All Forum Posts by: Vitaliy Volpov

Hey Caio,

I think the answer is that house hacking every year is not possible everywhere rather than not possible at all. It sounds like the roadblock for you are the price to value ratios on small multi-family properties. I don't know your market, but I am gathering that prices for those types of properties are just too high relative to the rents the apartments in those properties can generate. This is not the case everywhere. High-priced metro areas are not really suitable for a repeat house hack investing strategy.

Additionally, there are usually levels of location and quality within the same geographic area that can also make a big difference in the numbers. One part of an area may not be suitable and unable to fit within the DTI maximums, but another part a couple of miles away may be perfectly suitable. Yes, it may be less desirable to live there, but you'd have to weigh all the factors and pros and cons in reaching a final decision.

For example, I live and invest in the Capital Region of New York. The Capital Region is comprised of 7 cities and about a dozen smaller towns and villages. The nicest parts with the nicest school districts are probably not conducive to the repeat house hacking strategy. But, there are plenty of opportunities in between. Someone who's looking to serially house hack in my area probably won't be able to do it in those very expensive/desirable areas, but they also don't have to settle for the really bad, crime-ridden neighborhoods either. There is plenty of in-between. 

Additionally, my area has an abundance of 4-family properties in those in-between areas where a would-be house hacker can benefit from the four rental income streams (instead of just two if they bought a duplex) in order to help stay within the DTI requirements.

Lastly, even if the "on market" prices for rental properties are really high in the area you want to invest, who said that you have to limit yourself to only "on market" properties? I currently own 160 units. I purchased about 130 of them over the last five years by contacting owners who weren't even actively thinking about selling before I reached out to them, let alone had their properties listed with a realtor on the local MLS. Depending on the owner's situation and using a variety of negotiating tactics, my business partner and I have been able to get significant discounts while buying properties from those owners directly. Now, I wasn't financing these properties through conventional means, so DTI didn't matter. But, if I was, those properties would have definitely met the requirements.

The bottom line is this: where there is a will, there is a way. Solutions to your problem are: 1) buy in a less expensive area where price to rent ratios are better, 2) buy three- and four-units instead of duplexes to benefit from more of the income, and 3) buy "off market" from sellers who may be willing to sell at steep discounts and where you're not competing against the masses. 

Hey Jack,

I'm with you on not wanting to share a single unit with your tenants and wanting some separation and privacy.  I had the same thought and started my real estate journey with a two-family house hack as my first deal.  The units were side-by-side with a firewall in between them.  My tenants/neighbors had a newborn baby and yet I hardly ever heard him cry or heard much of any kind of noise from my tenants. I was pretty happy about that decision. 

House hacking, in my humble opinion, is the best way to get started.  It allows you to learn how to be a landlord and a real estate investor, moderate your risk, and build equity and offset your living expenses in the process.  

One thing I might do differently, in hindsight, is try to buy a property that had some more "value add" potential.  The duplex I bought had a little bit of that: the rents were below market $750/mo/unit when the market at the time was $1,000/mo/unit.  I did very minimal updating - paint, carpets, medicine cabinet in the bathroom and I was able to get a market rent price for the tenant-occupied unit.  But, knowing what I know now, I would probably try to buy a building that had the potential of adding another bedroom or two (e.g. repurposing existing space inside the building that was not currently used as a bedroom but could have been). In my market, this is one of the easiest ways to add value to a property and to increase its cash flow.  

If you don't see any suitable multifamily properties on the MLS or for sale-by-owner in your local market, you might want to consider some direct mail or cold-call marketing. This may be stepping a little too far out of your comfort zone, but it is a strategy that allowed my business partner and I to get killer deals in our area over the last 5 years and allowed me to go from 9 units in 2017 to about 160 units today. (Btw, all of my properties are what would be considered small to medium-small multifamily properties. No huge apartment deals or anything. So, very attainable).

If you want some more details on how I went about finding these deals, feel free to DM me.  

Good luck!

Vitaliy

Hey Justin,

You can try googling those topics with together with the city and state where your property is located.  E.g.: "can you ask about eviction history on a rental application in Cleveland, OH?"  And see what the results say and look for reputable sources.  But, this isn't going to be a full-proof method as the internet doesn't always give you entirely accurate information, especially when you get down to the county and city level rules.  Those may not always be widely referenced online.  

The best way, honestly, to be sure you're getting the most up to date and accurate information is to consult with an attorney.

Vitaliy

Hey @Account Closed,

Here are my thoughts on your question.  If you really don't have any other options and you think that it will be a long time before a multi-family house hack comes on the market in your area and that there will likely be a ton of competition for it, a single family with an in-law apartment is not a terrible choice.  Like @Josh Young said, for most people, the goal of house hacking is to reduce their own living expenses, benefit from the favorable financing that owner-occupied properties allow, and build some wealth through equity growth.  

However, if you plan on trying to use the house hacking strategy to buy more than one property and if you want to try to build a small rental portfolio using it, I would try to do everything I could to get into small multi-family properties rather than just settling for single families.  It's likely that you won't be able to get more than 4-5 owner occupied loans (if that many).  So, if your goal/plan is to try to house hack one property a year for 4-5 years and build up a bit of a portfolio, you really want to try to do it with multi-fmaily properties rather than single family properties.  

All things being equal, 10 multi-family units is better than 4 single-family units.  This is of course market dependent, but I find that single-family properties are much harder to cash flow than multi-family properties.  Yes, single family properties will typically appreciate faster and tenants will stay longer, but you're not going to get much by way of cash flow and might even lose money month-over-month.  

Personally, I prefer to try to get the best of both worlds, I buy multi-family properties that will cash flow and will have a reasonable chance of appreciating in value over time. It does require a lot more effort to find them and I usually don't buy them off the MLS.

If there is nothing on the MLS in your market, consider doing some off market prospecting. Things that have worked really well for me and my business partner have been direct mail (letters/postcards) to owners of the types of properties in our area that we wanted to get and also cold-calling those owners after skip tracing their phone numbers. There are tons of resources out there on Biggerpockets and YouTube on how to do this. So, I would encourage you to look into it before you just settle for a property that doesn't really meet your goals simply because you can't find one on market that does.

Hope this helps!  Feel free to send me a direct message if you have any follow up questions. 

Vitaliy

I agree with @Nicholas L.

I would also add this and ask: does your area have any small multi-family properties that you can afford to buy as a house hack? If so, it may be easier to cash flow (and more comfortable to live in) if you buy a 4-unit rental property with an FHA loan at 3.5% down or a conventional loan at 5% down (btw the 5% down payment just became available today 11/18/23 and will start being rolled out by lenders next week) instead of a single family. I've always preferred multi-family house hacks over single family ones, but that's just me.

Again, I don't know what market you're in and how the prices on multi-family properties and expenses compare to rents, but in my market, it is possible to buy a 4-unit like that, live in one of the units, rent out the other three and earn a small amount of cash flow every month or at the very least break even, live for free, take the tax write-offs, let the property appreciate, and have the tenants pay down the mortgage.

Vitaliy

Not sure if you can see the link to the video or not.  If not, I assume it's because Biggerpockets doesn't allow links to outside videos.  So, if you're curious and want to see it, you can just search for "Include THIS in Your Rental Applications | 6 Tips for Landlords" and you should be able to find it on YT. 

Vitaliy

Hey @Justin Brown,

I would definitely recommend using a full rental application that has questions for tenants.  Here is a Google drive link to one that I have used for many years: 

https://docs.google.com/document/d/199Sa9fCPHvjzHGX215vHLKf6...

It's one that I modified from one of the forms Brandon Turner was recommending back in the day.  

I also posted a video a while back on my channel talking about the importance of a good rental application.  Here is a link to that if you want to check it out: 

This applies to both house hackers and non-owner occupying landlords.

Hope it helps! Send me a direct message if you have any questions.  

Vitaliy

Hey @Darius Wade,

I agree with everyone who said that a BRRRR with your current house and numbers isn't possible/feasible. And I also agree that house-hacking is an awesome strategy for beginners. One issue, however, that you need to be aware of with trying to do multiple consecutive house hacks is that qualifying for multiple consecutive owner-occupied loans year after year may not be as simple as everyone is suggesting. There are several hurdles you will need to overcome: (1) debt-to-income limits, (2) loan type selection relative to property type selection, and (3) the loan underwriter's requirement of showing an "improvement" to your living situation with each consecutive new house hack property.

Number one is pretty self-explanatory and one that most people think of when they think of qualifying for an owner-occupied loan (that and their credit score). Since lenders typically allow you to get credit for 75% of gross rent (from the property you already have and from the new property you are looking to buy), combined with any other W2 or 1099 income you have, you'll hopefully will be below the debt-to-income limits as you buy your second house hack.  

Number two is also something that I think most people know about and understand. I don't know how you financed the first house hack, but a lot of people use an FHA loan, which is a great option. However, you are only allowed to have one of those (with some very narrow exceptions, which it doesn't sound like would apply to you). If you already used an FHA loan on your first house hack, you would be limited to use a conventional loan for your next one. With a conventional loan, prior to 11/18/23, you would have needed to put down 15% on a two family house hack and 25% on a three-to-four family house hack. The guidelines have been changed as of 11/18/23 and now allow for a 5% down payment on 2-4 unit properties purchased with a conventional loan. This is great news of course for everyone who would like to build a portfolio of rentals using the house hacking strategy. However, there are still some limitations with this, namely, in order to have a good chance of qualifying for the 5% down on 2-4 unit properties, you'll likely need to have a credit score of 680 or higher (the minimum referenced by the guidelines is 620, but lenders will most likely add an overlay to that to protect themselves more).

I don't know what size your first house hack is, whether it is a single family or a multi-family, but if you plan to follow the advice of what folks in this forum thread are suggesting with multiple consecutive house hacks, I would think you'd want to try to take advantage of the favorable down payment requirements and buy properties with more units than less.  But, this then brings me to consideration number three: the idea that each time you buy a new house hack it should be an "improvement" to your living situation.

This can be a real snag to a multi-year house hack portfolio building strategy if the first house you bought was a single family with say 2500 sq ft of space, 4 beds and 2.5 baths. If that's the case, you will have a very hard time convincing a lender's underwriter that it is an improvement for you to go from that property to say a 1 bed 1 bath, 600 sq. ft. apartment in a four unit property.  
I'm giving this as an extreme example to illustrate the point.  Even if the difference between your first living situation and your next one is not this dramatic, you may still have a hard time qualifying for that next loan even if you otherwise check all the other qualification boxes.  

Some of the other factors that an underwriter may look at in determining if you're making an "improvement" to your living situation are whether this next property is:

- in a more desireable location generally, 

- in a more desirable location for you specifically,  

- in a better school district

- newer or older

- featuring better amenities and other conveniences

If you can show some other overriding justification (such as a job transfer or something else compelling) they may take that into account as well. 

The point is that if you are going to try to utilize the house hacking strategy to build a portfolio of rental properties for yourself, you need to be very strategic about it and carefully consider each of the next steps you take. 

In my mind, the right way to use this strategy to its full potential would be to start house hacking with the least desirable property (preferably a 4-unit) farther away from work, and occupy the smallest unit in that property. Buy it with an FHA loan so that you are only putting 3.5% down. Then, after a year, try to find another 4-unit property which is a little nicer (bigger, nicer units, more beds, more baths, etc.) a little closer to work. If a 4-unit isn't possible, try for a 3-unit. Use a conventional loan for the next one and hopefully the 5% down payment option is still available a year from now, which I think it will be. Then, after a year, try to incrementally "improve" your living situation by finding a slightly nicer multifamily property. You might have to step "down" to a duplex. But, even so, you would be at 10 units at that point. If you can pull off more given the DTI, credit, etc. qualification limits and your personal tolerance for constantly moving and living with your tenants, try to repeat the process one or two more times.

If I was in the early stages of investing and didn't want to get into the more risky short-term, high interest private loan borrowing to finance my BRRRRs, this house hacking strategy is what I would use to get myself to a nice little portfolio in 5 years or so with the least amount of money invested in down payments and other costs.

Hope this helps!

Vitaliy

Hey @Danielle Campos,

Anything you buy for the rental, the common areas, or yard can be a deduction or an item of depreciation. You should track everything and then touch base with a CPA as to what way it should be characterized. 

Typically, things that have a shelf life of over a year are supposed to be depreciated. Depending on what they are, they can either be added to the basis of the property in which case they are depreciated over 27.5 years or they will have their own depreciation schedule. Things that don’t last longer than a year or are not “things” (eg common area electricity cost or a prorated amount of the water bill) can be deducted in the same year.

Hope this helps!

Vitaliy

Hey Frances,

I agree with @Randall Alan. I don't think hiring a property manager is the right move when you only have one property and you are house hacking it. Part of the benefit of doing a house hack is learning how to be a landlord and how to manage tenants and your property. You would lose that benefit (as well as 10+% of your gross rent) by outsourcing this job to a property manager. When you only have one or two units to manage, it really isn't all that difficult or time consuming.

I started with a two-family house hack not having any prior experience in doing anything property-management related and I just made it my goal to learn everything I could learn, including when to do the work myself and when to outsource things to a professional. 

Since you are new to your city and since you don't feel like you know the landlord-tenant laws that well, I would recommend that you set up an appointment with a local real estate attorney so that he or she can give you a crash course and have them prepare your first lease. You should be able to use that lease going forward and you can ask your attorney to give you a heads up if and when any important changes occur to the law and you can then update it accordingly or have him update it.  

I don't know whether MO is landlord or tenant friendly.  But, I can tell you from being a real estate investor and an attorney in New York State, my state is one of the least landlord-friendly states in the country. Yet, with the proper information and knowledge, I have been able to not only successfully house hack my first rental right after law school, but also grow my portfolio in New York to 160 units in about 10 years. 

I wish you all the best on your new real estate investing journey. If you have any questions about house hacking or anything else I can help answer, please don't hesitate to send me a direct message. 

Vitaliy