FHA House-hack: Too Much Competition

[Zachary Jensen]

I'm trying to buy my first small multi to house-hack with an FHA loan in Utah in the area around Hill AFB (Ogden, Clearfield, Riverdale, etc.). A lot of people when they talk about house hacking say you should make your offer such that your portion of PITI plus expenses is less than what you would pay to rent a similar unit. However, the issue that I'm running into is that if I price my offer that way, I will have negative cash flow when I move out. And if I make my offer such that it cash flows after I move out, my offer is too low to compete with any other buyers. Any recommendations?

[William Hochstedler]

Hi Zachary,

The problem is you are competing against buyers who are buying multi's just to be able to get housing they can afford.  For many borrowers, their debt to income justifies a duplex at $300K but not a single family at $225K because of the added income from rents.  As you are probably seeing, the $275K duplex makes no sense as a stand alone investment property.

As an example, a borrower can't afford a $225K house that might have a PITI payment of $1500/month. But a duplex for $275K with rents at $1000/unit would have a PITI payment of $1800/mo offset by $1000/month rent. This is an oversimplification and lenders look at these numbers differently, but you get the idea.

The problem with our market right now is that there is no inventory for the bottom half of the buyer pool which is borrowers to small multi's and making them absurd choices for investors as stand alone investments.