All Forum Posts by: Vasily R.

Hey Bekah. I'm going to be honest in that I had maybe half of the needed 6% in yearly reserves and the $20k for renovations in cash specifically for that purpose when I bought the property. I certainly had my 6mo of living expenses rainy day fund that I took from, a little bit, and other semi-liquid sources I could use in the worst case, but I played it by ear and was able to take my time with many of the non-time-sensitive renovations.

Because you're owner-occupying the property for at least one year, you can spread out many renovations such that it's a more constant trickle of cash required every few months or so. That worked for me as I have a stable W-2 that pays me the same every month so I can plan around that. Luckily, I also didn't have any very expensive sudden things needing repair, and am also able to DIY a lot of the minor maintenance work. As your portfolio grows, and as you are able to expedite your HH timelines, I think having that cash on hand with a clear plan for it will be much more important. I've been living in this HH for 2 years and only now wrapping up many of these final renovations. For my next HH I plan to do it all in 1.5 years, etc.

More generally, if you consider how financial safety is a pyramid, I'd say your lower floors of the pyramid should already be very solid going into the HH. For example, not having any student or credit card debt gave me some much needed flexibility and peace of mind despite not having 100% of the required cash right away.

Hope that helps!

Thanks for summarizing so well, Ben! It was such a great experience working with Ben's team. As per Chris' comment, the property also appreciated at least 15% since my purchase a year ago, which has been a more-than-pleasant surprise.

Keep doing great work guys!

@Amanda Young I actually worked with Chris' team to buy my first investment property and they were great. Their podcast, website and excel sheets are all amazing resources.

@Suzanne Lewis What are you looking to learn about specifically?

I'm a Software Engineer at a Big Tech and the numbers/optimization aspect of REI is what got me really interested in it.

@Stephanie P. 

Thanks, that's the answer I was looking for. Sounds like lenders will be flexible enough to accommodate my situation.

And you're right about the price range. I plan to look at the comps and probably a B-type location with some value-add potential. Thanks.

@James Carlson that's a good point and I'm not going to be very helpful with my answer because it's both of those things! I just finished Craig Curelop's House-Hacking book and on the profitability/comfort scale I'm probably a traditional house-hacking type (leaning more comfort), meaning I want my own place but don't mind sharing a wall with another unit or two. I am ok with managing tenants by-the-room in the other units however.

It's true that the higher price range I'm looking at, the higher the mortgage, but if that gives me more bed/baths to work with then it's worth it, assuming the math works out. For example, I analyzed this recently sold quad in Lowry and I'm conservatively coming up with a $2.6k cashflow (without considering owner occupancy for now) and a 4.26% cap rate. And this is not even going by-the-room. It's by far better than many duplex deals I analyzed in the $400-500k range, all other things being similar.

Is my logic sound? Plus, higher property value will mean a higher appreciation down the line. The extra time will also give me a chance to visit more neighborhoods and get a feel for the city. The other thing happening in August is the expiration of the eviction order, so it would be interesting to see the effect of that (although evictions are a long process and we might not see much of an effect until months later).

Hi all,

I'm a newbie investor trying to buy a house-hack MFH when I move to Denver in a few weeks. I want to move quickly and owner-occupy @ 20% down (don't want to do FHA). In my experience doing pre-approvals, you have to provide bank statements and pay slips for the past three months. The thing is, I have a big lump-sum payment coming up in mid-August from my (big tech) company's stock reward program.

Right now, I'm able to afford a property up to 550k, leaving a generous amount for rainy day fund, repairs, etc. In August, this big bonus will allow me to afford up to 850k, putting me in the market for bigger properties, and it makes me wonder whether I should wait until then or go forward with my pre-approval now and hope that my loan officer can take this future income into account. Time is of the essence because I'll be living around in Airbnb's and every month I wait around is a month I pay for these expensive short-term living arrangements (although cheaper these days -- thanks Corona).

Should I wait until talking to a loan officer or can they work with my situation? I don't want to do a hard credit pull only to have to do another one a month later, but I also want to know how much I can afford asap and start looking at properties in more detail. I'm already analyzing deals, but I can only do so much without an agent+loan officer working with me.

Thanks!

That's actually 4 words. If you didn't have anything useful to say then why even bother?

If people followed this attitude to its extreme they would go bankrupt very quickly. If you read my initial post and looked at the properties I mentioned, I am sure you would agree that they would have been exclusively bad purchases, as many here already agree. I think I dodged a serious bullet there.

Adrian closed on a property since the beginning of this thread and I guess good for you? But he clearly has lots of experience and can move quickly. You can't just tell newbies like us to "go and buy" without thinking. That's just bad advice.

@Andrew Postell

Sorry, that title was my clickbait strategy to attract people to my post. I agree with most of your points. It can't be ruled out as an investment tool though since they can be used for up to 4plexes, which was my initial intention with it. What I also rarely see mentioned is that there are FHA loan limits specific to the property's county, and as in my case, they can and will limit how much you can benefit from them. For instance, in King County, WA the highest loan you can get for a duplex is around $950k, something worth considering. These limits can be found on the HUD website: https://entp.hud.gov/idapp/html/hicostlook.cfm

I would like to hear from people who actually did use an FHA in a strategic way like you suggest. Because of the higher upfront FHA costs I mentioned, I am skeptical about the long-term price you pay for the option to buy another property faster.

I was looking around at some properties here in Seattle, WA and once I've narrowed down my search to a dozen or so MFH properties that looked interesting, I decided to get nerdy with some numbers and calculate potential cashflows.

What I realized, among many other things, is that the common house-hacking advice of getting an FHA loan doesn't actually make sense financially for anybody with a decent credit score and enough money for a 20% downpayment. That realization came when I was browsing the Nerdwallet FHA page trying to understand what my mortgage payments will actually look like. If you scroll down to the rates, you'll see that the 30yr fixed FHA vs Conventional rate is slightly better at 3.125% vs 3.150%, but the overall APR is significantly worse at 4.087% vs 3.283%. The APR takes into account fees and discount points, and most importantly, insurance, meaning it is a more accurate representation of how much your loan will cost you in total.

When I dug deeper to understand this bad underlying APR I realized that not only are there higher upfront costs associated with an FHA loan, like the Upfront Mortgage Insurance Premium (UFMIP) equal to 1.75% of the total loan amount (!) and a stricter and potentially more expensive FHA appraisal, but the Monthly Insurance Premiums (MIP) associated with an FHA are actually generally higher and cannot be canceled under most situations unless you reach 20% equity and refi. According to this post, for a $180k property, you'd be paying almost $19k in total FHA insurance costs as opposed to $5.1k for conventional PMI.

My conclusion is that, unless you are extremely pressed to buy a house before building a good enough credit score and downpayment, you should absolutely wait to get a conventional loan instead of going for an FHA loan. Don't do it just because it sounds cool and everybody likes to talk about it. Why are these important downsides of FHAs so rarely mentioned in the financial and RE communities? It feels like people just focus on the leverage aspect of the FHA loan before even considering the ridiculous long-term harm to your wealth associated with them.

Thanks,

VR