Closing on my first house hack - trying to understand how I will qualify for the next

Member since 2023 · 101 posts · 67 votes

3y

I have been selling homes for 18 years and I have noticed that not everyone who buys rental property loves being a landlord and some regret purchasing rentals. They are in love with the idea of being a landlord (which is easy to do in a forum like this) not some of the realities of being a landlord. Rather than worrying so much about the next property, settle into this one. Make sure that you even like being a landlord. Focus on getting good renters. Work on the remodeling in the home that you want to do. Take 6-12 months to process everything. That will give you time to clearly set out your goals with regards to being a landlord (types of properties, how many, etc) and help you make a better decision. Good luck!

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Joshua Filkill

Rental Property Investor · Columbus, OH · Member since 2019 · 135 posts · 160 votes

3y

Agree with @Esta Ryder. I believe Craig Curelop talks about making the most of your house in his book, which seems to apply here. Force some appreciation with a remodel and add another bedroom like you mentioned to increase rent. This could give you a chance to refi and help your cause.

It sounds like you're already thinking right on this, make the most out of the house you have now and get creative with financing with future purchases. Your best bet would be talking to a good lender and establishing a relationship so they know what your plan is.

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Reid Chauvin

Lender · Nashville TN - Licensed in AL AR DC FL GA LA MD TN, TX and VA · Member since 2021 · 583 posts · 338 votes

3y

@Adam Wayne - you do not need to wait 2 years to be able to use rental income from this current property when you are purchasing a new primary. When under contract for the next property, you will need to provide your lender with a signed lease for current property. 75% of the rental income from the lease will be counted towards your debt-to-income ratio.

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John Mathew

Real Estate Agent · Member since 2019 · 143 posts · 74 votes

3y

Hi there,

First of all, congratulations on your first house! It sounds like you have a solid plan to remodel and rent out some of the rooms to offset your living expenses.

In terms of qualifying for your next house hack, you are correct that having a high-earning W2 income definitely makes it easier to qualify for another mortgage. However, there are still options available to you even without a high-earning W2 income.

One option is to look into creative financing strategies, such as seller financing or using a private lender. Pace's book about creative financing could be a great resource for you in this regard. Another option is to continue to build your income through your second job, and potentially look into other income streams as well. This could include things like starting a side business.

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Carlos Valencia

Lender · 92703 · Member since 2022 · 326 posts · 538 votes

3y

Hi Adam,

You have a very common scenario and theres many ways to analyze your numbers where it can help increase your borrowing power to help you get to your next deal. Its always important to have a strategy when buying your next investment property to know how you will buy your next one even after buying a second one. What is the fastest way to get there with the least resistance? Based on your scenario all you have to do is move out from your current property and lease your whole house and the lender can use 75% of the rents to help you offset your DTI. Therefore freeing up some of that buying power. Hopefully you can cover your full mortgage taxes and insurance using the 75% of rents so that way you can get your DTI back to what it was before buying your current home. Hope this helps you with your investing journey. Happy to connect if you have any more questions and would like to discuss your scenario more in detail.

@Albert Bui @Matthew Kwan

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Lawrence Potts

Real Estate Agent · Member since 2018 · 459 posts · 414 votes

3y

Quote from @Adam Wayne:

Hi everyone,

I've been reading the forums, books, listening to the podcasts, and learning so much! I'm currently closing on my first house and I think I have most of the next steps figured out. Because the market is so hot in my area and properties are selling for so much, I couldn't find anything that will come close to cash flowing. On the other hand, by renting out two bedrooms I will be paying only slightly more than I currently pay for rent in my apartment. I'm a remodeler by trade, so I've already planned to remodel the kitchen, turn the family room into another bedroom, move the laundry to the garage and use the extra space to turn the powder room into a 3/4 bath with a shower so I'll have 2.75 baths and 4 bedrooms total. Once I can rent out a third bedroom, my cost of living will be significantly reduced.

Now, my confusion is coming into play with how I will eventually qualify for my next house hack? I am currently making about 70k a year at my main job, working a second job (which wasn't able to qualify toward my income because I haven't been doing it a full year), and my debt-to-income ratio is maxed out on this home loan. I was debt-free before this mortgage, and now my DTI ratio is at 49.7% to buy this $450k house with 10% down. I don't see how there is any opportunity to acquire another property in a year's time? I see everyone talk about this one year turnover time, but it seems like it's based on the assumption that everyone has a high-earning W2, right?

I am aware that if I continue my second job, I will have that income added to my overall income for consideration in the next loan, but I would basically need to make the same amount of money in my second job as I do in my main W2 to qualify for anything else in my area. I did read in The House Hacking Strategy book that you have to have 2 years of rental income for it to qualify as part of your income as well. So, from what I am gathering, the only way that I will be able to take on the debt of another property would be to continue my second job, and wait 2 years until I can claim all my rental income towards my overall income. Does that sound right? If I have to wait 2 years, then that's what I'll do, but I would really only like to do things sooner! Am I missing something? Hoping that you guys could point me in the right direction. I preordered Pace's book about creative financing, so I understand that that could be an option as well. All input is appreciated. Thank you for your ideas! :)

Lenders vary as far as requirements go depending on the product. But as mentioned, you can technically use 75% of the rental income to offset that mortgage payment. Sometimes they will not accept the rental income though. I'd make sure you have signed leases. Even with that, some lenders may want to see a year of rental income in bank statements. Others just want to see a signed year long lease. Also, some lenders may not accept the rental income because your home isn't technically a multifamily. So it really depends on who you talk to and the institution you are wanting to go with. I would recommend talking with @Grant Schroeder, he has a lot of experience in this space as a former and current house hacker and has helped a lot of my clients get into their first house hacks. Hope that helps!

1 Reply

Albert Bui

Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes

3y

Quote from @Adam Wayne:

Hi everyone,

I've been reading the forums, books, listening to the podcasts, and learning so much! I'm currently closing on my first house and I think I have most of the next steps figured out. Because the market is so hot in my area and properties are selling for so much, I couldn't find anything that will come close to cash flowing. On the other hand, by renting out two bedrooms I will be paying only slightly more than I currently pay for rent in my apartment. I'm a remodeler by trade, so I've already planned to remodel the kitchen, turn the family room into another bedroom, move the laundry to the garage and use the extra space to turn the powder room into a 3/4 bath with a shower so I'll have 2.75 baths and 4 bedrooms total. Once I can rent out a third bedroom, my cost of living will be significantly reduced.

Now, my confusion is coming into play with how I will eventually qualify for my next house hack? I am currently making about 70k a year at my main job, working a second job (which wasn't able to qualify toward my income because I haven't been doing it a full year), and my debt-to-income ratio is maxed out on this home loan. I was debt-free before this mortgage, and now my DTI ratio is at 49.7% to buy this $450k house with 10% down. I don't see how there is any opportunity to acquire another property in a year's time? I see everyone talk about this one year turnover time, but it seems like it's based on the assumption that everyone has a high-earning W2, right?

I am aware that if I continue my second job, I will have that income added to my overall income for consideration in the next loan, but I would basically need to make the same amount of money in my second job as I do in my main W2 to qualify for anything else in my area. I did read in The House Hacking Strategy book that you have to have 2 years of rental income for it to qualify as part of your income as well. So, from what I am gathering, the only way that I will be able to take on the debt of another property would be to continue my second job, and wait 2 years until I can claim all my rental income towards my overall income. Does that sound right? If I have to wait 2 years, then that's what I'll do, but I would really only like to do things sooner! Am I missing something? Hoping that you guys could point me in the right direction. I preordered Pace's book about creative financing, so I understand that that could be an option as well. All input is appreciated. Thank you for your ideas! :)

Hey Adam cool see another person in the Pac NW.

To get down to the bare bones of what you stated above you'd have to lease up your current house for high enough, such that 75% of your lease agreement(s) is higher than your entire monthly payment assuming you want no financial drag from this current house while you're going to qualify for the next home/upleg property.

If you succeed in leasing up the current house so that it "offsets," the current payment then you can free up most or all of your ability to borrow again and thats "how," you're going to buy that upleg property. With each property it gets a bit harder because imagine property number 3,4,5,6, and so on, you're going to have to juggle multiple rentals to ensure they're all at break even or cashflowing (in real life and on your tax returns when adjusted by the lender) in order to "keep" qualifying going forward. Is quite the financial "dance," of sorts and is basically what we help investors do on our end (mortgage planning) from working with the CPA's, through the rehab, during the refinance, the lease up strategy, where your rents gotta be to keep this game plan barreling forward to reach that FIRE or financial freedom number you have your eye's set on.

If you do happen to be net negative using the conventional/FHA/VA formula of 75% of gross lease agreements - monthly payment (Your PITIA or principal/interest/taxes/insurance/assessments) then your negative calculation will drag you down so that means you either need to make more from your W2 job(s's if you have multiple jobs) or improve the rental calcs or combination thereof.

@Matthew Kwan @Carlos Valencia

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Closing on my first house hack - trying to understand how I will qualify for the next

Closing on my first house hack - trying to understand how I will qualify for the next

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