Hello everyone, I am a newbie to all of this but I have been doing some research for some time now. I am leaning towards multifamily properties, duplex or triplex. I live in Minneapolis Minnesota and I want to soak in as much tips and advice as I can before jumping the gun. Any recommendations on down payments and anything else I should consider?
I want to start by saying that you are making a great choice in considering house hacking with a multifamily property, and you have made a wise choice by reaching out to the BiggerPockets community for some guidance. While I am by no means "seasoned," I still thoroughly enjoy throwing out ideas in the hope that you (and anyone else reading this) will find something of use. A lot of this information bounces around in my head, so I find it somewhat therapeutic to write it down in a public forum. It also provides others a chance to correct my mistakes.
Me personally, I prefer house hacking in a multifamily setting because of the privacy it affords you while still generating income. Even if you obtain a property that doesn't give you a monthly cash flow, you still gain equity and you still save the difference were you to rent an apartment or get a mortgage on a house. I generally espouse the belief that if you are planning to live in the multifamily, you really can't go wrong, even if your tenants' rent doesn't fully cover the payments. If it's close enough, you always retain the ability to make a profit were you to decide at some point to get another property and then rent out the unit you plan to live in.
As to the down payment, it all depends on the lending route you choose. I also say that it depends on what you plan on doing with real estate. If the extent to which you plan on getting into the world of real estate is buying one multifamily property to live in, then really, you shouldn't concern yourself too much over the down payment. The larger the down payment you put down, the lesser your monthly payment will be. (Of course, if the purchase price is high, then putting down an extra ten to twenty thousand isn't going to bring that monthly payment down to an exciting degree.) But on the other hand, the larger the down payment, the less money in your pocket. If you have your sights set on buying up more properties and building a portfolio, then you want to consider some constructive financing options so you can keep as much hard cash on you as possible. The last thing you want is to see another property that meets your fancy, only to not have the cash to go for it because it's all tied up in one property. There is always the Opportunity Cost to take into mind. Then again, you really have to consider your options - which can be largely dictated by the lending institution's criteria.
Another thing to take into consideration is how you plan to manage the tenants. Are you going to take on the role of the landlord, or are you thinking about hiring a property management company? If you want to be a landlord, make sure you understand what that entails. You could always hire a property management company and then present yourself to the tenants as just another tenant. That way the tenants aren't bothering you with their problems and you might even get a little insight into the property that you otherwise wouldn't. But if you want to be a landlord, make sure your lease is solid. I personally downloaded a standard lease that was designed for my state and then I went through countless webpages outlining the "necessities" for a lease. I spent the better part of a week working out my lease and ensuring that it covers things that other landlords have dealt with. You know, making sure the lease has provisions outlining severability, noise, exterior banners, etc. I also have a House Rules Addendum which goes over things such as acceptable things to flush down a toilet. It also says in large bold letters near the top that 911 is who you call for emergencies like fire, police or medical matters. Not me. And then you've got the clause about how I'm not responsible if the TV goes out or if your power gets shut off (as tenants pay for their own power at my units).
Really, though, if you have a drive to take on the responsibilities of a landlord, that drive should propel you to be the best landlord that you can. I just want to stress the importance of making sure that your paperwork is in order, because tenants will press you and they will see how far you will let them go. You must be courteous but firm. Always enforce the rules uniformly unless you want to risk a discrimination claim.
Having tenants, be it through house hacking or having investment properties, can be a very rewarding experience ... if you do it right. You stand to gain a lot of money, but you must also be aware of the risks if you want to cut corners. Think of having tenants and an investment property as driving a car through the city. So long as you follow the rules of the road, you'll be good. So long as your tenants follow the rules of the road, they'll be good. The thing to remember is that some tenants need to be taught what the rules of the road are. This can be done through a thorough explanation of the lease and its provisions (rather than either having them just sign it or letting them read over it on their own). If they didn't comprehend something and violate a rule down the road, you'll have to remind them of the rules by means of a written violation. Each subsequent violation should increase the verbiage to imply heightened severity. Even if you follow the rules and they follow the rules, sometimes an unexpected incident occurs. A deer jumps out in front of you - the sewer backs up; you get a flat - someone backs into the power pole; a rock cracks your windshield - some wind blows a large tree branch through a window. If you violate the rules of the road (the laws a landlord must know), you stand to get a ticket. And those tickets can come in the form of a lawsuit.
Understand the laws and take steps to protect yourself so your investment works for you rather than against you.
I am sure my response isn't precisely what you had in mind, but I pride myself on providing a diverse array of information to any particular response. I feel like there are so many things that prospective landlords don't think about, and I want to help broaden the scope to the best of my ability.
I wish you the best of luck and I hope that you find a property that will bring a sense of pride to you.
@Mamadou Ngom I know I am the second Dan A. to comment on this thread haha but I will second what the first one said! I am an agent/investor in the Minneapolis market who has helped multiple people buy their first home/ duplex. I would love to get to know you and see how I can help. Please DM me and lets chat
Hello, I am househacking in St. Paul. Feel free to reach out. Most of the pre steps are easy, get your ducks in a row. Having your financing in order will allow you to pull the trigger when the time is right. Have reserves with enough money to pay the full mortgage and expenses if your renter can't/won't pay. Be ready to learn some new skills, dealing with people is fun. Reach out to plumber, handyman, and electrician to have a team in place if things go awry.
There are a lot of ways of househacking. whether its separate units, mother-in-law suite, renting by the room, or STR. Figure out the plan of what you are comfortable with and start checking the boxes accordingly. I found success with a mother-in-law suite, renters are signing a renewal soon.
@Mamadou Ngom your down payment will be based on several factors. Your best rates will conventional 20% down 30 yr fixed. You can go in lower down payment but your monthly expenses go up both due to increased borrowing and likely PMI.
As Dan 1 mentioned, you have opportunity cost in tying up all your cash in a down payment. But also, you have to remember to have some savings/reserves set aside. In a duplex, you will likely have 2 furnaces, 2 a/c's, 2 water heaters, refrigerators, etc. Thankfully your tenant's rent can help offset those costs, but not if unit is vacant or they go out 3 days after close and you have not yet collected any rent, but need to make the repair. I have 6 units and don't like to keep less than 10k in my account for things that might go wrong. For a single duplex, I would plan on having about $5k set aside for reserves, with that balance growing over time as you know you are getting closer to the end of the useful life of things: appliances, roof, kitchen remodels, etc.
I know this doesn't directly answer your question, but should give you a way to back into how much to put down, and/or keep saving before you take the leap.
@Mamadou Ngom I'd love to meet up on zoom for a Virtual Coffee ☕, PM me if interested.
@Mamadou Ngom Welcome man! You're smart in choosing to house hack. I house hacked a 4 plex in Minneapolis, and my twin bro is on his 2nd house hack in St Paul. There's great opportunity in the twin cities, you're lucky to be here. House hacking is a great way to take control of of your financial future, especially in this world where things are feeling more and more out of our control..
I'd focus on getting a great cosmetic value add deal (only cosmetic so it will pass conventional lending standards) on a small multi family in a good neighborhood, which shouldn't be hard around here. You could use a MN Housing loan, or FHA, or check with local credit unions for other ideas. I remember last year MN Housing was offering a down payment grant for SFH to duplex I believe in Hennepin County that would have covered the entire DP - you'd be in a property for 0 down! You just need to look and you'll find opportunities.
@Mamadou Ngom Welcome to the BP community. House hacking is a great way to get into REI. I just bought my first house hack in NE Minneapolis, it's challenging but very rewarding. Feel free to reach out. Best of luck.
@Mamadou Ngom house hacking is the way to go! Great way to get in the game and have someone else contribute to your mortgage. If you are a first time home buyer, look at taking a 3% conventional over an FHA at 3.5% down. The PMI is able to be removed at around 78% LTV with conventional. The insurance premium for FHA goes through the life of the loan.
Hey! Househacking has been awesome for me and I’m sure it’ll be awesome for you! Your lender will look for 3 things up front:
1) Stable job for past 2 years.
2) Good credit score (and no new credit in recent months)
3) Reserves in your savings or retirement accounts.
Make sure to have these in order before anything.
Hope this helps!
@Daniel A. Thank you so much for the insight!
@Noah Chappell thank you Noah!
@Mamadou Ngom - Great choice for a first step. My suggestion is to put the lowest down that you can with the property still cash flowing and save the rest for reserves or other investments. Take a look at your finances and like most rent is probably your biggest cost so house hacking is the way to go! Feel free to DM me and we can setup a time to chat more if you're interested.
@Tim Swierczek Great to see that you are pivoting to do coffee over Zoom instead of in person.
@Mamadou Ngom I would do some thinking about long term plans, especially if you are looking to buy in Minneapolis. Others on the forum disagree with me, and I'm not as keen on Minneapolis with the direction the city council is going (making it a bit more difficult in my opinion to be a landlord in Minneapolis). Good luck!
@Mamadou Ngom This is an exciting time - congrats on taking the right steps! Be sure to check out Neighborworks Home Partners. Last fall, NHP provided me with nearly 15k free money for meeting specific criteria in Ramsey county, and I believe Hennepin was doing it as well, but it was only 10k. Personally, put as little down on your househack as you can as long as the cash flow is still there and the deal makes sense. If it works out - you'll have a cash flowing househack and some money left over for reserves, or maybe even to find your next deal! Best of luck! If you want to chat further - feel free to PM me.
Thank you! @Eric Schmid
Hi @Mamadou Ngom - I'm moving back to Minneapolis from San Francisco next week and looking into house hacking as well! I'm halfway through Brandon Turner's "The Book on Rental Property Investing" and it's a great read!
Hello Mamadou, welcome to BP! I'm a rookie investor myself. I think the best advice I can give right now is just don't give up. There will be obstacles, but there is always a way. I have to tell myself this all the time. The market seems too high, financing is hard to get, the list goes on... but keep networking, let people know your goals, and stay focused.
Continue to ask yourself, "what is the smallest next step I need to take towards reaching my goal?"