House Hacking Research #2- Ask/Answer any House Hacking Question!

153 Replies

HI Craig & Others, 

I am currently owner occupying a triplex that I bought with an FHA 3.5% loan at the end of September 2018. I'm trying to move into another multi-family property and keep the triplex I'm living in now as a rental property. I have talked with a few bankers, and they said that I would not be able to get another FHA loan and that a conventional mortgage on a multi-family property would start at 15% down for a duplex and go up from there for every additional unit up to four. I was wondering if there is a way to move into the next property with a smaller down payment ideal under or around 5%.

Thank you! 

Hi Minh, 
it might not be necessary for you to carry more risk, have you looked at the market for bedroom rentals in your area?, a condo or townhouse might be just as good as a multi family depending on how much you can charge per room. 
Originally posted by @Minh Nguyen :

Hi Craig,

So glad this thread was started!

Is it worth it to go for a multifamily unit and carry more risk? My goal was to buy a townhouse/condo with three bedrooms to rent out the other two. In the process of researching RE, I discovered BP and realized that you guys have the term "house-hacking" for this and there's a lot of emphasis on multifamily properties. So I started looking into multifamily properties in my S Florida area (admittedly only on MLS sites like Zillow/realtor.com) and there are slim pickings with massive price tags. While I can put a 20% down on a condo, I'd only be able to put 5% down on a multifamily so I'd be in a highly leveraged, risker position.

The numbers at a glance (1%, 50%, and 70% rules) seem to work out better for me with a condo than with a multifamily, but I think I'm struggling with multifamily FOMO lol. 

Can't wait to hear any input on this.

P.S. I just listened to your episode on the podcast yesterday, and I'm a big fan of your way of life. Looking into Turo since I've taken to using public transit lately.

Hi Edward, 
i had one bank tell me they would include 60% of the rent from the other unit as income. As far as I know lenders don’t really look at cash flow from the other units unless you are doing commercial. Hope that helped 

Originally posted by @Edward Krause :

@Craig Curelop any tips for how to FIND duplexes etc? Orlando, FL here and would love to start researching/pricing out a duplex/triplex house hack to save myself money (rent is outrageous $1200+utlities for my 1 bedroom thats actually really nice). I try to look on zillow, loopnet, realtor.com, and it seems there are very few and far between options that I could find... when you go into a house hack with multiple units, do lenders typically see the income potential for the other half and allow you to borrow more than youd be approved for on any traditional house? Very new and just learning, but hope to get started asap.

Greetings 

Thank you for making this post, ill try my best to communicate thoroughly.

Ill start off with explaining my situation, in 2015 November i closed on a 2%er Duplex  for 85k in Metro Detroit .At the time of sale i acquired a tenant paying 775, they moved on in Oct  2017 i Lost 3500 with a contractor that ran out on me while updating the unit, then i got another contractor to come  in and finish for 8k lesson learned since then Ive gotten better tenants and raised the rents to 925 monthly.My debt service at the time  mortgage, taxes and insurance totaled 697 

June 2018 i close on a 4plex and i move my mother in my side of the duplex and i move out while she lives rent free . were working on her credit so she we can find her a duplex of her own.

In August of 2018 my lender for the duplex sold my loan which caused my debt service to change from 697 monthly to 878 monthly.


My insurer tells me my insurance increased because of cost to rebuild so they had to raise them.

  • Since Ive moved out should i look for an landlord Insurance Policy?

My new Mortgage Company tells me my property taxes have increased, but i called the city and they said they were lowered

  • How do i contest my property taxes with my lender to prove they are overcharging me monthly?
  • Should i place my propety in an LLC?
  • lastly will i lose out on tax write offs for repais since i dont have my property in an LLC?
Hi Craig your best bet will probably be private money/ hard money lender. 

Originally posted by @James Faillettaz :

HI Craig & Others, 

I am currently owner occupying a triplex that I bought with an FHA 3.5% loan at the end of September 2018. I'm trying to move into another multi-family property and keep the triplex I'm living in now as a rental property. I have talked with a few bankers, and they said that I would not be able to get another FHA loan and that a conventional mortgage on a multi-family property would start at 15% down for a duplex and go up from there for every additional unit up to four. I was wondering if there is a way to move into the next property with a smaller down payment ideal under or around 5%.

Thank you! 

We've been house-hacking for a couple of years now. We finished rehab on our current primary residence, did a cash-out refinance and reallocated the capital into purchasing another rental property and its rehab. So we were stuck with a larger debt service. As Sachin Bhat says above, we do cover about 90% of our debt service house hacking which frees up more resources for REI and beer. It's a 3BR/2BA and we rent out two of the rooms. Initially we were doing AirBnb but we've transitioned to hosting travel nurses and it's best. Now we look at all prospective deals with that mindset whether its a MFH, or a SFH we can add a mother in law suite or already has one.

@Jeremy Kolasa  - as @Akeem Young said, he hired a PM and the PM told other tenants that he was a tenant as well. In my opinion it keeps you from bringing unwanted attention to yourself. I've been advised to tell my tenants that I am the property manager for the owner so that I don't run into problems while living there.

@Sachin Bhat @Mario Garcia The 1% rule should still apply regardless of whether you live in a house hack. It's still only considered a rule of thumb, so people will tell you that 1% is un-obtainable in their market while others will boast well over the 1%. The difference in a house hack is you just have to consider what your unit would rent for if you move out (which most owner occupants do after a year). Wouldn't you agree that you'd want to make sure you're earning 1% in rent when its fully rented out??

My questions for multifamilies: I'm considering a partnership to mitigate risk since I'm just starting out. Is a good strategy to use solely my name on an FHA and live in one unit with a partner (splitting profit/loss 50-50), then a year later doing the same thing with an FHA in my partners name for another year? In my market, the first property may be slightly negative cash flow but after moving out and fully renting the first place, it would be cash flow positive and would probably be breaking even on the second place. Thoughts and suggestions on if this is a good idea and where we might go from there?

Thanks!

Hi There!

What are the best ways to finance the down payment, closing costs, and rehab costs? In other words, say I just find a nice triplex with a vacant unit and BRRRR wont work because other tenants are under rent control and paying below market value rent (and so fixing it up and increasing rent wont allow me to refinance effectively). Yet, the property can still cash flow and there's always a chance a tenant moves and I can reset my basis, which makes it still an interesting investment. Further say that the owner is willing to do a 70% seller carry-back loan at 4% for 30 years. This leaves the down payment of 30%, the closing costs, and rehab costs (or I can just go traditional and get a 3.5% FHA and forego the carry-back). Interested to hear everyone's thoughts!

What would be the best way to do the book on a duplex that's house hacked? For example, let's say that mortgage and expenses are $1,500 and rent for the other side is $1000, which would leave $500 for me to cover. Would you recommend I deposit $500 into the business account and have all payments go through that account or is there a better way to manage this?

Appreciate any insight, thanks!

Mitch

I am in kind of a unique situation I suppose an am looking for some clarity. I am attempting to buy my first home using an FHA loan in IN. Ideally I want it to be like a triplex or duplex so that I can rent out the other units and break even or make cash flow on the mortgage, my question is will the bank let me switch to a 30 year loan after a while so the interest isn't that bad? Also I have been seeing a financial adviser and he warns to put 20% down instead of the 3.5% an FHA loan would give me, I still want to have as little money as in the house as I can have to a reasonable extent. What would you recommend?

Originally posted by @Lamar Jean :

After house hacking for a year, how do one get a second property to house hack?

 I am exactly in this situation right now. I've been at my current residence for 1 year and am looking at moving to another house within the next few months. My understanding is that the biggest issue for getting approved for a loan (assuming you're not just paying all cash) is proving that you'll actually use the second property as your primary residence and that you can afford a second mortgage. I claimed my current house hack as rental income on my 2018 taxes and according to the lender I'm working with, this will make it easier to prove that my current residence will be transferred to a full rental.

Another few points of what I'm planning on doing in case you have any other questions (I'm sure this will change): I'm doing a direct mail campaign and am planning to finance with either conventional or FHA. I'm trying to do a light live in flip (cosmetic rehab) so I'm looking at 203K and other rehab-related loans.

Sorry I can't give more specific details but this is what I've learned so far, so hopefully it's helpful!

Originally posted by @Logan Arthur Gilles :

I am in kind of a unique situation I suppose an am looking for some clarity. I am attempting to buy my first home using an FHA loan in IN. Ideally I want it to be like a triplex or duplex so that I can rent out the other units and break even or make cash flow on the mortgage, my question is will the bank let me switch to a 30 year loan after a while so the interest isn't that bad? Also I have been seeing a financial adviser and he warns to put 20% down instead of the 3.5% an FHA loan would give me, I still want to have as little money as in the house as I can have to a reasonable extent. What would you recommend?

It should be possible to refinance but you would need to figure out specifics of if you have to hold the FHA loan for a certain length of time or not. Also note that refinancing later will result in more closing costs (I didn't know this originally so I thought I'd just throw that out there). To my knowledge the power of house hacking is that you can get duplex, triplexes, or quadplexes for significantly less money (i.e. putting down 3.5%) but I'd recommend reading the BRRRR article on here if you haven't yet. You may want to consider a BRRRR/house hack combo situation so that you can put little money in upfront but then end up with more equity after you rehab/refinance.

@Lisa Irimata : The thing is, i don't think I'm allowed to get another FHA loan as long as i still have the current one. I think my only only is to refinance out of the fha but that would 20% down. Are there any other options?
Originally posted by @Lisa Irimata:
Originally posted by @Lamar Jean:

After house hacking for a year, how do one get a second property to house hack?

 I am exactly in this situation right now. I've been at my current residence for 1 year and am looking at moving to another house within the next few months. My understanding is that the biggest issue for getting approved for a loan (assuming you're not just paying all cash) is proving that you'll actually use the second property as your primary residence and that you can afford a second mortgage. I claimed my current house hack as rental income on my 2018 taxes and according to the lender I'm working with, this will make it easier to prove that my current residence will be transferred to a full rental.

Another few points of what I'm planning on doing in case you have any other questions (I'm sure this will change): I'm doing a direct mail campaign and am planning to finance with either conventional or FHA. I'm trying to do a light live in flip (cosmetic rehab) so I'm looking at 203K and other rehab-related loans.

Sorry I can't give more specific details but this is what I've learned so far, so hopefully it's helpfull

I'm currently in the process of finding (and hopefully purchasing) a new property after house hacking with my current residence for 1 year. I'm planning on converting my current residence to a full rental and then house hacking in my second property. Since I'm a young professional (no family, etc) I'm planning on house hacking a few more properties to build up my portfolio within the next few years. 

Has anyone else done this? What are obstacles did you observed will constantly changing your primary residence? Any advice on going forward with this path?

Hello

We just bought our 1st condo for rental property. We have a question, how should be handle it as far as getting proper manager or just try to learn now to do it on our own? Also, when it comes to tax purposes, how do we go with that?

This post has been removed.

Hello! Can anyone touch on PMI? I'd like to avoid it with a conventional loan but I also like the advantages of a low FHA downpayment.

Has anyone experienced both and can touch on preference/experience? Thank you much BP! 

@Brandon Chidester , PMI on an FHA loan stays for the life of that loan - you have to refinance out of it or it doesn't go away. Conventional loans allow for PMI to be removed upon request once you get to 20% equity, or are automatically removed when you hit 22% equity.

FHA allows for lower credit scores, though. Talk to your lender about which option is right for you.

Originally posted by @Lisa Irimata :

I'm currently in the process of finding (and hopefully purchasing) a new property after house hacking with my current residence for 1 year. I'm planning on converting my current residence to a full rental and then house hacking in my second property. Since I'm a young professional (no family, etc) I'm planning on house hacking a few more properties to build up my portfolio within the next few years. 

Has anyone else done this? What are obstacles did you observed will constantly changing your primary residence? Any advice on going forward with this path?

 We have done it 4 times now.

Basically your big issue will be that you may have some difficulty getting the lender to recognize the "rental income" on the house you are moving out of with regards to having the income/debt ratios to qualify on your next house.

The banks typically like to see a record of being a landlord and only will recognize a certain percentage of rent (typically 75%) towards your next loan.

Also we have had some minor questions come up when we moved to a smaller house or when we moved to a less expensive house than our last house.  We had to write an explanation note as to why we were moving to the new property.  The lenders want to make sure you really will owner occupy a property when you say you will owner occupy a property.

@Bart H. Thanks for the detailed response, for the letter justification did you typically work with your lender/agent on that or did you personally submit a note when you were contacting lenders? Never thought of the situation where lenders would be suspicious about moving from a larger to smaller property but it makes sense. Overall sounds like the process isn't too difficult versus what I imagined. 

Originally posted by @Lisa Irimata :

@Bart H. Thanks for the detailed response, for the letter justification did you typically work with your lender/agent on that or did you personally submit a note when you were contacting lenders? Never thought of the situation where lenders would be suspicious about moving from a larger to smaller property but it makes sense. Overall sounds like the process isn't too difficult versus what I imagined. 

 Its usually a condition put on loan approval by the underwriter. 

The underwriter of the loan usually approves the loan with a handful of stipulations.  Might be they need a copy of our lease, or bank statement, or a letter stating why we are moving.   

The mortgage broker (or bank) will tell you if a letter is needed as a condition of the loan from the underwriter.  Its really not a big deal, we say the absolute minimum to answer the question.

Like I said, we really do move in (if we do am owner occupied loan), I am too old to wear orange with a serial number on it.

BTW, the more properties/loans you have the more questions you seem to get.

@Mike Bean Its very difficult to achieve 1% rule in California where I live and House hacked for years. Even if you renting out your property room by room very difficult achieve 1% rule for the first time home buyers. If you have the money pay cash then you might be able buy a it for discount a fixer upper which might get you close to 1% rule. When I house hacked a condo I had to build another room just to cover my mortgage and most of the expenses (I paid for all the utilities but charged higher rent). Even then it wasn't close to 1% rule. For example: Purchase price was 290K 3 bedroom condo but I received in rent $2100. The appreciation outset the 1% rule. I sold that condo and put 100K in my pocket while I lived there for over 10 years rent free. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here