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

149 Replies

Hey everyone, my question is regarding long term house-hacking and moving away from it. I see a lot of people commenting on here that they are treating house hacking differently since instead of trying to profit it, their goal is just to have to pay a minimal amount of the mortgage, like 10% or so. This is great for a few years, but what happens long term? I see others commenting not to worry as much about the 1% rule in these situations. 

The way I look at it, no one is going to want to live in a house hacking environment for 30 years until their mortgage is up. So shouldn't you be treating a house hack exactly the same as a potential rental? Once you move out, you are going to want to be getting some cash flow off of it, or at least break even to gain some equity buildup/ HELOC advantages to use as leverage for another cash flowing property correct?

Originally posted by @Shane Short :

Hey everyone, my question is regarding long term house-hacking and moving away from it. I see a lot of people commenting on here that they are treating house hacking differently since instead of trying to profit it, their goal is just to have to pay a minimal amount of the mortgage, like 10% or so. This is great for a few years, but what happens long term? I see others commenting not to worry as much about the 1% rule in these situations. 

The way I look at it, no one is going to want to live in a house hacking environment for 30 years until their mortgage is up. So shouldn't you be treating a house hack exactly the same as a potential rental? Once you move out, you are going to want to be getting some cash flow off of it, or at least break even to gain some equity buildup/ HELOC advantages to use as leverage for another cash flowing property correct?

As someone who has house hacked a few times. By house hack, I mean we have done the buy a duplex live in one side thing. And we also have moved into a SFH, lived a year or two, thenbought a new house and rented the one behind us.

I generally say that "returns" are not as important in a house hack, and I believe it to be true for a few reasons.  

Usually a house hack is being done by someone trying to get into real estate investing for the first time.  Just getting into the game with a so/so property you dont mind living in for a couple of years does the most important thing, it breaks the ice and gets you into the game.  I would rather someone new get started with a so/so deal than not do any deal at and never get started.

There isnt anything wrong with taking a semi low cash flow for a little nicer property that you dont mind living in.  And if you live in the house for a couple of years, the costs are fixed, the rents hopefully are going up 2-3% a year, and the price of the property goes up 2-3% a year, and you have a couple of years of paydown of the mortgage.  Those couple of years take a mediocre deal and likely turns it into a decent deal in terms of financial returns.

And if the market goes negative, the worst case is you are in a house that you are willing to live in.

You are able to put less down, so there is an increase in leverage that you can employ which all other things being equal improves your return.

I believe if you are looking at a house that you will live in, you will end up as a more discriminating buyer and will be pushed to up and coming neighborhoods.

Overall, you dont want to buy a "bad deal" just because you are house hacking, but at the same time if you plan on living in the property with an affordable mortgage, you can buy a year or two until the property is actually making a decent return

@Doug Phillips I recently found out about single payment mortgage insurance where you pay the PMI upfront rather than month to month. You'll have to work with your lender to see if you qualify but thought I'd just throw this out there since I didn't know when I applied for my first mortgage! From what I understand this only applies for conventional loans (not sure if you are only considering FHA or not) and typically you'll pay less with the upfront payment as long as you live in the property for about 3 years but you'll have to calculate your own break even point for your specific loan. After my lender mentioned this to me this was the article that I read to understand more:

https://www.bankrate.com/finance/mortgages/single-payment-mortgage-insurance.aspx

Thank you for that @Lisa Irimata   I will definitely look into this and had no clue about it honestly.  

Hi Craig!

Found a duplex with an in-law suite in Virginia for $300k.  Looking to rent out both sides of the duplex and live in the in-law suite by myself (I'm in the military and live apart from my family for the next year).  Property description says duplex rents for $2,685 combined, so it sounds like it could cash flow.  Just trying to figure out how to finance it with little/no money down.

I think I'm having an "AHA!" moment of creative financing, but figured it'd be a good idea to get a reality check.  Could a lease option sandwich be a viable solution?  Could I lease option, get tenants in place and then get a bank loan to pay the option?

This post has been removed.

Originally posted by @Adam Widder :

How do you go about being an owner and neighbor? Do you tell them you're the property manager for a group of owners? Like they know who they're paying, unless a third party app handles that.

 I've gone both ways, sometimes saying I'm the PM, and other times the owner. Thinking about it now, telling them you are the PM is probably better, since you are just the middle person. However, tenants can still be plenty aggravating regardless of what you tell them.

Originally posted by @Joel McKinney :

Hi Craig!

Found a duplex with an in-law suite in Virginia for $300k.  Looking to rent out both sides of the duplex and live in the in-law suite by myself (I'm in the military and live apart from my family for the next year).  Property description says duplex rents for $2,685 combined, so it sounds like it could cash flow.  Just trying to figure out how to finance it with little/no money down.

I think I'm having an "AHA!" moment of creative financing, but figured it'd be a good idea to get a reality check.  Could a lease option sandwich be a viable solution?  Could I lease option, get tenants in place and then get a bank loan to pay the option?

@Joel McKinney - Could you qualify for a VA loan? That would get you in for 0% down. Or FHA, which would get you in at 3% down.

Originally posted by @Shane Short :

Hey everyone, my question is regarding long term house-hacking and moving away from it. I see a lot of people commenting on here that they are treating house hacking differently since instead of trying to profit it, their goal is just to have to pay a minimal amount of the mortgage, like 10% or so. This is great for a few years, but what happens long term? I see others commenting not to worry as much about the 1% rule in these situations. 

The way I look at it, no one is going to want to live in a house hacking environment for 30 years until their mortgage is up. So shouldn't you be treating a house hack exactly the same as a potential rental? Once you move out, you are going to want to be getting some cash flow off of it, or at least break even to gain some equity buildup/ HELOC advantages to use as leverage for another cash flowing property correct?

 @Shane - I've never really seen anyone who wanted to house hack a specific property long term. Unless you mean someone like @Ben Leybovich , who rents out his casita to allow him to live in more of a luxury house hack. For most house hacks, it doesn't make much sense to me to stick around any longer than 2 years, which is the min. time you need to live there to get the capital gains exemption.

Originally posted by @Tereal Wilsonn :

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?

 You should be able to just call your lender to ask for them to reevaluate your property tax escrow. I bet you can email them proof showing the lower tax amount. 

You can place your property in an LLC, but if there's a loan on it, I imagine it's still in your name. So they might flag you for changing ownership of the property. Depends on the lender though.

No, you shouldn't lose out on tax writeoffs. With my LLC I just have it roll over to my personal taxes anyways, so there's no difference on the tax side as far as I'm aware (I'm not a tax professional though)

Originally posted by @Alex Shapiro :

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!

 If you need to come up with 30%, some options are:
  • private money loan from friends/family
  • cash advance off of some 0% intro apr credit cards (risky, but can be done if you are careful)
  • possibly a hard money lender, although this seems like the type of thing where you'd have to have an existing relationship with them to get them to do it

Hi, I'm looking to invest in my first multifamily. It's an older home that's split into 5 apartments. Would I still be able to secure residential financing (HFA, 203k, or standard mortgage) with 5 units as opposed to 4 or less?

Also, any advice on where to start looking for financing? I'm leaning towards a 203k, so that I can I include the rehab expenses. Currently, one unit is rented, but the other 4 units are vacant (owner didn't renew leases for those 4 with intent to sell). My goal is to rehab the other four units prior to renting them out, so I can increase rent and do a potential refinance in a year or two.

@Chad Mitchell unfortunately residential loan products like FHA are only available on 1-4 unit properties.

If you are looking at 5+ units, you will need a commercial loan which typically requires a down payment of around 25%. 

Let me know if I can help. 

Thanks!

I am looking into difference financing strategies. I have come across a VA Loan. I myself am not a veteran, but my grandfather is a veteran. Would I be able to cosign with him for the potential 0% down like I could with the FHA loan? And from my understanding the VA loan does not have PMI with it so it would reduce the expenses and allow for a higher cash flow. Would this be possible?

@Craig Curelop or anyone. I am preparing the rehab a duplex. I am using a fha 203k loan. Do you know anything about benefits of including some energy efficient stuff? or any other things I can add to my rehab that would improve value or create benefits? Thanks!

@Wesley Whitehead Google search for blog post on "The True Cost of Commuting." If your goal is to house hack and use frugality on your way to FIRE then I'd say go with the place close to work. After reading some MMM you will understand why. That is all with the qualifier of live where you will be happy and comfortable. If the transitioning neighborhoods are going to make you miserable then it may be wise to play the long game and be happy where you're at and spend a few extra $s.

@James Middleton house hacking your way to a $1,400 a month payment is still better than a $5k a month payment, no? I'm in the same boat. We dreamt of pulling off the living for free thing for a couple of years but it's nearly impossible to find a place in a good school district to do so.

@Alex V. Great observation! Many of my coworkers talk about the commute the will have to make in an effort to save money and I tell them “what about the time cost you are paying to commute to work”.

I will be traveling extensively for work for the next two years so I figured who pay for rent or a mortgage on a place that I use part time when I can gain equity on someone else’s dime and use my salary/ per diem on my continuing goal of FI (saving my money has never been a problem).

@Tanner Flint unfortunately your grandfather being a veteran will not give you access to the VA loan program. The only people allowed on the application for a VA loan is a veteran and there spouse, or another veteran.

Hi Craig,

How do you analyze your side in the calculation? do you combine the expenses with the other side? or you just analyze the tenant side. and if you hire a manager, which side he/she will paid on?

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