How Much to Save for a Single Family House Hack?

Omaha, NE · Member since 2017 · 14 posts · 4 votes

Hey guys! I am 20 years old and I want to purchase a single family home to house hack with. I'm in Omaha, Ne and I currently live in an apartment. I want to buy a three bedroom house and have two roommates cover the majority of the rent. I would pay maybe $100 per month. Using the BP Mortgage Calculator I figured a house in the $145,000 price range is what would be ideal. I calculated a payment of roughly $1,000 per month after mortgage, taxes, and insurance. My question is besides the $5,000 for a down payment on an FHA loan, how much is a good amount to have saved up before purchasing the house, and how much should I save per month for cap ex? Would love to hear everyone's feedback so I can better plan for this!

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Josh Miller

Rental Property Investor · Seal Beach, CA · Member since 2015 · 132 posts · 187 votes

A thousand ways to skin this cat so take everything I'm about to say, take with a grain of salt.
1. Although unsolicited, I would not even consider purchasing a house until I've paid off all my bad debt. i.e debt that isn't making you money. Credit card, student loans, etc. The reason I say this is if a bad day comes along, you don't want to worry about paying off your bad debt and a house payment. Moving on...

2. Have at least 3 months of savings in the bank, hopefully, more outside of any housing expenses to cover.

3. Now finally to your question. Well, a lot depends on the house you end up buying. Is the roof 15 years old, is the HVAC on its last leg, does the electrical panel need updating, has the plumbing been touched in the last 50 years? How old is the house? As a rule of thumb on my rentals, I consider 45% of the rent as "gone" before my mortgage. So using your $140,000 house I'll take a stab and say that would rent around $1,400 a month. That means you should expect to pay AT LEAST $630 a month in insurance, taxes, maintenance, and repairs. Well actually maybe a bit less since you don't have a property manager, so make that an even $500 per month. TImes that by 6 months and your talking about needing ~$3,000 if nothing goes wrong. As I write this, I'm not loving my answer but it should give you something to think about.

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Evan Wiesner
Flipper/Rehabber · Portland, OR · Member since 2014 · 120 posts · 80 votes
7y
If you're living in it then it's different. Cap ex is less of an issue because it's the same space you'll be in so it really depends on what the house needs to maximize value when you resell it.
If you do the same thing but with a duplex or triplex (you can still use FHA loans) then you want to evaluate whether you're going to do a value add on the additional units or just maintain them. If maintaining, especially on an older building, use a higher cap ex because you'll be fixing as you go. If you're remodeling, save for the remodel and do that upfront and then a lower capex because there will be fewer issues (hopefully).
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Josh Miller
Rental Property Investor · Seal Beach, CA · Member since 2015 · 132 posts · 187 votes
7y
A thousand ways to skin this cat so take everything I'm about to say, take with a grain of salt.
1. Although unsolicited, I would not even consider purchasing a house until I've paid off all my bad debt. i.e debt that isn't making you money. Credit card, student loans, etc. The reason I say this is if a bad day comes along, you don't want to worry about paying off your bad debt and a house payment. Moving on...
2. Have at least 3 months of savings in the bank, hopefully, more outside of any housing expenses to cover.

3. Now finally to your question. Well, a lot depends on the house you end up buying. Is the roof 15 years old, is the HVAC on its last leg, does the electrical panel need updating, has the plumbing been touched in the last 50 years? How old is the house? As a rule of thumb on my rentals, I consider 45% of the rent as "gone" before my mortgage. So using your $140,000 house I'll take a stab and say that would rent around $1,400 a month. That means you should expect to pay AT LEAST $630 a month in insurance, taxes, maintenance, and repairs. Well actually maybe a bit less since you don't have a property manager, so make that an even $500 per month. TImes that by 6 months and your talking about needing ~$3,000 if nothing goes wrong. As I write this, I'm not loving my answer but it should give you something to think about.

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Scott Bergmann
Real Estate Agent · Omaha, NE · Member since 2018 · 42 posts · 26 votes
7y
@Josh Miller great points Josh! Another point to add onto that is never make big decisions alone! I happen to be a realtor that specializes in investment property and have a wide network of investor friendly lenders. I can’t stress enough how important having a good team around you is when trying to figure out the best investments, especially how I happen to be a realtor that specializes in investment property and have a wide network of investor friendly lenders. I can’t stress enough how important having a good team around you is when trying to figure out the best investments, especially house hacking!
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Kevin S.
Accountant · Tulsa, OK · Member since 2018 · 312 posts · 349 votes
7y
@Christian Wilson don't forget that besides your downpayment you'll also have closing costs of anywhere between 1%-3% (estimate) of the purchase price, so you'll probably need closer to $10k saved up to cover downpayment/closing costs/etc. Depending on the age/size of the property you'll want to have some money stashed away for repairs/updates/CapX but it's hard to estimate this without having a property you're considering, I would just keep this in mind as you save.
Additionally, I would recommend you consider looking for a duplex/triplex instead of a SFH, it's not always easy to find people willing to rent a room versus a full unit and you may find you miss the privacy of your own space. I would talk to a local realtor and keep an eye on current listings, try to see if you can't find some multifamily properties in your price range and run the numbers to see if it works for you. Good luck!
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Christian Wilson
OP
Omaha, NE · Member since 2017 · 14 posts · 4 votes
7y
@Kevin S. I currently have a roommate that would move in with and we just wanted to get another of our friends to move in with us. I wanted to go the SFH route just because of the better locations. It is something to think about and if I could find a multi family I'd love to do that! That you for the advice and I will reach out to a local agent to start talking about finding some properties!
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Christian Wilson
OP
Omaha, NE · Member since 2017 · 14 posts · 4 votes
7y
@Evan Wiesner thank you for your input! It seems like multi family are something to consider just to generate extra cash flow
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Christian Wilson
OP
Omaha, NE · Member since 2017 · 14 posts · 4 votes
7y
@Josh Miller I will have all debt paid off prior to purchasing a home. Point #2 was really good, I will figure that into my calculation! As for point #3, I would be managing it and just living with a few friends so I was thinking also thinking around $500 per month but wanted some feedback from others so thank you for the reply!
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Josh Miller
Rental Property Investor · Seal Beach, CA · Member since 2015 · 132 posts · 187 votes
7y
@Christian Wilson , get a home warranty for $500 bucks (or better yet, negotiate it so the seller pays for it). It will be nice to have for the first year in case something major breaks down.
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Christian Wilson
OP
Omaha, NE · Member since 2017 · 14 posts · 4 votes
7y
@Josh Miller I didn’t even know what that was! Thank you so much, that’s awesome advice!
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Evan Wiesner
Flipper/Rehabber · Portland, OR · Member since 2014 · 120 posts · 80 votes
7y
@Christian Wilson you're in the position that I learned WAY too late that I wanted.... before you buy your first property there is a way to house hack 2-3 multifamily properties in a row. Find a good mortgage broker who will guide you. FHA loan first, then conventional, then hopefully a plan for a 3rd. If you do it right you can get through 3 of them in 5-6 years with other people paying your mortgages along the way.
Think about that..... if you do it with duplexes that's 6 rental units.... triplex's and you're at 9...... by then you're moving into a single family house in the burbs and your renters are covering their own mortgage, capex, and maybe most of your mortgage. It's all about planning.
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Christian Wilson
OP
Omaha, NE · Member since 2017 · 14 posts · 4 votes
7y
@Evan Wiesner I think you make a very valid point, I was more focused on one property at a time and not setting myself up to knock out multiple over the next few years. I’ll start looking into it now and contacting some brokers!
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Antonio Esquivel
Realtor · Omaha, NE · Member since 2011 · 110 posts · 25 votes
7y
Pretty much everyone else covered what I was going to say. I started the very same way, bought a house and moved in 2-3 friends. You cant go wrong with someone else paying the mortgage! Good Luck!
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Kyle Godbout
Investor · Omaha, NE · Member since 2015 · 366 posts · 184 votes
7y
House hack!!!
If I could go back to life before kids and a wife, I would go this route.
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Amber Barr
Rental Property Investor · Omaha, NE · Member since 2018 · 20 posts · 12 votes
7y
Hey @Christian Wilson. Congrats again on getting into Real Estate Investing. Everyone above made great points! My first two homes that I bought, I did this strategy to save money (without planning to go into REI). First home I bought for $84k, had my best friend and her husband live in my basement and cover 2/3 mortgage and utilities, then sold for $95k less than 2 years later. My second home I bought for $245k in Vancouver, WA, got a roommate to cover half the mortgage and utilities. Then I moved back to Omaha, and now have it rented out, covering the entire mortgage and paying down the equity. It's now valued at $320k only 3 years later. A week ago, I bought my first fixer upper which I will flip or turn into an AirBnb.

Things I've learned: 1- Even if you're having a friend as a roommate, put the lease agreement in writing. It'll save uncomfortable situations for both of you if things don't work out. You should both know the expectations including: how much they're paying for rent, how much for utilities, are they responsible for damages/cleaning costs when moving out, who is response for maintenance/repairs, yard work, etc. How much notice do they need to give before moving out.
2- Have a backup strategy. If they leave you high and dry and move out in a week, can you afford to cover the mortgage? Do you have a strategy to find a new roommate? I found my Vancouver roommate through Craigslist, and she was amazing. But that might not be the situation all the time.
3- Don't be house poor. This is my opinion- but I would rather buy a home slightly below what I could afford than stressing about being able to make the payment each month.
4- You don't have to buy retail. There are a lot of single family homes sold off the market (not on the MLS) that you can buy at a discounted price and save money on realtor fees. Talk with local investment companies to see what they have available.
5- Consider creative income streams. Airbnb or short term vacation rentals are growing in popularity. You can rent out a furnished room in a shared house on sites like Airbnb and Vrbo for extra income.
Hope that helps!
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Jake CohenPro Member
Rental Property Investor · Denver, CO · Member since 2017 · 200 posts · 126 votes
7y
@Amber Barr great advice to someone just starting out. Starting an Airbnb is awesome in my opinion. And it is a great way to house hack and cover a majority or all of your mortgage!
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Victor SoBusiness Member
Real Estate Agent · Chicago, IL · Member since 2017 · 325 posts · 193 votes
7y
@Christian Wilson I just bought a multi-family unit to house hack. I used a FHA 203k loan to buy it since the property required some extensive work (electric, plumbing, etc) and wanted to include the cost of rehab into my mortgage. Long story short, it took me 5-6 months just to pull permits due to my city municipality being really difficult and then another 5-6 months for rehab to finish. I didn't not expect (or budget) for this at all.
My advice is to figure out what work you will need to have done and how long the rehab will take. And then save up for a little more than the length of time that the rehab would take.
Or, you can buy a place that doesn’t need much work in order to make your life simpler.
Hope this helps!
Victor So Real Estate LLC517 Reviews
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Cameron McCown
Lender · St. Louis, MO · Member since 2019 · 45 posts · 27 votes
7y
@Christian Wilson You might consider waiving escrows on this purchase if you want to minimize cash to close. Escrows are 3-6 months of taxes and insurance set aside at closing. They're you're money set aside, and they start an escrow account for you that disperses every year to pay the county and your homeowner's insurance company. If you paid those instead, you would not have to pay the 3-6 months up front plus 1 full year homeowner's insurance. In putting at least 20% down, you'll have that option.
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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
7y
Make sure you have money for repairs and save for increased taxes and vacancy. Your down payment will be more than $5K on a $145K home, it will be close to $7.5K. When looking at homes, think long term (ie does it make sense as a stand alone rental?). Can you find a place with a suite you can rent out instead of a room.
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Christian Wilson
OP
Omaha, NE · Member since 2017 · 14 posts · 4 votes
7y
@Theresa Harris I will be moving out with current roommates! Why do you say $7.5k? Are you adding the down payment with closing costs?
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Christian Wilson
OP
Omaha, NE · Member since 2017 · 14 posts · 4 votes
7y
@Cameron McCown I was planning on using an FHA loan to purchase the first property
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Cameron McCown
Lender · St. Louis, MO · Member since 2019 · 45 posts · 27 votes
7y
@Christian Wilson If it's going to be a 3-bedroom single family house, don't use an FHA loan. Put 1.5% more down and go Conventional. The FHA has 1.75% in up-front mortgage insurance as a fee, and the monthly mortgage insurance is also higher. If your credit score is at least 660, go Conventional and save yourself money on a single-family.
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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
7y
Originally posted by @Christian Wilson:

@Theresa Harris I will be moving out with current roommates! Why do you say $7.5k? Are you adding the down payment with closing costs?
If you have to put 5% down and the house is $145K, that is close to $7.5K.
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Cameron McCown
Lender · St. Louis, MO · Member since 2019 · 45 posts · 27 votes
7y
@Christian Wilson, Let me add some clarity.

On $145,0000, you could either put $5,075 down (FHA) or $7,250 (Conventional).

If you go FHA, there is a $2,537.50 fee (1.75%) for doing so. Some people finance it into the loan (thus pay it on loan payoff), and some people pay it up front. The difference between 7,250 and 5075 is only 2175, and it's equity, not a fee. So by going FHA, you're -$362.50 off the bat.

Then over time, the PMI on an FHA loan is $99.11/month (.85%/12), and it never goes away.
On a Conventional loan, the PMI averages about $90.62 (.75%/12), and it goes away when you have 22% equity.

The average rate is lower on an FHA loan (given the same amount of points paid), and the higher PMI + up-front PMI does not make it often make sense, in the short-run or the long-run especially since it goes away in the long run on a Conventional loan.

Hope this helps.
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Christian Wilson
OP
Omaha, NE · Member since 2017 · 14 posts · 4 votes
7y
@Cameron McCown it actually helps a lot! I wasn't aware of the 1.75% fee for doing an FHA loan. Thank you so much for your input!
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Christian Wilson
OP
Omaha, NE · Member since 2017 · 14 posts · 4 votes
7y
@Theresa Harris I see now, I was getting my number from 3.5% of the purchase price, not 5%. Thank you for your response :)
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