How much money do you need to save up for a house hack???
Financial Advisor · Miami, FL · Member since 2019 · 13 posts · 0 votes
Hi Everyone,
I am looking to buy a property in the St Pete/Tampa area. I have been looking at mostly 2-4 units I am a newbie and this would be my first real estate purchase.
Price range I am looking at is a $250,000-$350,000 property. I am looking to utilize a FHA loan put 3.5%-5% down. For a house in that price range will put me at at the 9,000-12,000 dollar range for a down payment. I figure another 7-10,000 for closing costs. I figure I will have to put some work into the given property I invest in, let's say $10,000 just to be conservative. I am going to need reserve money as well around $10,000 theres as well. So all in all:
Down Payment: $12,000
Closing: $10,000
Repairs: $10,000
Emergency Fund: $10,000
Total: $42,000
Does that sounds like a solid number I need to save up or am I being too conservative. Do I need to save more? I would like some input as I am currently saving up and having a number I need to reach would ensure that I accomplish my goal of buying a property by the end of this year.
Hey Alfred,
I actually am closing on my first property (also a house hack) in Atlanta at the beginning of April. My numbers are below:
Purchase Price - 320,000
Down Payment of 5% - 16,000
Pre / Closing Costs - 11,000
Repairs needed - 15,000
Emergency Fund Required - 15,000
Total $ needed - 57,000
A few things to note: I went with a 5% down payment to get the lowest monthly PMI charge and interest rate possible. I also chose the Conventional vs. FHA - I would look into this if I were you because the PMI automatically drops off on a conventional loan once you get to 78% loan-to-value of your purchase price (or you can have it appraised yourself when you believe you're beyond 20% equity) vs. the FHA where they package an additional premium onto your loan. Look at this article to see for yourself and talk to your lender obviously https://www.nerdwallet.com/art.... Also, I recently boosted my emergency fund from 10 to 15K just this month due to the uncertainty I personally have with my job in the short-term with the recent shut downs. So I am rolling with the bunches a bit and am taking a page out of Craig Curelop's book and plan to fund my initial repairs with a credit card that has a 0% APR introductory offer for 15 months. I would just rather have the cash in my bank and borrow it for free, but this is completely a personal preference I believe.
All that being said, I had exactly 42,500 in the bank, zero consumer, student loan, or personal debt when I went under contract on the home. A lot of my confidence to pay the credit card off before the 15 months are up and the high interest rate kicks in is because with my current rent I am averaging about 2,000 / month in savings. This savings rate will go down slightly with the PITI from the home, but not substantially enough to affect my ability to pay it off within 9 or so months. I'm not including future rent in my calculation, which will also speeds this payoff time up.
That was a lot, but I wish I had someone to respond to my post with as much detail as possible when I was starting to look.
Let me know if this helps!
Keaton
Hey Alfred,
I actually am closing on my first property (also a house hack) in Atlanta at the beginning of April. My numbers are below:
Purchase Price - 320,000
Down Payment of 5% - 16,000
Pre / Closing Costs - 11,000
Repairs needed - 15,000
Emergency Fund Required - 15,000
Total $ needed - 57,000
A few things to note: I went with a 5% down payment to get the lowest monthly PMI charge and interest rate possible. I also chose the Conventional vs. FHA - I would look into this if I were you because the PMI automatically drops off on a conventional loan once you get to 78% loan-to-value of your purchase price (or you can have it appraised yourself when you believe you're beyond 20% equity) vs. the FHA where they package an additional premium onto your loan. Look at this article to see for yourself and talk to your lender obviously https://www.nerdwallet.com/art.... Also, I recently boosted my emergency fund from 10 to 15K just this month due to the uncertainty I personally have with my job in the short-term with the recent shut downs. So I am rolling with the bunches a bit and am taking a page out of Craig Curelop's book and plan to fund my initial repairs with a credit card that has a 0% APR introductory offer for 15 months. I would just rather have the cash in my bank and borrow it for free, but this is completely a personal preference I believe.
All that being said, I had exactly 42,500 in the bank, zero consumer, student loan, or personal debt when I went under contract on the home. A lot of my confidence to pay the credit card off before the 15 months are up and the high interest rate kicks in is because with my current rent I am averaging about 2,000 / month in savings. This savings rate will go down slightly with the PITI from the home, but not substantially enough to affect my ability to pay it off within 9 or so months. I'm not including future rent in my calculation, which will also speeds this payoff time up.
That was a lot, but I wish I had someone to respond to my post with as much detail as possible when I was starting to look.
Let me know if this helps!
Keaton
Thanks Keaton,
I appreciate that, I will look into the conventional loan vs the FHA. My original plan was to refinance out of it but that could work better. With everything going on it might be better to boost my savings. I wasn't looking to buy until November or December so hopefully this whole corona virus situation is cleared up.
Having the 0% interest credit card ready to go is a good idea as well. I will keep that in mind. In the meantime, I'm going to work towards my goal of 42,000 which might have to be higher if I do 5% down.
Hi Alfred, I am also looking at my first house hack here in Tampa, I will be doing a 5% conventional loan because the PMI for conventional loan are usually lower. Check with your lender if you would qualify for a conventional loan. Closing cost at that price range is usually $3,000 - $4,000 (again check with your lender if the charge any upfront fees). I am a real estate agent and I am an acquisitions manager for an investor here in Tampa. If you have more questions, let me know! I would be more than happy to connect with you and help you get that first house hack!
Hello Alfred Costanzo. All the numbers that go into what makes a good House Hack are needed to see if it will work as far as producing rental income out the back end. What about the front end? "The place to show a Profit is up front." Did you find a Deal that is below Market Value and with all the work you have to do, will it be worth substantionally more when your finished? Your Goal is to Rent and then Refi and have the Rents pay all the bills to give you at least $100 to $200 a month in Cash Flow for each house or apartment. Why would you Rent your Home and then try to BRRR? You can find a fixer upper and have an up front Profit when you move in. Then, Refi for a low rate with a HELOC based on the new, increased Value to do another Deal. In two years the Sale of your Residence is Tax-free. The other consideration I have at this time of Corona Virus is, "do I Rent to start a Portfolio of properties and then Refi or do I just Flip one at a time?" Here in Tampa the Tenants don't have to pay Rent for 90 days and the Mortgage Company cannot start Foreclosure or charge Interest on the loan. The City is shut down with employees trying to work at home. I am waiting for a Zoning to Single Family in order to Close on my Commercial property in South Tampa, which will give me enough Cash Profit to continue from here and not have to ask a Bank for a loan. All Cash Deals from here forward and I don't want to get back into Rentals. Can you imagine that?
I first did it with 500 bucks for earnest but I don't recommend it. I had to use high interest personal loans to make it happen and it made things very tight. However, I came to it after about a decade of construction experience and some property management. It still sucked but it worked. 42k is very conservative for what you're looking at and probably smart if you can make it happen. Right now focus on getting good inspections and a stack of cards from good contractors who know repairs and aren't going to push system replacements on you. That's the difference between a $200 AC repair and a $7,000 AC system replace.