I am about six months in on the first duplex "House Hack" journey, with an overall plan of refinancing my current FHA loan into conventional, and using FHA again for property #2. Pretty standard, yeah? I am finishing up rehabbing my side of the duplex, and looking towards my next step... and I am not sure what direction that step should be in. I am somewhat aware of different options I have, like working on paying towards principal to get to a place where I can refi, increasing property value being aware of appreciation, etc. But I have no clue on what path is best for me. So I really have two questions here:
1. Who would be my next person of contact to help guide me through this process? (LO, someone specializing in REI, a Yodaesque person who has all the answers?)
2. If you could go back, what would you have done differently to make your time in between properties shorter and more efficient to purchasing your next? I am only 6 months in and I am already well aware that this whole process is learning from the mistakes or missteps we make, and I am curious what you all may have encountered in your journey.
Y'all are rock stars!
@Tyler Martin Must you remain in your current property for 2 years? Paying down the principal just to refinance and pay fees doesn't make sense. If you're rehabbing the property and expect the value to be increased then you should be good to refi if you bought low enough. (BRRRR) I guess more details are needed to give you more guidance and ideas on your next move.
I've personally used the BRRRR method by buying low enough, value add, and refinancing. The One Thing that will keep you going is knowing where you want to be. Think 10-20 steps ahead and figure out how you're going to get there. Write out your plan, your goals, look at your goals everyday, one thing at a time, yet knowing how your next move will impact the move after that. Never speculate when investing, know your numbers, appreciation is icing on the cake...never invest hoping for it.
As far as finding a loan, I would talk to a mortgage broker, or go to your local REIA and ask around to find which banks other investors are using and what they recommend. As far as guiding you through the overall process, there is a lot of stuff here on BP about house hacking, so I would look through that. Good luck!
@Tyler Martin I have done the first into second househack. If you have been there 6 months I would focus on trying to improve your future appraisal for refi. What are surrounding homes valued at? What additional renovations can you do to raise value without over renovating. Then you have to determine when you are close enough to you 80/20 to worker with a lender and get the appraisal.
I refinanced out of first FHA 1.5 yrs after purchase. Then 1.5 years later bought duplex number 2 with FHA.
@Korie Apgar Per FHA rules, i have to occupy the rental for at least 1 year. Refinance to conventional, then find another property using FHA again, utilizing the 3.5% down instead of conventional 20%, and repeat. This is a little different than BRRRR because I have to occupy the rental the entire time.
Thanks for that! You are spot on with the planning aspect for sure. I started doing this when I first was looking to purchase and have focused most of my time on renovations. Definitely going to re-familiarize and revisit that plan while I wait for my electrician to set up my dish washer!
With fha financing are you able to purchase properties that need “extensive” work? Guess I should be more descriptive...there’s a big difference between carpets needing replaced and units that don’t have flooring except for subfloor. I know I can’t get traditional financing on places where there isn’t flooring...they won’t underwrite the loan. Of course you use non traditional lenders at that point, so I was curious how fha worked specifically.
@Blair F. Thanks for the info! I knew I had to get to 80/20, just wasn't sure the best way to go about it. I guess I was looking for reassurance that strategically increasing value through renovations is in fact the way to go.
Now once I get to the position where its time to talk refi, when you say "a lender," would this be the lender I already have the home loan through, or is that someone I can shop around for?
@Tyler Martin You can shop around and pick a completely new lender if you like. Whoever has good terms/good to work with. My advice is refinance while it is still your primary residence bc you can get owner occupy conventional loan rather than investment loan.
Don’t rush into another house hack if the deal isn’t right. If you can’t find a deal soon, might as well stay there for 2 years so you can get up to 250k tax free.
@Blair F. Great! Would love to potentially find a lender who is savvy in this exact situation. @Michael N. I will definitely stay patient in the search for property #2 when the time comes. I just did a little research on the 250k tax free, and that is good to know (thanks for that). I plan to buy and hold, and eventually trade up within the next 5 - 10 years. So if it gets to a point where 2 years makes more sense, that is a huge advantage!