First Time Home Buyer/House Hacking

4 Replies

Hi everyone!

I am looking to buy my first house and start this path into real estate investing! The house I found is located in a family neighborhood and is walking distance from schools and outdoor parks. It seems to be a safe investment in that I feel confident that vacancy won't be an issue and I don't feel rent will be affected much by market changes. Since it's my first house, I'm wanting to do a conventional loan with 3% down. The house definitely needs some upgrades on the interior and some cosmetic fixes too. After a year of living there, I will move out and rent out the full property. I plan on house hacking by renting out 1 or 2 of the other rooms while I'm there.

Anyway, my question is regarding the BRRRR method. Should I upgrade the property from the get-go, refinance it, and take out money to invest in another property? Can you do that if you have to live there for a year? Should I wait until I'm ready to move out to upgrade the property? I'm new to the industry, so my questions may seem naive, but definitely in need of some guidance.

Thank you!

@Mariah Destruel Welcome to the game! So first thing if you are looking to put down 3% then it sounds like you would be using a FHA loan as opposed to conventional loan with usually requires 20%. I would suggest waiting to do the upgrades and refinance unless you have all the cash to do it from the jump before people move in. you are going to have a seasoning period of 6 months to a year before a bank will refinance the loan anyways. Instead of spending save every penny you make from the rooms you rent and use that cash to buy the next one. Then you could look into refinancing. The trick to BRRRR method is buying something that is below market value due to it's condition and fixing it up. If this is a house hack that you are going to be living in then likely it will already be in a decent condition and will not be a prime candidate for BRRRR. Additionally FHA loans have stricter requirements as to the condition of a property and the value they will loan up to. So look at this first investment as an opportunity to lower you living expenses and increase savings rate to put yourself in a position to get the next one.

Not all investors will agree with me but I prioritize my living situation and overall financial stability of growth I hedge risk with the fact that is if doesn't work I won't be going bankrupt or be foreclosed on. Don't over extend yourself too early in your investing career. All too often I see properties that are for sale because someone bought it and started pouring money into it to fix it up only to find themselves no longer able to pay for the mortgage or taxes and end up losing it. 

@Mariah Destruel

That is a great way to get get in the game and how many investors get started, by house hacking. If this is a single family residence, than you can get a conventional 3% down primary residence as a first time home buyer. If the house needs too much work, or you want to finance the renovations, you could use a renovation loan. HomeStyle is one of them and is a good route to go with less out of pocket expenses.

To cash out refinance you would have to have an LTV of less than 80%, so I am not sure if you will have enough equity to cash out if you are financing most of the purchase and renovations.

One thing you are going to want to study up on is how to use a 203k loan. This is a combination of FHA and rehab put into one loan. The beauty of this is that you don't have to use your own cash to renovate the property you want to fix up. This will make your monthly payment of the mortgage higher, but not that much compared to the cash required to fix up an entire property. When you put less than 20% down payment, then you will have to pay Mortgage Insurance which also kills cashflow. But if you can do that for a year and live in the property, then when you move out, then you will be able to rent out the space you were living in and hopefully cash flow positive. Learn more about it and get as much information as you can before you just jump into the game. If you make a mistake early on then it can be detrimental to your real estate career. Also study up on the BRRRR method like Tyler was saying. David Greene teaches a lot about that. It's all about making money when you buy meaning you have to find a property that is way below market value in order to get all your money back after a rehab. Hope this helps out.