All Forum Posts by: Nick Coons

@Nicholas Acevedo Lots of variables to consider here:

- What does management look like for you from afar? Are you managing it yourself? Will you need to employ a management company once you move out of state, and is that taken into account regarding your cash flow?

- How has the property been so far? Has it been a pain to manage, or has it been easy to own? If there are any problems managing it now, will moving out of state exacerbate those?

- What are your long-term goals? Are you interested in acquiring more property that you can use the $50k for, or are you looking to get out and just want to understand the best way to profit from this property as an exit?

- What does the market look like where the property is, versus what is the market like where you're moving to, and would owning locally where you live be a better option?

- If you want to acquire more properties, are you able to do that without selling this property, or do you need the $50k in order to do that?

What you should do will depend on answers to these questions and probably many others.

@Jonathan R McLaughlin

So DVDs are "retro" now? Wow, I'm old.

I'd go with a VHS tape and VCR.. don't set the clock so it flashes 12:00, and be sure to "be kind..." before each guest arrives.

Quote from @Andrew McGuire:

@Nick Coons

I started my career with a house hack but not in the traditional sense, I had a young family and my wifes compromise was no one was living in our house and she wanted to own. My plan at the time was to sell our primary and use the equity to buy my first 2 rentals. What ended up happening to meet "the compromise" we still sold our pimary and took all the equity out finding a new construction townhome in an area we liked. This was 3 years ago so it cost 300K we went in at 5% down or 15K + 4K closing so we got in for under 20K. This left me with 100K which was plenty to get my first rentals going. Essentially we turned 1 house into 3 which for me counts as a house hack :). I definitely would say do it if you can find a situation that works for you but don't put your family in a situation where there is a lot of discomfort, some might say do whatever it takes and that's how I was at the time but I'm glad we went the way we did. Good luck. 

I'm a little unclear on the "we turned 1 house into 3" part. From what you wrote, it sounds like you sold your primary residence and bought another primary residence (a townhome), which is just selling one property and buying another. Where do the other two rentals come into play? Were you able to get them with 5% down as well? Or do you mean that you used the remaining $100k (after buying your new primary residence) to buy them traditionally with 20% down, but you consider it a house-hack because you used the equity in your former primary residence to purchase the investment properties?

Sounds like a good strategy, I'm just trying to understand what you meant. :-) It sounds similar to what I'm working on, which is a home equity loan on my primary residence to use those funds as a down payment on additional property. The advantage in my case is that I get to keep my current residence. The disadvantage is that I can't use all of my equity (the loan would be 90% CLTV, so I'd be leaving 10% equity in, whereas you sold so you were able to pull out everything).

Just for completeness, I spoke with @Grant Schroeder, and he informed me that a house hack is likely not doable in my situation, largely stemming from some misconceptions that I had.

First, I'm aware that a conventional loan on a primary residence can be acquired for 5% down, but this only applies to a single family swelling, not a 2-, 3-, or 4-plex. For any of those with a conventional loan, 20% down is required, thereby eliminating the benefit of a house hack.

So, investors typically use FHA financing with 3.5% down, which applies to properties up to a 4-plex. However, FHA requirements are pretty specific. Since I'm wanting to keep my current residence as a rental, and buy what would be considered a "downgraded" property in the same market as a residence, FHA would recognize that I'm trying to use this as a way to build an investment portfolio and deny to loan.

So it looks like house-hacking is out for me. However, given his 10% down product that in other ways is like a conventional loan, it seems that this comes pretty close without having the restrictions of a house hack.

Quote from @Steve Vaughan:

The issue to me is the HML deadline risk, but I see your points.  

Personally I use private money but it took awhile to establish.  Mine was a previous seller that sold me a few with seller-financing over the years.  

I also don't get low down payment options. My lender is usually around 60-70% LTV but is long-term, no pointa, no fees, no lenders insurance, doesn't have to be in an LLC and can close in a few days.

We pick our hurdles I guess.

As I accumulate more cash, I'll have more options such as higher down payments. At the moment, this is a hurdle I can't get around with only about $65k in cash to start. But it's good to know that there are options later on. Thanks!

Quote from @Eric Bilderback:

You should househack.  

I should to.  I eat sleep and breath this stuff all day every day.  However before the rule of everyone needs to house-hack comes an even more important rule happy wife happy life.  And she is not down so that’s that.  

If you are just running numbers though there is nothing I know of more powerful for building wealth and more accessible accessible then house-hacking.  

Good luck,

Agreed on the "happy wife happy life" rule. That doesn't apply here as I'm not married, but I can see how that would definitely impact your setup. I am actively dating, and that's important to me.. I'm not yet sure how that would impact this decision.

Quote from @Grant Schroeder:

@Nick Coons thank you for posting! If you could still utilize a low downpayment option, like 10% down and no MI on a 2-4 unit instead of needing to move your young family and house hack, would a loan solution like that help you get started with REI? For a conventional loan, you need to put 25% down on a 2-4 unit investment property, but with an Academy Mortgage portfolio loan, you could be just 10% down with no MI on a 2-4 unit so you would not need to move. You could still utilize a low downpayment solution like a house hack owner occupied loan, but you would not need to move from your current house you like and totally shift you and your family's lifestyle.

That sounds very interesting. I have a few questions:

- Could I also refinance into such a loan, or does this only work as a purchase loan? How about a cash-out refinance? I ask because I might be interested in this loan option for other things as well.

- In what ways (like term, interest rate, points, credit, etc) does this differ from a conventional loan besides the down payment requirement?

I'm definitely interested in learning more about your products.

I've been hearing on the BP Podcast that every investor should house-hack at least one house per year. I assume this is a general guideline as circumstances may prevent that. And that's what my question is regarding.. my circumstances.

I'm getting (re)started in investing using BRRRR. But I'm wondering if I should use house-hacking as often as possible to add to my portfolio. Here's my situation:

- I own an IT business with several employees, which does very well, and I have someone that does most of the management for me, so my schedule is flexible. We've closed our office (since I was the only one really using it, everyone else is working from home) to go to a full work-from-home model. This means that my current house (1500sf, 3/2) is my residence and my home office (one bedroom and most of the garage dedicated to my work space).

- I'm a full-time single father of a 23-month-old son. So one of the bedrooms is his (though he thinks the whole house is his).

My thought was as most others; to purchase something multi-family (2-, 3-, 4-plex), move into one unit, rent the other(s). At the same time, I'd rent my current house. But my circumstances make moving a real pain (there's a lot to move), and I probably need more space than what I'd be able to find in a unit of most any multi-family dwelling (at least in the area where I'm living, and I can't leave the Phoenix area from a primary residence perspective, still too tied to this location for clients for my business, resources for my son, etc). I also really like my house, and moving into virtually anything multi-family is going to be a downgrade, so I have to decide if I want to accept that lifestyle impact.

My conclusion so far is that a house-hack might not be a good idea; with the difficulty in finding enough space and proper layout for work, with the disturbance to my son's life (may not be an issue, kids can be resilient, but something to think about), and with the expense of moving each time. But I want to make sure I'm looking at this from all the angles and so I'm not missing some creative solution (like living in one of the house-hack units, but renting my current house to my business so I can keep possession of it as an office.. if that would make financial sense, not sure yet). I don't want to dismiss the idea prematurely, since the benefit of being able to buy one investment property each year with only 5% down is enticing.

Quote from @Stephanie P.:

@Nick Coons

Lots of good answers and assumptions, but one I didn't see takes inventory into account. Even though rates have moved north, inventory is still very tight and will insulate your investment from crashing. HML is not a bad way to go because rates and points on those type loans haven't really been impacted that I've seen. Most DSCR lenders floor rates are in the mid to high 5's right now and moving so I'd get this going sooner rather than later considering you're doing a buy and hold.

Stephanie

All good points.

I agree with you on inventory.. that we're not likely to see a drop in prices. By the same token, I'm not likely to get into a collision when I get into my car, but I still wear my seat belt, and I have insurance, both help to mitigate the risk/damage. So while it's certainly not likely that I'm going to run into the specific issue I mentioned here, I'd still like to be able to plan in advance anything I can that will protect myself in case it does, since the downside to being caught in this situation is pretty dire (especially with a first property).

I'm definitely moving forward as quickly as I can.. I have some other things in progress that I'm doing (and waiting on) that all need to complete (in series, unfortunately, where each is dependent on the previous) before I can start. So that's the only hold up.. I'm not stuck in a "what do I do?" mindset that's stopping me. But since I am largely waiting anyway, I want to make progress in other ways, like figuring out ways to make more first deal go more smoothly, in case it doesn't, by mitigating possible risks.

Quote from @Steve Vaughan:

Remove the bulk of this risk by obtaining a different purchase loan type. HML will always have more risk and cost and oversight.

Here are the issues I see with that:

- Buying something that's a deal usually requires a short close time. Anything on the MLS right now (at least in my market) is going for at or above asking price, so usually close to 100% LTV. So deals need to be found off-market, which means short close times, far too short for something like a conventional loan.

- The part of BRRRR relevant to this is the "rehab, ..., refinance". This is what allows someone to purchase a property with 10% down, force appreciation, then refinance into a loan that, if used during the purchase, would require 20-25% down.. which allows me to get that loan (and have 20-25% equity) without putting the cash into it. If I purchased with that loan, I'd be putting a lot more cash into the property (2-2.5x more just as a down payment).

What kind of loan/strategy would you suggest in place of a HML that doesn't have these hurdles?