Seeking House Hacking Advise

[Justin Laughlin]

Hi Everyone!

I am extremely eager to begin my real estate investment journey and am hoping to get some advice on how to begin house hacking. My girlfriend and I are currently leasing an apartment together in the North Dallas area ($2k/month), but are looking to buy a property and begin house hacking as soon as this lease is up (July 2023). After doing lots of research, we have decided that house hacking with an FHA loan will be our strategy. As of right now, I have around 30k cash ready to deploy on a property, but by the time our lease is up and we are in the market to buy, this number will likely be around 40k-50k.

We have been looking at lots of properties and have been finding it extremely difficult to find anywhere that would generate a net positive cash flow. Multi-family homes in the area start at ~450k, so those are really out of the realm of possibility given how high the mortgage would be with such a low down payment, so our focus has really turned towards a single-family home purchase, with the goal being to rent out the other rooms.

It seems like finding a 3-bed single-family in our market at or under $300k is reasonable, which would result in a ~$2.5k mortgage payment. Making the assumption that we could rent out the other 2 rooms for $1k a month, and then rent out all three for $1k upon our exit (after living in the home for 12 or 24 months), it seems like it could be cash flow positive at that point.

So, my questions are:
- Given the current market conditions, is it still a reasonable time to begin a house hack?
- Is my down payment enough to get started?
- Are the assumptions I'm making realistic?

Thank you so much for taking the time to read this lengthy post and I look forward to any and all help/guidance!

NOTE: If you have any general real estate/house-hacking advice within the Dallas area please share! 

[Dennis Nguyen]

Welcome Justin! I'd recommend the house-hacking strategy by Craig Curelop if you haven't read it yet! You can find it on BP publishing. As for your question, I also live in a expensive market (Seattle) so house-hacking with the intention of living for free or getting paid to live in your own house is hard to do. You have the right idea though, doing rent by the room by finding a house with at least 3 bedrooms because a multi-family property is pretty expensive. If you can offset your mortgage enough and only pay ~500 a month to live in a house that you OWN then that's a win to me. House-hacking is still a great strategy because instead of leasing ~2K/month and paying down someone else's mortgage, you are able to build up your own equity by paying down your own home. As for down payment, I would talk to a lender in your area. There are many programs you can utilize as a first time home buyer such as FHA which means as little as 3.5% down and some lenders even offer down payment assistance.

[Matthew Kwan]

HI Justin,

You can put as low as 0% if you were a former/current veteran. I used FHA with min of 3.5% to start off which was $30k in the Seattle market. As for conventional it will require as low as 3-5% down for single family primary and 15-20% for multifamily. The tradeoff if using FHA is lower down payment even for multifamily but you cannot use fha for your 2nd loan unless you refi it out in order to reuse it, and the mortgage insurance premium (MIP) is higher than conventional (PMI) private mortgage insurance. If you are planning to use FHA for multifamily, anything above 3units you will need to past the self sufficient test for FHA.

@Albert Bui @Carlos Valencia

[Michael Dumler]

@Justin Laughlin, you're paying someone else's mortgage at the moment, absolutely it's the right time to house hack. Even if the deal cash flows negative, you're building equity in the home over time while minimizing your living expenses. FHA is 3.5% down so your savings are realistic for a 300k property but don't let that deter you from saving even more. It's vital to have reserves for investment properties. My rule of thumb is 5k of reserves for each property. Moreover, there are other house hack strategies you can explore. Start looking for SFHs that have an in-law suite that can be sourced as an STR via Airbnb. This strategy will be more pleasant for you and your girlfriend than having to deal with roommates. Speaking of which, not that it's any of my business, but co-owing a property with a girlfriend is risky. Be aware of what you're getting yourself into. I advise having only your name on the title. Hope this all makes sense and helps.

[Bruce Lynn]

Here's a couple of ideas.....

#1 look for 4 bedroom 3/bath if you can find one.  More rooms to rent, means more income.

Check with your friends and co-workers to see if they are willing to pay $1000/month for room and shared bath/public space.  Seems high to me, but possible perhaps.

Make sure you're looking at non-HOA neighborhoods.

I know a lot of podcasts mention/push FHA, but sounds like you might be a better candidate for conventional. There are conventional low down payment loans if you qualify with income and credit score. Your credit score should be excellent if you have that cash in the bank. Get with a great loan officer and get prequalified today if you haven't already....if you're not at conventional level now, then they can give you goals to get there before you buy.

FHA has lifetime Mortgage Insurance...so if you can avoid that or get rid of it quickly, that would be one goal to increase your cash flow.

Also not sure in today's environment you can live for free.  You probably need to contribute your share of 1/3 or 1/4 of the rent to make the deal work.  I'd be surprised if you can pay for the house with 2 of 3 or 3 of 4 bedrooms rented.   I just don't think you can charge enough.

[Justin Laughlin]

Thank you for the replies everyone! You all make great points and there is certainly a lot to consider before making any concrete moves. I will make sure to return here with any other question that may pop up over the coming days/weeks. Thanks again!

[Vanessa Ivonne Hernandez]

Looks like you have your bases covered with the responses in here so I'll add this:

Have you considered investing in a less expensive market? Of course you wouldn't be able to house hack (unless you plan on moving) but consider that 3.5% down in an expensive market could be the same as 20% down in a more favorable market. If you're itching to get in the game then possibly investing from a distance and getting cash flow could be your first step towards ultimately investing in the places you prefer to be.

Things to think about. Best of luck on your journey!

[Nicole Masters]

Lots of great responses here so I'll add my quick 2 cents. I think it is ALWAYS a great time to begin a househack. Because your alternative would be to continue renting, and at that point you're not gaining anything. Rent by the room househacking is a great way to offset your expenses, so even if you aren't covering your mortgage completely you're in a way better position than before. I don't have Dallas specific househacking advice, but some general advice I can give is that when you go to post your room for rent ensure that you take the time to take high quality photos and post a detailed description of the property and yourselves. Some of my favorite sites to post on are facebook marketplace, roomies.com, and (surprisingly) Craigslist.

[Lawrence Potts]

@Justin Laughlin,

Everyone has replied with great answers. I think the consensus is that yes, house hacking is the right time and right way to go about your first purchase. Even if you’re not cashflowing while living in it, the pros out way to glaringly obvious con of renting.

A few things to point out…

If you go the rent by bedroom route in a SFR, you will most likely not be able to add that income to your next purchase. Your DTI (debt to income) will make it harder to finance the next purchase because of that. You may be able to make an exception with a single long term lease signed on the first home to offset that mortgage. But it's a challenge to overcome versus going with multifamily.

Buying a duplex-4plex allows you a to scale very quickly using those rental incomes from the other units.

You can only use FHA 3.5% down on 2-4 units. 3-4 units need to pass the "self-sufficiency test". Basically the property needs to be self-sufficient to cover the mortgage with rents if you were to move out. That may be hard if lenders are only willing to accept current rents that may be significantly under market rents.

FHA also has a much more strict appraisal process. Not impossible, but expect delays because of it. Trying to temper expectations coming from someone who ran into this with my current house hack of my 4plex.

I highly encourage you reach out to a lender now and get preapproved. They’ll last for a few months and it gives you an idea of what you can buy but also how to improve your buying power (need to improve credit, more reserves, etc.).

Hope that helps! Best of luck and don’t hesitate to ask more questions on here.

[Lucia Rushton]

@Justin Laughlin happy to have a conversation with you about house hacking here in DFW.

[James Powell]

@Justin Laughlin

I am still currently house hacking a house in Grapevine, Texas and I have had no regrets. I started looking in 2020 and it took me around 7 months to find a decent fit for me. I did a FHA loan and while that was good for me at the time I wish I would of done a conventional mortgage as PMI won't go away unless you refinance out of your FHA loan. Sounds like you can afford the extra percentage to do that.

[Ryan Thomson]

@Justin Laughlin If you are paying 2k/month in rent then now is the perfect time to get into house hacking. Instead of throwing that money away every month you can pay down your mortgage and own and asset that will appreciate over the long term. Not to mention if you rent out the bedrooms you’ll get all of the benefits of owning a home AND pay less towards your monthly mortgage than your rent of 2k.

Thinking about the market… I wouldn’t be concerned for two reasons.

1. 1. If you’re plan is to scale and buy a property every year or two then you will cost average into the market. Eventually you will buy a property when it is near the bottom for prices. Since you (and no one else who talks like they do) actually knows what’s going to happen this is the best strategy for buying an investment if you continue to buy over the long run. You can’t time the market.
2. 2. If you wait 12 months and get lucky and the house is worth 20k less now, you will have spent 24k in rent over that time period.