Newbie Looking for REI's Advice on House Hacking in Current Market
Member since 2023 · 1 post · 0 votes
Newbie Looking for REI's Advice on House Hacking in Current Market
2 Replies
House hacking (aka, what people in my Generation used to call "finding roommates") is a fairly simple strategy overall: you're basically going to try to buy a 1 - 4 units property using a low down payment, get the best possible interest rate as an owner occupant, spreading the payment out as long as possible -- usually 30 years, and making enough money on rent to partially or completely take care of all expenses to maintain the property and pay the debt service. Pretty straight forward. We used to do that in college: rent a house with 4 bedrooms for $1000/month, then find 3 roomies to rent 3 of the 4 bedrooms to for $335/month and everyone kicks in 25% for utilities. The landlord did all the repairs, and the rents from the roomies covered our rent of $1000. Essentially, we lived for free, so long as the roomies paid... on time!
That's the trick. Let's say you have a 4-plex. You're "roomies" will be other folks like you, but they probably won't be as financially stable as you since they're only able to rent instead of purchase. So you will need to learn to properly screen tenants. Landlording is 80% people business, 20% property business. Yes, you need to buy a good property in a good location for a good price, but once that's done the property pretty well takes care of itself. It's the tenants you select that will determine if the property does well or not: they're the ones who won't pay the rent in full, or on time. They're the one's whose dogs will pee on the carpets. They're the ones who punch holes in walls and door. They're the ones who have all-night parties whooping it up while you're trying to sleep. Ultimately, if you decide to evict them, they're going to be the ones making your life miserable because you live right next door, and they'll be pissed at your for expecting them to hold up their end of the deal.
I say it again: Landlording is 80% people; only 20% property. And sadly, people don't analyze on a calculator or spreadsheet too well. I suggest the following for ALL occupants age 18 year and up:
1) credit check
2) background check
3) at least one past landlord reference; if no references, double the security deposit; double check that the reference is actually a property owner, not Uncle Larry posing as a landlord
4) employment and income must be verified and from a source you can levy/garnishee if they don't pay; my rules is the income must be MINIMUM 3x the rent, but if they have high expenses showing on the credit report, sometimes even that's not enough
Finally, go check what their current living situation looks like. I call this the "2 minute in home inspection." Good applicants will be pleased to welcome you to their home and show it off with pride. Bad applicants will act nervous or refuse, claiming that you're being "weird". Nope, you're being smart. If they refuse this step or if their place is a disaster, decline them. If they live out of town or if you're personally not able to do the inspection, then hire a starving brand new REALTOR in their area to go by for a $50 Venmo/Paypal. Give him a checklist of things to look for: Clean or Not Clean; Pets? What kind? How many? How does the yard look: neat or cluttered and overgrown? Stuff like that. Your unit will LOOK, SMELL, and SOUND like that unit within a few days of them moving in. Do NOT skip this step! It has saved me tens of thousands of dollars over the year by avoiding hoarders, people with 5 pit bulls, house-beaters, etc. Find a way to get it done: no excuses.
Anyway, that's enough for now. Plenty more to learn, but if you just remember to screen the people 5 x harder than the property, you should do well!
- 3yDan GuentherBusiness MemberReal Estate Agent · Longmont, CO · Member since 2019 · 548 posts · 271 votes
Hey @Martin Munoz McGrew -
Keep your options open for now as far as lending goes. If you haven't already connected with some investor-friendly lenders yet, start there. Reach out if you want some recommendations on that side.
Once you have a better idea of where you're at in the lending timeline you'll have a better idea of your target purchase price and you can narrow down on specific neighborhoods and the strategies you can implement from there.
Get out to some of the local meetups and connect with other investors/agents/lenders etc. that know your market.
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