth establishing investment metrics, not only to purchase a property, or screen your leads in a way, but also as a performing asset.  If you are going to take this on you'll need to think about what does a successful SF rental look like as a performing investment for you, and then track each property based on those "success" metrics.  That way if at property number 50, you are finding that property number 15 that you bought really isn't performing that well, and you can adjust what you are doing there, or perhaps just sell it and take a small profit and run. 

Its one thing to "like the idea" of 100 single family rentals as a portfolio, and its another to successfully execute that portfolio, but you seem like a numbers person and I have no doubt that you'll just get more and more efficient the more of these you buy.  You'll develop relationships in the markets, and things will get easier and easier the more you buy...so it is a great strategy!  

Good luck!  

Hey @George Penree welcome! I am just moving out of my house hack in South of main in Columbus over on the east side. We lived in one side of our duplex and rented the other for 2 years up until about two weeks ago. If you have any questions about shopping for one or finding one I'd be happy to go over numbers and what we looked for. I'd also encourage you to consider the FHA loan option as its one of the cheapest down payments to get into a duplex!

I managed it myself and still manage it. I've mostly been using zillow rental manager and its been a really nice platform.  I'm also a pro member on bigger pockets and take advantage of all the OH legal documents we get access to, for sure worth it.

So again more than happy to talk specifics if you are looking at certain properties or areas...and share what my experience has been...but overall house hacking in general opened up so many other doors in my life, so I'm a huge fan and I'd say do it!  and do it sooner rather than later.  

Cheers, 

Michael 

Hi NA Col, 

Welcome.

1) I'd personally lean towards a cash out refi especially because interest rates are ridiculously low at the moment.

2) I'd focus your math and scenarios around how much, you mentioned student loans, can you comfortably pay off, and still have enough cash on hand to make another deal.  I'm assuming your student loan debt is probably north of 6% interest, and I follow the school of thought that if you can take some of your refi cash and get either the loans totally paid off, or close to nothing, thats a good first move to set you up long term.  Plus it goes towards your Debt to income ratio.

3) You mentioned passive income, so to me this means long term rentals.  Therefore I'd say instead of selling your current house, or the family's house, simply keep them as rentals.  You already have a 2 door portfolio.  

So the whole thing from a high view, If it were me me... cash out refinancing your properties to get at the cash, and not sell them.  Take that cash, pay down higher interest debt. Re-alocate the money you would normally spend on those loans into a savings account for future projects, or you can also take that payment and apply it to one of your houses principals.  From there I'd say to start looking for your next property and try to make it either a duplex you can house hack or another single family perhaps with a double master that is ideal for a house hack also.  You could focus on slightly outdated properties to get a better deal, and use some of your cash to rehab and force appreciate.  You mention above wanting to be able to "quit your day jobs" well if you can live for free or even make a little money through a house hack, that really gets you a lot closer to being financially free.  

Getting our duplex that we house hacked, really set me up in a lot of ways to be able to take some risks in other areas of my life that had I still been living in the single family in the burbs, I would not have been able to.  So I have nothing but good things to say about house hacking.

Cheers, 

Michael    

@Jennifer Horowitz My personal opinion would be to start with the Duplex.  By starting as an owner occupant, you can 1) really learn the ins and outs of land lording on a smaller scale, and 2) bring your living expenses to almost 0 hopefully.  

And if you can stick it out and live their for at least 2 years you can sell it and not owe tax on that income from the sale.  So that alone could be worth starting there, and then taking that capitol from the sale and putting it into other deals.  

Once you have a year of tax returns for the rent from the duplex you should have enough documentation to prove that income and go shopping for a single family. FHA vs conventional I think comes down to downpayment basically, If you have the 20% down its 99% better for the long term to go conventional, but if you don't the 3.5% FHA downpayment lets you get into that house hack sooner and get moving on it, and you can always refi later.

Good luck!

@Sammy Ismail I did not see it on your list, but my sister lives in a tri-plex in University heights, and the numbers on it I ran based off her rent and comps on the market currently were pretty impressive!  The only thing I found in my research was that the property taxes in that area were almost as much as the P&I, so that I was shocked by!  But the numbers still ran pretty well, considering triplexes and duplexes in that area are on the market for under 200K.  And rents are around 900-950 per unit.  

@Ashley Budyak I'd second, The FHA option. I bought a Duplex and am house hacking it through an FHA. you can do a low downpayment, and although it might not be the best cash flowing deal right out of the gate, it will drastically reduce your cost of living in the short term and allow you to save for future deals. Plus you can always refi it later into a conventional loan and probably drop 200-300 dollars off the mortgage due to PMI (obviously depending on what your PMI is). And as a side bonus if you mange it yourself and report that income on your tax returns you can count that income towards your DTI and get approved through that. Plus it will let you understand the ins and outs of being a land lord first hand on a small controllable scale.

You can go a couple ways depending on what you personally would like. You can live in the one unit all to yourself, or of course if it is multi bedroom rent out the rooms in your unit, and rent out the other unit.  That way you will probably be making money, if not at least living for free.  

Good luck!

 Hey @David King If you want to do it manually this is usually the equation I follow.  There are some other ones depending on how often the loan is compounded but this seems to be pretty standard:  PS I just found this on google at some point...

The following formula is used to calculate the fixed monthly payment (P) required to fully amortize a loan of L dollars over a term of n months at a monthly interest rate of c. [If the quoted rate is 6%, for example, c is .06/12 or .005].

.0275/12=.0022
So in your case it would be P=175000[(.0022)(1.0022)^360]/[(1.0022)^360-1]

P=175000[.0022(2.2058)]/[1.2058]

P=175000[.00485]/1.2058

P=849.223/1.2058

P=$704.29

So not sure if thats even right for your case, but it did come out less than your above work.  

 I can't tell you exactly what you did wrong but I can say that you are for sure doing it the hard way! Which is great for learning purposes but what I normally do is find a property close to the one I'm looking at on Realtor.com and then just change those numbers in their "monthly payment section" to match my numbers.  This way it gives you the full picture, including taxes, and Ins.  Now obviously insurance is going to depend on your policy but this usually gets me 90-95% of the way there.

Alternatively google has a great mortgage calculator built right in that will do all the math for you!

Hope this helped.  

Cheers,     

@Funsho Adesanya I currently have an FHA on my duplex and have had the same question for my lender and they have said yes absolutely. Obviously you need to meet all the DTI ratios and employment requirements but yes getting another FHA after refi into conventional is 100% allowed, at least from what my lender told me when I asked this exact question.

Cheers, 

Michael