House Hacking in Seattle

13 Replies

My girlfriend and I have been wanting to get into real estate investing for some time. Without boring you guys too much, we have a dilemma. We are looking into 2-4 unit multi family properties which we would live in for a couple years.

I’ve been hearing so much about people getting started with zero money. Right now we have roughly $6,000 in debt and together make around $100k a year. Do we take a year or two to pay off some of our debt and save up some money for a larger down payment out of pocket, or try and borrow money for a 3.5% down payment? We’re both a little worried about if it’s a good idea to borrow the entirety of the $20-30k down payment...is that too risky?

@Tyler Smith What's your comfort level with debt? Without knowing your situation completely, I would say this:

1. Get ride of bad debt as soon as possible. With $100k income and solid budget and some determination, I'm sure you can destroy those $6k pretty fast.

2. Once the 6k is destroyed, then I will actively try to figure out ways to get the 2-4 units. 

3. In the meantime, continue to learn as much as possible in Real Estate.

@Henri Meli thanks for the reply! We’re more interested in the level of risk with borrowing $20-30k for a down payment in an expensive market like Seattle. The debt we have currently isn’t necessarily the issue, it’s the debt we would be accumulating in the near future in order to buy a property.

@Tyler Smith ... Based on the data you have shared, and your answers so far,  the question you could ask yourself is:

How can you fast track saving $20-30k? I'm sure there are plenty of options you can put on the table and assess reasonably. Here are a few suggestions ...

0. Work overtime/extra hours for extra pay?

1. Find a second job (just part time)?

2. Find a week-end gig?

3. Cut even further on the expenses, if possible. Spell out that budget and go line by line ...

When i started my RE journey, I had a week-end gig, where I would referee youth and adult soccer games. I could net $300-$400 on week-ends and sometimes more during tournament week-ends. 

I'm sure there are ways ...

Good Luck !!!

@Tyler Smith .   I was so scared that the house I bought would just break apart or that I would lose my job the next day. I set myself the goal of saving $40k before buying a house. I used a combination of a few things to save up for my first down payment.

Savings (W2 job), side gig (soccer referee, mostly on week ends) and day trading (my part time job back then. It was indeed a job ... seriously). I had 6 months to buy a house, once I made the decision, because my lease (rental) was expiring and I didn't want to extend it for another 12 months or pay fines to exit the lease early. 

Hi Tyler,

Determine your goal and the strategy that makes the most sense base on the level of risk you are comfortable with. Seattle is a really hot market right now. The 2-4 unit multifamily properties category is in very high demand and selling for high prices. This has pushed cap rates down, often less than 5%.

If your plan is to move out and keep the property as a rental, the low down payment will hamper your cash flow unless rents continue to rise. Alternatively, if you are betting the property will appreciate and you can sell down the road and collect tax free gains, you may not care about the monthly cash flow.

I don’t like relying on things outside of my control to determine if an investment is successful. As such, I would recommend focusing on properties where you see opportunities to add value or change usage to increase your return, rather than hoping for rents to keep rising or the market to continue appreciating. Adding value can be simply cleaning up the property to improve curb appeal, or finishing a basement unit. Another option maybe to look at a large single family home where you could rent out the individual rooms to roommates or via Airbnb. My point is you have many options available to you even in a highly competitive market like Seattle. Start with the end in mind and pick the strategy that gets you to your goal taking on a level of risk you are comfortable with. Best of luck to you in your investing journey.

@John Barrett Thank you for your reply! Our idea is to absolutely keep the property long term. Currently our focus is more geared towards owning a few long term rentals where we can manage and maintain them mostly by ourselves. 

We’re not exactly opposed to flipping, but while we’re getting started we would much rather have a more passive income.

It's a great idea with house hacking. But I agree with above. You got to dramatically increase your savings rate. Young people with no kids should be able to cut living expenses down to nothing. Dave Ramsey style. Just for a couple years and you'll set up later. If you really wanted to think you could pay of 6 grand in two month? 30 grand in one year?

We definitely live a very frugal lifestyle and are not exactly people who enjoy fancy/expensive things. We budget meticulously, granted it does become difficult because I work construction and the paychecks vary. 

We’ve sat down and punched numbers, although we do make a decent salary with the cost of living in Seattle, $100k a year doesn’t exactly get you as far as it does in most cities. 2 years would be the absolute longest it would take us to save up the money for a down payment

Hi Tyler,

Your $6k debt given your income sounds like not much of an issue.  I would always recommend having cash in the bank as a "rainy day fund" for the unexpected.  Anything over that can be used for your investing purposes.

That said, do a bit of research into loans and how much you're going to need to put down in order to secure a loan.  While you mentioned 3.5% down, I think you're going to be hard pressed to find such an investment loan if it even exists.  Typically investment properties require a minimum of 10-15% down and that's usually at a substantial interest rate.  As you increase in property size, down payments required can be in excess of 25% (four-plex properties and bigger typically require 25% down).

This doesn't mean that you need to have the full amount for a down payment, you can get creative in how you come up with the down payment.  For instance, increasing the asking price of a home (provided it will appraise at the contract price) and ask for money back at closing with the seller.  This can be used to fund a portion of your down payment which can lessen your cash out of pocket.

There's tons of ways to secure properties, that's the fun of it!

Feel free to reach out if you have any questions!

Hi Jake,

Thanks for responding, it's always helpful to hear from people who are familiar with the area. Please correct me if I'm wrong, but in the research I've done as long as the property you are purchasing isn't more than 4 units which would require a commercial loan and you're planning on living in one of the units then it's "owner occupied".. therefor you can qualify for a 3.5% down FHA loan. I've heard of some other types of loans we may be able to qualify for being first time homebuyers and all although I haven't done much research on it. So my thinking was $20-$30k gives you a $517-$857k property which is pretty doable in Western Washington without going into the heart of Seattle or Bellevue.

Is there something I’m overlooking? 

Tyler - I suggest looking at Mr Money Mustaches website. If you guys are making $100k then you should be able to save $50k in ONE YEAR and still live really well.

I’ve got a wife, kid, dog, cats, and house payment and we are currently budgeting about $50k for the year with room to cut more! 

Take a hard look at your budget and decide if you want to work an extra decade to pay for this things you’re buying today.

Good luck!

Tyler,

I am in the Seattle area (Snohomish/Skagit County). It is the best place to invest in the world! What I would suggest would be to really study the market on where you want to end up. 2-4 is insane price wise. There are some values out there but I think that if you educate yourself on the market and get everything financially in order you will be better in the long run. In my opinion there is very little that will cash flow right now in multi family for the Seattle area. I would not just throw my money at a place as an “investment” when you will probably have a negative cash flow.

What no one has mentioned above is that you go with a <20 down payment option you have PMI. That is going to kill your cashflow. Your fist few properties have to be homeruns so you can tap into the equity to keep growing.

I would save up. Track the market, look at what things are selling for, how fast, price per unit, rents in those areas, and be 100% confident. I have waited years for good deals. Sometimes that is as long as it takes.