FHA House Hack or Invest Long Distance

9 Replies

Hi All,

Recent college grad here who is looking to buy and hold a small multifamily, cash flow property. I have about $15K I'm able to invest, and am torn between house hacking on an FHA loan near me (New England) or going 25% down in a much cheaper market long distance. I'm currently living at home and am looking to move out so I'm leaning toward house hacking but the PMI makes me hesitant.

Any thoughts BP?

Hi Cody. What are your short and long term goals? Are you a handy guy who has time to deal with tenants, or are you just looking to get into the business? What do you want out of real estate?

15k is not much to get you started, frankly. I just purchased a home that sold for 102k, and I needed 25% down -- a little over 25,000, plus a few extra thousand in closing costs. That's a pretty cheap property, in my opinion.

I love the idea of a house hack because it allows you to get into investing, have someone hopefully cover your major costs (mortgage/taxes), allow you to build your systems, allows you to learn your costs/problems in a rental, etc.

But any decisions you make should be in line with your short and long term goals for real estate investing -- they need to be identifiable, quantifiable goals.

Originally posted by @Cody Whitten :

Hi All,

Recent college grad here who is looking to buy and hold a small multifamily, cash flow property. I have about $15K I'm able to invest, and am torn between house hacking on an FHA loan near me (New England) or going 25% down in a much cheaper market long distance. I'm currently living at home and am looking to move out so I'm leaning toward house hacking but the PMI makes me hesitant.

Any thoughts BP?

 House hack first always.

@Cody Whitten I recommend house hacking to get your feet wet. As for pmi, it’s required for fha with low down payment. If you do your cashflow calculation correctly, it’s just another business expense to consider. As long as the property cash flows as a stand alone rental property, your tenants paying for the pmi so it should not be an issue as an investor. Long distance purchases look great on paper and sounds easy but I decided not to because no one manages my assets as well as I do. I’m glad I didn’t when I had the chance because i have come to realize how quickly things can turn south if anything were To go wrong and it’s a big headache trying to manage long distance.

Well the PMI definitely should make you hesitant. But don't guess whether you should be hesitant from it or not, just run the numbers. If you aren't familiar with running numbers on rentals, check out-

https://www.biggerpockets.com/renewsblog/2013/01/1...

I'd say run them for both scenarios and see what they are looking like. And then for house-hacking specifically-

https://www.biggerpockets.com/renewsblog/considera...

Originally posted by @Cody Whitten :

Hi All,

Recent college grad here who is looking to buy and hold a small multifamily, cash flow property. I have about $15K I'm able to invest, and am torn between house hacking on an FHA loan near me (New England) or going 25% down in a much cheaper market long distance. I'm currently living at home and am looking to move out so I'm leaning toward house hacking but the PMI makes me hesitant.

Any thoughts BP?

Hey Cody! OOS investment would always beat the house hack from a returns standpoint. Rent to value ratio in your market is just lower than it is out of state. Now the one benefit to house hacking is you can get into a hackable home with a much lower down-payment. In this case... you should probably house hack with a typical FHA loan like you're saying, then go get a commercial loan on a rental elsewhere (20% down instead of 25% on commercial products) that cares a little bit kess about your DTI ratio.

Just some thoughts! Why only choose one?

Numbers permitting, house hack with a 5% down conventional loan. That way the PMI will slough away at 80%, oppose to an FHA. Then decide if you want to do out of state investing.

Thanks for the advice everybody! Sounds like house hacking is the best way to start investing from a learning standpoint, like Joe and Sung are saying. I'm (hopefully) in RE for the long haul so I feel like easing into some early experience is a great idea. Running the numbers right now on a property actually, thanks for the link Ali! Its surprisingly affordable for the location so I can probably go for the 5% conventional Alex! 

Conventional loan investment hopefully to follow in the near future Elliot. 

Cody

@Alex Presnell @Cody Whitten 5% conventional has special income eligibility requirements that you may or may not qualify for. It basically depends on your income and the census tract the property is located in. The freddie mac link below provides the details. Not all lenders offer this mortgage product so you need to shop around. Some lenders may not even know about it because they work mostly or exclusively with fannie mae products which don't allow for low down payment on 2-4 unit properties.

http://www.freddiemac.com/homepossible/eligibility.html