First House Hack using a HELOC on my current home?

Question

I’ve been listening to BP for over a year, and I'm at the point of considering finding deals. I’d love to hear some thoughts from the community on my specific situation:

- 23 and Married, likely starting a family in the next year or two

- Household income of about $80-$90k

- Own a 998sq/ft 3/1 Single Family Home with a payment around $730/mo and decent equity

- Debt: House and weekend car note (Considering selling the car to save more. We have other paid off vehicles)

- “Assets”: Some Savings including a Roth IRA, 12x24 Portable Metal Building, 2 Reliable Vehicles, Motorcycle

- Long-term goal: a few paid-off small multifamily properties to provide some financial freedom

What I’m Considering:

- House hack a duplex in the mid-$200s in the Gulf South and Rent the other unit + the SFH

- Conventional 5% Down if possible so I keep FHA available for next House Hack + PMI drop-off @ 20% equity

- Fund the down payment and closing costs with an 80% HELOC on my current house

- Opt to go without a buyers agent to save money

- Live in one unit for about 12-24 months, then either move back and rent both units (Duplex unit would bring in slightly higher rent than the SFH), or stay and keep renting out my single family

- Comps show the single family rent at about $1,200–1,300; duplex units in the area rent for about $1,300–1,450

My rough numbers (budgeting 5% Vacancy, 5% Maintenance, and 5% CapEx from each rental income):

- Year 1: About $400–$550/mo more than I pay now for housing

- After moving back: About $100–$200/mo more at first, trending toward break-even around years 5-7 if rents grow around 2-3%/yr

The deal would offer more square footage, nicer housing, carport, utility room, dishwasher, etc. All things we currently don’t have in the Single Family. And of course we’d be building equity which would be the main goal since it wouldn't cash flow for several years.

Does the higher note seem worth it, or is there perhaps a different route that would provide higher or faster return? It'd be nice to find a cashflowing deal in my situation, but it's clear that my market (and seemingly the market as a whole) is in a position where a cash flowing house hack at this size is difficult to find. The big thing is that I understand that my $730/mo is quite cheap compared to the average mortgage. Just trying to decide if $1200-$1300/mo after rents is worth it for 5 or so years before seeing cashflow. Or should I wait and continue saving? I’d love to hear any thoughts, experiences, or advice from the Community. Thanks

Questions:

1. Is paying more in year 1 normal for house hacks at today's rates, or should I hold out for something with better numbers?

2. Is an 80% HELOC (not fully used) a good idea to get in the game, or too risky on a first deal?

3. Conventional 5% or FHA on a first house hack? (I'm leaning conventional for pmi dropoff at 20% equity, but cash reserves to qualify are also a factor)

4. Is it worth it to go without a buyer's agent?

5. What protections would you put in the purchase agreement? I'm planning inspection, financing, and appraisal contingencies, tenant access/delay clause, and one unit delivered vacant.

6. Inheriting tenants: anything to check before closing?

7. With a large % hurricane deductible, how do you plan reserves?

8. What am I missing?

Harrison C. · Answer

On 6, inherited tenants. Before closing get 3 things from the seller for each tenant: the signed lease, a rent ledger for the last 12 months, and an estoppel letter. That's a one page form the tenant signs saying what the rent is, how much deposit they paid, and that there are no side deals. Sellers "forget" stuff. The tenant won't.

Make sure the deposits get credited to you at closing. You owe that money back to the tenant someday even if the seller never hands it over.

Also ask who pays water and if each unit has its own meters. One shared meter on a duplex means you eat that bill or you fight about it every month.

On 1, paying $400-550 more in year 1 is pretty normal right now. What I'd watch is you're now covering 2 vacancies, not 1. One empty month on either place is about $1,300, so I'd want a few months of both payments in the bank before pulling the HELOC.

Austin Goetz · Answer

From the mortgage financing side of things, it's always great to compare the options (Conventional vs. FHA) and see what the total monthly payment would be with principal, interest, taxes, insurance, PMI and HOA. If you're looking for lowest out of pocket cost right away, FHA 3.5% down payment makes sense. Yes, you would technically have the PMI for the life of the loan but if your plan is to refinance sometime down the line, either to pull equity out and put towards the next home or to just drop the rate, to increase cash flow, you will have your opportunity to switch that FHA loan over to a Conventional loan.

If you have other questions about mortgage financing or looking at options, I'm always happy to be a resource!

Adam Summerer · Answer

Using an 80% HELOC on your current house to fund a duplex house-hack can work, but stress-test the worst case: HELOC rate floats, both payments stack if the duplex sits vacant, and some HELOCs restrict investment use — get that in writing. Conventional 5% down on the duplex while keeping FHA on the primary is a common structure if you occupy one unit; just confirm seasoning/occupancy rules with the new lender so you don't trip a repurchase issue. Build contingencies for rate spikes and a vacant month before you max the HELOC.

Drew Sygit · Answer

If I was starting out again with what I know now, I'd look to acquire a 2-4 unit property with an FHA 3.5% low-down payment mortgage.

I’d also look into using an FHA 203k renovation loan, allowing me to buy something ugly, thus unqualified for a standard mortgage, which would weed out a lot of competition and push the price lower.

To maximize my cashflow and gain landlording experience, I’d do STR and MTR in the other units, as well as the other bedrooms in my unit.

Since most cities won’t allow basement rental units, I’d consider finishing the basement, just well enough for me to live down there (cities don’t care if owner chooses to live in basement), so I could rent out ALL the units/rooms.

﻿I’d save all my cash and look to refi the property in 1-2 years out of the FHA mortgage, so I could use it again if necessary. Depending on how close I was to having 20% equity in the property and being able to avoid PMI, I’d consider using some of my cash to pay down the mortgage when I refinanced. Otherwise, I’d save my cash for the next acquisition.

I’d also be posting on every social media platform and telling everyone I knew that I was looking for more real estate deals. I’d aim for low downpayment land contracts and lease options.

﻿After refinancing out of the FHA mortgage, I’d evaluate if I wanted to repeat the 2-4 unit FHA 203(k) process again or if I had the 20% down to target 5+ units.

﻿While still living in the property, AFTER the refi out of the FHA mortgage, I'd also explore securing a HELOC to tap my equity for emergencies.

Good luck with whatever you decide to do!

Caleb Day · Answer

Great advice, thank you. I definitely want to make sure I don't over-leverage myself.

Caleb Day · Answer

Those are some great points. Your reply made me lean FHA because I would indeed plan on refinancing. The deal I was looking at fell through but I'll carry this knowledge on to the next one.

Caleb Day · Answer

That's all very practivcal advice, thank you. The last paragraph is specifically encouraging. Even at current rates, I think the numbers make sense even if my monthly cost goes up.

First House Hack using a HELOC on my current home?

First House Hack using a HELOC on my current home?

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