Fastest way to hit 20% Loan To Value and drop PMI

25 Replies

Hello,

I just bought my first property in Fort Collins, Colorado with a 3% down payment conventional loan. I am wondering what kind of strategies I can use to hit that 20% LTV the fastest?

I am going to rent out two of the three bedrooms (house hacking).

I’ve already made a number of cosmetic improvements to the property (garage door opener, replaced the skylight, soon to refinish the hard wood flooring, will paint and refinish the walls, etc)

I plan on adding a 4th bedroom to the basement space. Making the property a 4 bed 2 bath home.

I plan on contributing the max I can along with tenant money to paying down the loan faster outside of my savings and retirement accounts.

What else should I be thinking about? I have about $63k I need to hit that mark and I’d like to get it by end of next year.

I would caution about the 4th bedroom idea, make sure that the septic design (if it has one) and town would approve the addition. Also, appraisers wont consider a basement room a bedroom unless it is above a certain amount of lawn grade (at least here in MA).

Improvements will help, but unless it was a really beat up home, and you got it for well below market value, adding 63k in equity might be tough. Im in the same position as you are right now.

Tidy up the landscaping make it appealing from the exterior. Work on bathroom, kitchen, flooring, painting, & recessed lighting (makes a huge difference). Be patient and make sure its complete before you order an appraisal, otherwise you will be out the $500!


Good luck

I think you are on the correct tract with value adds but will find it difficult to get there with just value adds.  Other options include increased monthly payments and market appreciation.

Different question is why are you in such a hurry to get to 20%? I understand the desire to stop paying PMI but you have to counter that with the leverage of a 97% LTV loan.

If you have an 80% LTV and the property appreciates 10%, the ROI on the equity if 50%. Not bad but 10% appreciation is not going to happen every year. The same 10% increase on a 97% LTV is a 333% ROI. Power of leverage. Many an RE investor wishes they can obtain 97% LTV. I believe leverage is the primary reason why RE is such a good investment over other options.

I typically am trying to increase my LTV to obtain better leverage. I try to stay between 70% and 75% LTV but it is not feasible. Currently I am just less than 50% LTV. There are a few RE that are responsible for much of the difference between where I want to be and were I am.

Good luck

How much is PMI? Does your property cash flow now with it rented out? I second the stick with 97% LTV... save for your next property. House Hacking is a longer-term game not likely to get you to 80% LTV in just a few years. I"m also not sure if adding a 4th bedroom without adding square footage would increase the appraised value all that much.

Originally posted by @Dan Heuschele :

I think you are on the correct tract with value adds but will find it difficult to get there with just value adds.  Other options include increased monthly payments and market appreciation.

Different question is why are you in such a hurry to get to 20%? I understand the desire to stop paying PMI but you have to counter that with the leverage of a 97% LTV loan.

If you have an 80% LTV and the property appreciates 10%, the ROI on the equity if 50%. Not bad but 10% appreciation is not going to happen every year. The same 10% increase on a 97% LTV is a 333% ROI. Power of leverage. Many an RE investor wishes they can obtain 97% LTV. I believe leverage is the primary reason why RE is such a good investment over other options.

I typically am trying to increase my LTV to obtain better leverage. I try to stay between 70% and 75% LTV but it is not feasible. Currently I am just less than 50% LTV. There are a few RE that are responsible for much of the difference between where I want to be and were I am.

Good luck

I believe the OP just wants to increase the equity to drop the PMI payment, doesn't mean his loan is going to increase unless he wants to cash money out. His monthly payment would be down a few hundred Dollars on insurance.

Originally posted by @Brian Ellis :
Originally posted by @Dan Heuschele:

I think you are on the correct tract with value adds but will find it difficult to get there with just value adds.  Other options include increased monthly payments and market appreciation.

Different question is why are you in such a hurry to get to 20%? I understand the desire to stop paying PMI but you have to counter that with the leverage of a 97% LTV loan.

If you have an 80% LTV and the property appreciates 10%, the ROI on the equity if 50%. Not bad but 10% appreciation is not going to happen every year. The same 10% increase on a 97% LTV is a 333% ROI. Power of leverage. Many an RE investor wishes they can obtain 97% LTV. I believe leverage is the primary reason why RE is such a good investment over other options.

I typically am trying to increase my LTV to obtain better leverage. I try to stay between 70% and 75% LTV but it is not feasible. Currently I am just less than 50% LTV. There are a few RE that are responsible for much of the difference between where I want to be and were I am.

Good luck

I believe the OP just wants to increase the equity to drop the PMI payment, doesn't mean his loan is going to increase unless he wants to cash money out. His monthly payment would be down a few hundred Dollars on insurance.

I understood that he wants to get to 80% to remove PMI and not necessarily refi. If I got to 80% LTV and had the opportunity to get back to 97% LTV, even with the PMI, I would get back to the 97% LTV and happily pay the PMI.

The leverage increases the return. More cash in the RE will help cash flow a bit but will hinder any return from appreciation (in terms of ROI). The conventional owner occupied home financing is the cheapest money that exists. Traditionally I can get returns far in excess of the conventional owner occupied home loan rate. If the interest rate is 4% but with the PMI it is 5% (PMI is usually less than 1% of the loan), but I can achieve 10% return or much greater, why would I want to tie up more money into the RE?

I would rather place the extra 17% (20% minus 3%) into another investment (another RE, stocks, mineral rights, commodities, etc.). Anything that can produce an additional return on the investment. This obviously works best if your can achieve better return than a conventional owner occupied home loan interest rate with the PMI (seems easy to achieve).

Something for the OP to consider.  It depends on his risk tolerance, objectives, appreciation forecasts, etc.

Basically at 97% LTV, he is receiving a return with virtually only other people's money (the bank's money). It is a great thing to get a return using almost none of your money.

@Dan Heuschele this makes sense. My only argument is there may be more to the picture we don't see.

That is for the OP to decide. In my case where im trying to remove PMI it makes more sense than taking that same capital (used for renovations) and trying to invest it into another property. 20% down payment on another investment property is a lot more than the renovation costs where I can also increase rent while removing a $300 PMI payment. It might take me four years to save up for another properties down payment otherwise, or I could just increase my return on my initial investment within a couple months.

In my case im not willing to throw all that money at the stock market or into a property out of state. But, like you said that's all up to the OP and his risk tolerance. 

Originally posted by @Brian Ellis :

@Dan Heuschele this makes sense. My only argument is there may be more to the picture we don't see.

That is for the OP to decide. In my case where im trying to remove PMI it makes more sense than taking that same capital (used for renovations) and trying to invest it into another property. 20% down payment on another investment property is a lot more than the renovation costs where I can also increase rent while removing a $300 PMI payment. It might take me four years to save up for another properties down payment otherwise, or I could just increase my return on my initial investment within a couple months.

In my case im not willing to throw all that money at the stock market or into a property out of state. But, like you said that's all up to the OP and his risk tolerance. 

S&P 500 lifetime return is over 9%. Historically it has produced better return than current owner occupied conventional home loan + PMI. I am not necessarily recommending the S&P 500 as much as showing how easy it is to get better return than his loan terms. Various RE syndications return much higher return than S&P 500 lifetime return. I am also not necessarily recommending RE syndications as much as showing another option that returns a much higher return than his loan.

My point is, even with PMI, owner occupied conventional loan is very cheap money. Add in the interest is able to be written off makes this loan have even lower cost. The money used to pay off the loan at the end of the term will have reduced value due to inflation. Traditionally getting better return is very easy.

If you could borrow money at 5% (not evening reducing for being able to write off the interest) and get over 10% return with that money, why pay off the loan?  The only reason to pay that loan early is if you are not confident of being able to achieve a better return. 

I would borrow money all day at 5%.   I have a lot of confidence that I can obtain significantly better return than 5%.  

Do your research on any investment choice. 

 

All the comments about better things to do with your money, etc dont take into consideration the lost income and lost opportunity costs.... sure, you can spend more (interest, PMI, etc) but it is still money out of pocket. Interest tax deductions are great, but you only get a small percentage of the $ back (say .25-.36% so 25-36 cents per interest dollar spent)

Plus what happens if we hit a snag in the economy and tenants loose jobs and or local economy tanks a bit? What if the value of the home declines in such a scenario? 

I do understand that some folks can only get in the game with 3% down. But that is not a very secure place to be and IMO getting to 20%LTV is a good goal.

Look to those that are sucessful - emulate their methods. Good luck!

Originally posted by @Dan Heuschele :
Originally posted by @Brian Ellis:

@Dan Heuschele this makes sense. My only argument is there may be more to the picture we don't see.

That is for the OP to decide. In my case where im trying to remove PMI it makes more sense than taking that same capital (used for renovations) and trying to invest it into another property. 20% down payment on another investment property is a lot more than the renovation costs where I can also increase rent while removing a $300 PMI payment. It might take me four years to save up for another properties down payment otherwise, or I could just increase my return on my initial investment within a couple months.

In my case im not willing to throw all that money at the stock market or into a property out of state. But, like you said that's all up to the OP and his risk tolerance. 

S&P 500 lifetime return is over 9%. Historically it has produced better return than current owner occupied conventional home loan + PMI. I am not necessarily recommending the S&P 500 as much as showing how easy it is to get better return than his loan terms. Various RE syndications return much higher return than S&P 500 lifetime return. I am also not necessarily recommending RE syndications as much as showing another option that returns a much higher return than his loan.

My point is, even with PMI, owner occupied conventional loan is very cheap money. Add in the interest is able to be written off makes this loan have even lower cost. The money used to pay off the loan at the end of the term will have reduced value due to inflation. Traditionally getting better return is very easy.

If you could borrow money at 5% (not evening reducing for being able to write off the interest) and get over 10% return with that money, why pay off the loan?  The only reason to pay that loan early is if you are not confident of being able to achieve a better return. 

I would borrow money all day at 5%.   I have a lot of confidence that I can obtain significantly better return than 5%.  

Do your research on any investment choice. 

 

I understand where you are coming from, and I agree. But he isn't talking about paying down the loan, hes talking about increasing the value by renovation. Who knows how much it will cost him to renovate the house to bring it to a 80% LTV. It could be a couple thousand or it could be 50 thousand. This information we dont know. If he can remove the PMI through a 5 thousand dollar renovation through sweat equity, than that is going to give you a bigger immediate return than throwing 5k in an S&P 500. It depends on his scenario.

If he had 65k to throw into renovation, to gain 65k in equity then I understand it is not a smart move where it could be better used elsewhere.

 

Originally posted by @Brian Ellis :
Originally posted by @Dan Heuschele:
Originally posted by @Brian Ellis:

@Dan Heuschele this makes sense. My only argument is there may be more to the picture we don't see.

That is for the OP to decide. In my case where im trying to remove PMI it makes more sense than taking that same capital (used for renovations) and trying to invest it into another property. 20% down payment on another investment property is a lot more than the renovation costs where I can also increase rent while removing a $300 PMI payment. It might take me four years to save up for another properties down payment otherwise, or I could just increase my return on my initial investment within a couple months.

In my case im not willing to throw all that money at the stock market or into a property out of state. But, like you said that's all up to the OP and his risk tolerance. 

S&P 500 lifetime return is over 9%. Historically it has produced better return than current owner occupied conventional home loan + PMI. I am not necessarily recommending the S&P 500 as much as showing how easy it is to get better return than his loan terms. Various RE syndications return much higher return than S&P 500 lifetime return. I am also not necessarily recommending RE syndications as much as showing another option that returns a much higher return than his loan.

My point is, even with PMI, owner occupied conventional loan is very cheap money. Add in the interest is able to be written off makes this loan have even lower cost. The money used to pay off the loan at the end of the term will have reduced value due to inflation. Traditionally getting better return is very easy.

If you could borrow money at 5% (not evening reducing for being able to write off the interest) and get over 10% return with that money, why pay off the loan?  The only reason to pay that loan early is if you are not confident of being able to achieve a better return. 

I would borrow money all day at 5%.   I have a lot of confidence that I can obtain significantly better return than 5%.  

Do your research on any investment choice. 

 

I understand where you are coming from, and I agree. But he isn't talking about paying down the loan, hes talking about increasing the value by renovation. Who knows how much it will cost him to renovate the house to bring it to a 80% LTV. It could be a couple thousand or it could be 50 thousand. This information we dont know. If he can remove the PMI through a 5 thousand dollar renovation through sweat equity, than that is going to give you a bigger immediate return than throwing 5k in an S&P 500. It depends on his scenario.

If he had 65k to throw into renovation, to gain 65k in equity then I understand it is not a smart move where it could be better used elsewhere.

 

If I got to 80% LTV and could refinance it to fixed conventional owner occupied at 95%+ and have to pay PMI, I would refinance it.

As for any concern about housing taking a dive (@Mary Mitchell) then invest the extra extracted money in something other than RE.   Diversification lowers risk; it does not raise the risk.  

I have 3 categories of investment: RE, stocks, mineral rights.   Each is high growth and each individually is higher risk than many other options. At the Great Recession 2 of the 3 fell In value. The mineral rights literally produced near 50%/year on my investment via the production checks during the time of the GR (much lower return today) and increased in value.  The RE fell 30%+ from recent high but none of my RE fell as much as 20% from the purchase price.  The RE cash flow did not decline at all.  I did not need to sell anything due to the GR.   It was nice to have diversification.  

@Mathew Fuller the first question is are you sure the PMI will drop if you get it to appraise at 80% LTV? Years ago I had a property with PMI and found out to get rid of PMI using appraisal, I needed 65% LTV. Even though the same new loan would have avoided it at 80% LTV. Sometimes the rules are different to get rid of it using appraisal versus straight pay down. It is in the fine print.

Also keep in mind that the cosmetic improvements you mentioned will have little to no effect on the appraisal value. You need major improvements like kitchen or bath remodel. The fourth bedroom may not even add much value because it is not increasing the square feet. On top of that the appraisal will cost $500-1000.

I would take the extra money and set it aside for a down payment on another property. If you are younger and getting started, there is way more power in leverage at this point. Acquire properties fast when you are younger and pay them off as you get older. Let the power of leverage and time work their magic.

@Mathew Fuller Craig Curelop was just on the BP Podcast a few weeks ago and talked about PMI being a fair trade off for a 3% down loan, which others have already mentioned that 97% LTV beats almost everything else.

I'm not sure on your situation or numbers, but if I were in your shoes, from what I know, I would be focused on building reserves or saving for the next property rather than eliminating PMI.

I have a SFH with PMI on it, and I'm in no rush to pay it down. The ROI on increased payments for reaching 20% LTV to reduce the monthly PMI doesn't justify the expense in my situation. I wish you the best!

Originally posted by @Dan Heuschele :
Originally posted by @Brian Ellis:
Originally posted by @Dan Heuschele:
Originally posted by @Brian Ellis:

@Dan Heuschele this makes sense. My only argument is there may be more to the picture we don't see.

That is for the OP to decide. In my case where im trying to remove PMI it makes more sense than taking that same capital (used for renovations) and trying to invest it into another property. 20% down payment on another investment property is a lot more than the renovation costs where I can also increase rent while removing a $300 PMI payment. It might take me four years to save up for another properties down payment otherwise, or I could just increase my return on my initial investment within a couple months.

In my case im not willing to throw all that money at the stock market or into a property out of state. But, like you said that's all up to the OP and his risk tolerance. 

S&P 500 lifetime return is over 9%. Historically it has produced better return than current owner occupied conventional home loan + PMI. I am not necessarily recommending the S&P 500 as much as showing how easy it is to get better return than his loan terms. Various RE syndications return much higher return than S&P 500 lifetime return. I am also not necessarily recommending RE syndications as much as showing another option that returns a much higher return than his loan.

My point is, even with PMI, owner occupied conventional loan is very cheap money. Add in the interest is able to be written off makes this loan have even lower cost. The money used to pay off the loan at the end of the term will have reduced value due to inflation. Traditionally getting better return is very easy.

If you could borrow money at 5% (not evening reducing for being able to write off the interest) and get over 10% return with that money, why pay off the loan?  The only reason to pay that loan early is if you are not confident of being able to achieve a better return. 

I would borrow money all day at 5%.   I have a lot of confidence that I can obtain significantly better return than 5%.  

Do your research on any investment choice. 

 

I understand where you are coming from, and I agree. But he isn't talking about paying down the loan, hes talking about increasing the value by renovation. Who knows how much it will cost him to renovate the house to bring it to a 80% LTV. It could be a couple thousand or it could be 50 thousand. This information we dont know. If he can remove the PMI through a 5 thousand dollar renovation through sweat equity, than that is going to give you a bigger immediate return than throwing 5k in an S&P 500. It depends on his scenario.

If he had 65k to throw into renovation, to gain 65k in equity then I understand it is not a smart move where it could be better used elsewhere.

 

If I got to 80% LTV and could refinance it to fixed conventional owner occupied at 95%+ and have to pay PMI, I would refinance it.

As for any concern about housing taking a dive (@Mary Mitchell) then invest the extra extracted money in something other than RE.   Diversification lowers risk; it does not raise the risk.  

I have 3 categories of investment: RE, stocks, mineral rights.   Each is high growth and each individually is higher risk than many other options. At the Great Recession 2 of the 3 fell In value. The mineral rights literally produced near 50%/year on my investment via the production checks during the time of the GR (much lower return today) and increased in value.  The RE fell 30%+ from recent high but none of my RE fell as much as 20% from the purchase price.  The RE cash flow did not decline at all.  I did not need to sell anything due to the GR.   It was nice to have diversification.  

Grand scheme of things, it would be nice to refinance to pull money out and throw into other investments, but id suspect its only a smart move for somebody like you who has a lot of skin in the game, and the capital to back it up. For someone like me, whos only been doing it a few years there is just too much risk involved unless I could find better returns elsewhere rather quickly. But that's extremely tough in an expensive market.

Need to incorporate the added closing costs, the extra $275 a month in interest, the money invested to get to there (renovation), plus the added cost of insurance premium + taxes. 

If im missing something, which im sure I am, please share because im in the same boat as the OP.

 

 

hopefully it's not fha. if it is, better get used to having this expense for a very long time lol i see no reason to go with 3.5% fha over a 5% conventional for most credit-worthy people (especially since you have to prepay their MI as part of your closing costs). when i moved into my primary, i put 15% down. loan got sold several times, and i'm now with Sun-"trust." The whole pmi/removal of escrow process was a major pain in the rear.

knock yourself out with fannie's rules on removing MI here (based on the current value of the property): https://www.fanniemae.com/cont...

"What are the requirements for borrower-initiated requests for MI termination of conventional mortgage insurance based on the Current Value of the property?

Beginning September 1, 2019, for borrower-initiated MI termination requests based on Current Value of the property, the servicer must use the BPO or appraisal* ordered through SMDU to verify the Current Value of the property. When the reason for ordering a BPO or appraisal is due to substantial improvements of the property then a description of those substantial improvements must be provided with the valuation request.
When an evaluation of mortgage insurance is based on the Current Value due to substantial improvements and the loan seasoning is less than two years, the loan-to-value (LTV) threshold is now 80% or less."

The following table describes the LTV ratio eligibility criteria.

If the mortgage loan is... Then...
secured by a one-unit principal residence or second home

the LTV ratio must be

  • 75% or less, if the seasoning of the mortgage loan is between two and five years.

  • 80% or less, if the seasoning of the mortgage loan is greater than five years.

If Fannie Mae's minimum two-year seasoning requirement is waived because the property improvements made by the borrower increased the property value, the LTV ratio must be 80% or less.

Note: The borrower must provide details to the servicer on the property improvements made since the mortgage loan's origination. Improvements that increase value are typically renovations that substantially improve marketability and extend the useful life of the property (e.g. kitchen and bathroom renovations and/or the addition of square footage). Repairs that are made to keep the property maintained and fully functional are not considered improvements.

Originally posted by @Brian Ellis :
Originally posted by @Dan Heuschele:
Originally posted by @Brian Ellis:
Originally posted by @Dan Heuschele:
Originally posted by @Brian Ellis:

@Dan Heuschele this makes sense. My only argument is there may be more to the picture we don't see.

That is for the OP to decide. In my case where im trying to remove PMI it makes more sense than taking that same capital (used for renovations) and trying to invest it into another property. 20% down payment on another investment property is a lot more than the renovation costs where I can also increase rent while removing a $300 PMI payment. It might take me four years to save up for another properties down payment otherwise, or I could just increase my return on my initial investment within a couple months.

In my case im not willing to throw all that money at the stock market or into a property out of state. But, like you said that's all up to the OP and his risk tolerance. 

S&P 500 lifetime return is over 9%. Historically it has produced better return than current owner occupied conventional home loan + PMI. I am not necessarily recommending the S&P 500 as much as showing how easy it is to get better return than his loan terms. Various RE syndications return much higher return than S&P 500 lifetime return. I am also not necessarily recommending RE syndications as much as showing another option that returns a much higher return than his loan.

My point is, even with PMI, owner occupied conventional loan is very cheap money. Add in the interest is able to be written off makes this loan have even lower cost. The money used to pay off the loan at the end of the term will have reduced value due to inflation. Traditionally getting better return is very easy.

If you could borrow money at 5% (not evening reducing for being able to write off the interest) and get over 10% return with that money, why pay off the loan?  The only reason to pay that loan early is if you are not confident of being able to achieve a better return. 

I would borrow money all day at 5%.   I have a lot of confidence that I can obtain significantly better return than 5%.  

Do your research on any investment choice. 

 

I understand where you are coming from, and I agree. But he isn't talking about paying down the loan, hes talking about increasing the value by renovation. Who knows how much it will cost him to renovate the house to bring it to a 80% LTV. It could be a couple thousand or it could be 50 thousand. This information we dont know. If he can remove the PMI through a 5 thousand dollar renovation through sweat equity, than that is going to give you a bigger immediate return than throwing 5k in an S&P 500. It depends on his scenario.

If he had 65k to throw into renovation, to gain 65k in equity then I understand it is not a smart move where it could be better used elsewhere.

 

If I got to 80% LTV and could refinance it to fixed conventional owner occupied at 95%+ and have to pay PMI, I would refinance it.

As for any concern about housing taking a dive (@Mary Mitchell) then invest the extra extracted money in something other than RE.   Diversification lowers risk; it does not raise the risk.  

I have 3 categories of investment: RE, stocks, mineral rights.   Each is high growth and each individually is higher risk than many other options. At the Great Recession 2 of the 3 fell In value. The mineral rights literally produced near 50%/year on my investment via the production checks during the time of the GR (much lower return today) and increased in value.  The RE fell 30%+ from recent high but none of my RE fell as much as 20% from the purchase price.  The RE cash flow did not decline at all.  I did not need to sell anything due to the GR.   It was nice to have diversification.  

Grand scheme of things, it would be nice to refinance to pull money out and throw into other investments, but id suspect its only a smart move for somebody like you who has a lot of skin in the game, and the capital to back it up. For someone like me, whos only been doing it a few years there is just too much risk involved unless I could find better returns elsewhere rather quickly. But that's extremely tough in an expensive market.

Need to incorporate the added closing costs, the extra $275 a month in interest, the money invested to get to there (renovation), plus the added cost of insurance premium + taxes. 

If im missing something, which im sure I am, please share because im in the same boat as the OP.

 

 

Good point. I sometimes forget about markets where 20% is not the same as in my market. I do agree that if 20% is not at least $100K (ideally a lot more than $100K) then it may not be worth the cost to refinance and getting rid of the PMI is part of every bit adds up.

Owner occupied conventional loan can be cheap money, but if the cost to access it is large compared to the money obtained, then it is not cheap money.  I only recommend accessing it when it is cheap enough money that it is very likely that it can be invested to produce higher returns.

@Mathew Fuller , if you are house hacking, please note that Fort Collins has an occupancy limit of 3 unrelated adults in one home, so adding a 4th bedroom might increase the value but you can't rent it out.

Originally posted by @Brit Hale :

@Mindy Jensen get creative! Maybe two unrelated persons and two siblings? There’s the four bedrooms : )\

Hi Brit.  

Fort Collins is a college town, and this law does not allow for creativity. When you purchase a home in the city limits, there is a document you sign at closing stating you will not rent to more than 3 unrelated people. It doesn't mean 2 unrelated and 2 siblings, they REALLY do not want you renting to a bunch of people.

Your neighbors WILL turn you in if the tenants make noise, and you will not be able to win on a technicality. IDK other college cities, but Fort Collins enforces this.

@Joe Splitrock sounds good, thanks Joe. All these responses have made me start thinking a bit differently. I think I’ll still add the fourth bedroom because it looks like I could potentially get more rent for a 4 bed instead of a 3 bed ( mom, dad, 2 kids?). I plan on buying and holding, I just don’t want to be in the negative. I’m sUre as time goes on and I get more education and experience as well as failures the real estate path will become more clear.

@Mindy Jensen Thanks Mindy, that was one thing I found out after making the offer, live and learn lol. I think the value of the 4th bedroom could be a potential increase in rent as a Sfh rental to a family. I think the law is 2 adults and x amount of dependents or two people and not more than one other unrelated person. So the plan is house hacking with two others, and then 1-2 years get my second property and rent this one out.

not sure if it was answered or not, but you can set your mortgage payment up for biweekly or even weekly payments which will reduce the principal. We do biweekly plus pay an additional 30 bucks per draw to the principal. I agree with the others on the leverage aspect, but my wife likes to pay ahead on the house so that's we do. 

Clint

@Mathew Fuller

The only thing that really matters is comps. So hopefully you bought this thing at a 20% + discount to what an appraiser would determine fair market value to be. If so, then after 6 months you should be able to refinance out of that PMI.

Originally posted by @Mathew Fuller :

@Mindy Jensen Thanks Mindy, that was one thing I found out after making the offer, live and learn lol. I think the value of the 4th bedroom could be a potential increase in rent as a Sfh rental to a family. I think the law is 2 adults and x amount of dependents or two people and not more than one other unrelated person. So the plan is house hacking with two others, and then 1-2 years get my second property and rent this one out.

 An added bedroom will increase the rent price some amount. Just keep in mind more bedrooms is more people, which means more wear and tear. In my experience the extra wear doesn't justify the small amount of extra rent. The general rule is two per bedroom plus one, so you could have a family of up to 9 trying to rent the place. I can tell you the worst wear I have had is families with 6 people (2 adults and 4 kids). When I first started in this business, a mentor told me three bedrooms is perfect otherwise you attract the really large families. I have several three bedroom houses with 1-2 people living in them, which honestly is the best situation from a wear standpoint.

I would do some analysis by watching Zillow to see how much rent difference there is. It may just not be enough to justify the build and wear expense. Sometimes it is. If it is a college town without adult occupant restrictions, you can make a ton with extra bedrooms.

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