Trying to House Hack/Buy Rentals in Today's Interest Environment
Hi guys! I am looking to buy a 2-4 unit property using an FHA loan, possibly put some cosmetic work into the property and then live in one unit and rent out the others. The issue that I am running into is the metrics are far off from penciling. I understand that when using an FHA loan (95% LTPP) coupled with today's interest rate environment, these deals are harder to make work than they were a couple years ago. However, I know some people are still making this work and have experience doing so in similar environments.
I welcome any advice from anyone with experience house hacking / rental investors. Are you looking at these deals differently? Are you going to wait for more inventory to hit the market and hopefully make these deals more palatable? Any advice welcomed!!
I recently borrowed at 6%. I don't know when rates will come down. They may stay where they are now all year.
I don't think it's the best strategy to rent and pay 100% in interest waiting for rates to come down. That may take a month, it may take a year, it may take 4 years. If you wouldn't bet on rates coming down soon, why bet on them coming down by signing a lease?
Is your goal with the house hack to have $0 in shelter expenses each month? Maybe that's going to be tough right now. I don't know - I've never tried to house hack. I've spent a lot of time underwriting 'house hacks' and came to the conclusion that even if I'm getting into a place slightly below the market cost, I'm winning.
Hey brother! My suggestions:
1. Increase cashflow by renting by the room
2. Look into some creative rental strategies to increase cashflow - Short term rentals (be careful here as I suspect that many people are doing the same thing in order to get deals to work... Supply/Demand), mid term rentals, corporate housing, etc.
Quote from @Grey Goodman:
You can't expect every property in every market to be a good investment. Each investment is unique and the market is regularly changing. What penciled out in 2018 may not pencil out to day because interest rates and prices have doubled.
Your options are to exercise patience and wait for the right deal to come along, wait for the market to change, or invest in a different market.
@Grey Goodman have you done any looking into the room rental strategy? Typically that is more profitable. If thats not an option i would say that you need to look for something maybe in an area thats further away from a city or look for a value add project. Let me know if I can help answer any other questions!
For the 3-4 units, you'll have to consider if it will pass the FHA self sufficiency rule. With OC prices and a low down payment, it can be a difficult hurdle. I'd recommend talking with your lender about it early so you'll know what price range you'll have to stay within, given the market rents and your down payment.
For 2 units and below, you don't have to worry about that rule. If you could go that route, maybe rent by the room like @Nicholas Coulter suggested, I think that would be a great route.
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Quote from @Grey Goodman:I disagree; I think they're easier to make work. I don't understand why people want to wait for rates to drop. Who wants to buy in a seller's market? It's not fun offering $20k or more over asking, waiving your inspection, adding an appraisal gap, and constantly getting beat out by cash and conventional offers. You can change the interest rate later. You can't change getting beat out on the property.
I understand that when using an FHA loan (95% LTPP) coupled with today's interest rate environment, these deals are harder to make work than they were a couple years ago. However, I know some people are still making this work and have experience doing so in similar environments.
By the way, these rates are actually more in line with the historical average. All we've done is gone back to normal.