25% down and stay with parents or 3.5% down and move out?

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25% down and stay with parents or 3.5% down and move out?

Lewys Jones
Rental Property Investor · Member since 2019 · 7 posts · 6 votes

I will be selling my SFH in March after having rented it out for one year. Expected to be left with $65k after CGT and closing costs.

My dilemma is should I house hack with 3.5% down through a triplex or quadplex or put 25% down on an investment property loan and rent all units out and stay with my parents for another year?

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Mary K.
Rental Property Investor · Rockville, MD · Member since 2015 · 133 posts · 83 votes
6y

Congrats on selling the SFH!

I personally would do 3.5% down, live in the multifamily property, and keep the rest in an emergency fund. After a year, you could move in with your parents or buy another property with 3.5% down. 

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  • Mary K.
    Rental Property Investor · Rockville, MD · Member since 2015 · 133 posts · 83 votes
    6y

    Congrats on selling the SFH!

    I personally would do 3.5% down, live in the multifamily property, and keep the rest in an emergency fund. After a year, you could move in with your parents or buy another property with 3.5% down. 

    6Reply
  • Chace Fraser
    Realtor · Portland, OR · Member since 2017 · 357 posts · 259 votes
    6y

    Hi @Lewys Jones

    What @Mary K. said was gold! Here's why. 

    The value of house hacking is to be able to purchase investments with little money out of pocket. How much more real estate could you buy by putting 3.5 percent down instead of 25 percent down? How much faster could you grow your portfolio? What about doing both? Buy the house hack now, and then continue to save money to purchase the investment later?

    To me, it sounds like you need clarity on your goals and what you're trying to accomplish long term.

    3Reply
  • Joshua Mellor
    Rental Property Investor · Canandaigua, NY · Member since 2019 · 57 posts · 36 votes
    6y

    @Mary K.

    I agree go with the 3.5 down and do that as much as often as you can.

    2Reply
  • Lewys Jones
    OP
    Rental Property Investor · Member since 2019 · 7 posts · 6 votes
    6y

    @Chace Fraser I’m looking to build a small portfolio that would bring in extra money each month and eventually help me retire early. I’m currently 27 years old and would like to retire at 40.

    I’m thinking now that house hacking once a year through buying multi family would allow me to acquire at least 10 units in 5 years.

    Thanks for your comments all.

    1Reply
  • Jesse Kindra
    Rental Property Investor · Newcastle, WA · Member since 2016 · 86 posts · 39 votes
    6y

    @Lewys Jones

    I'm not certain of your exact situation. With that said, I would house hack 3-4 units, take advantage of the 10 Fannie/Freddy loans available to you, and use minimal funds (3.5% down). This will allow you to quickly gather a bunch of units with excellent financing terms. 

    Why am I confident with this choice? Because for me, in hindsight, this was the best strategy to grow a portfolio quickly. At this stage in my life, I'm married with kids and it's not a realistic option. While I do invest on a regular basis, I get investor loans (more costly) and have to put 25% down for small multis.

    Best of luck.

    2Reply
  • Nathan Williams
    Member since 2019 · 172 posts · 93 votes
    6y
    Originally posted by @Jesse Kindra:

    @Lewys Jones

    I'm not certain of your exact situation. With that said, I would house hack 3-4 units, take advantage of the 10 Fannie/Freddy loans available to you, and use minimal funds (3.5% down). This will allow you to quickly gather a bunch of units with excellent financing terms. 

    Why am I confident with this choice? Because for me, in hindsight, this was the best strategy to grow a portfolio quickly. At this stage in my life, I'm married with kids and it's not a realistic option. While I do invest on a regular basis, I get investor loans (more costly) and have to put 25% down for small multis.

    Best of luck.

    but how do you do 10 fannie/freddie 3.5% loans?  Dont you have to use each one as your primary residence for atleast a year?

    0Reply
  • Jesse Kindra
    Rental Property Investor · Newcastle, WA · Member since 2016 · 86 posts · 39 votes
    6y

    @Nathan Brooks 

    Yes, that is correct. As long as you live in it for a year, you are good to go. If you want to buy other properties to go faster while house hacking every year, I don't see why you can't do that as well and pay the 25%. I would obviously check with your lender to see what requirements they would have. Your strategy with a lender is going to be one of the key steps because once you get above 4 properties, it does seem to get tougher for financing.

    1Reply
  • Jesse Kindra
    Rental Property Investor · Newcastle, WA · Member since 2016 · 86 posts · 39 votes
    6y

    @Nathan Brooks

    My apologies to both Nathans as I copied the wrong one! 

    @Nathan Williams

    Yes, that is correct. As long as you live in it for a year, you are good to go. If you want to buy other properties to go faster while house hacking every year, I don't see why you can't do that as well and pay the 25%. I would obviously check with your lender to see what requirements they would have. Your strategy with a lender is going to be one of the key steps because once you get above 4 properties, it does seem to get tougher for financing.

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    6y
    Originally posted by @Nathan Williams:
    Originally posted by @Jesse Kindra:

    @Lewys Jones

    I'm not certain of your exact situation. With that said, I would house hack 3-4 units, take advantage of the 10 Fannie/Freddy loans available to you, and use minimal funds (3.5% down). This will allow you to quickly gather a bunch of units with excellent financing terms. 

    Why am I confident with this choice? Because for me, in hindsight, this was the best strategy to grow a portfolio quickly. At this stage in my life, I'm married with kids and it's not a realistic option. While I do invest on a regular basis, I get investor loans (more costly) and have to put 25% down for small multis.

    Best of luck.

    but how do you do 10 fannie/freddie 3.5% loans?  Dont you have to use each one as your primary residence for atleast a year?

    People intermix terminology. Usually when they reference 3.5% they are referring to FHA loans. You can only have ONE FHA loan at a time. There are some conditions you have have more than one, but generally unless you are moving around for your job, it is pretty difficult.

    You can have up to 10 Fannie or Freddie backed conventional mortgages. Conventional mortgages can have down payment as low as 3% for owner occupied single family. You are required to get private mortgage insurance.

    If you plan to get multifamily the down payment requirements are higher even if you are owner occupying. I believe more like 15% for duplex and 25% for 3-4 unit.

    There is other underwriting requirements that would come into play. Cash reserves would be required. 

    So you can have 10 mortgages, but don't plan to get them all with 3.5% down. Even getting up to 10 mortgages requires a pretty solid applicant.

    3Reply
  • Filipe Pereira
    Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Lewys Jones:

    I will be selling my SFH in March after having rented it out for one year. Expected to be left with $65k after CGT and closing costs.

    My dilemma is should I house hack with 3.5% down through a triplex or quadplex or put 25% down on an investment property loan and rent all units out and stay with my parents for another year?

    I'd propose going conventional 5% down on an owner occupant loan on a MFR property. You will have lower costs than a FHA loan and you won't have to refi out of it to get rid of the MIP that comes with FHA loans. On a conventional loan once you hit 80% LTV the PMI automatically drops off, no refi needed. You would also benefit from your PMI being lower than your MIP would be.

    This is what I did and it has worked out pretty well for me, so I figured I would make the suggestion! 

    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    @Lewys Jones  While living at home may bring you in extra money, it is shortsighted for the reasons Mary and others mentioned.  You are tying up more of your money in the property (3.5% vs 25%).  Live in the unit for one year, then move out and use the balance of the down payment (difference between 3.5 and 25%) to buy your next property.  If you buy right, it shouldn't cost you that much to live in the one unit as the tenants will be paying most, if not all, of your bills.  If the place you buys has one unit that needs a bit of work, chose that one to live in and fix it up while you live there.

    1Reply
  • Alexandre Marques dos Santos
    Rental Property Investor · Member since 2020 · 215 posts · 137 votes
    6y

    @Lewys Jones

    I dont think i understood your point, or guys here didnt do it.

    My impression is that you have option to live with your parents another year or live in the Multifamily you can buy. The difference in downpayment, i guess, is because if you decided to live out of parents wings,you will spend some money in the house?

    Personally i would put 25% down and live with parents a bit longer. That will give you positive cash flow and a reserve that could be easily needed when doing REI/ or be the money to furnish the house, deciding to live there.

    The difference in putting 25% or 3.5% would help you to accelerate the rebuilt of reserve, and more important will reduce leverage. Being young and new to this I would start slow to accelerate as times comes.

    I was wondering if living with your parents would be such a burden, as it would give you quickly boost in your investments return.

    1Reply
  • Lewys Jones
    OP
    Rental Property Investor · Member since 2019 · 7 posts · 6 votes
    6y

    @Alexandre Marques dos Santos

    That was exactly my dilemma, but after realizing the 25% down and closing costs and fees I would almost have nothing left as a safety net for any repairs or vacancies. I think I should go 3.5/5% first to give me a slight cushion.

    Thanks for your input

    1Reply
  • Alexandre Marques dos Santos
    Rental Property Investor · Member since 2020 · 215 posts · 137 votes
    6y

    @Lewys Jones

    As alternative you could also go with 25% down and get Heloc. Gives u ability to access funds at reasonable price, and only pay for what you use. As reserves build up quickly you wont be paying for cash tou dont need, while keep tour ability to invest in something else.

    Anyway, good luck

    0Reply
  • Scott Mac
    Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    6y
    Originally posted by @Lewys Jones:

    I will be selling my SFH in March after having rented it out for one year. Expected to be left with $65k after CGT and closing costs.

    My dilemma is should I house hack with 3.5% down through a triplex or quadplex or put 25% down on an investment property loan and rent all units out and stay with my parents for another year?

     And if you move out from your parents, whose going to cook for you and go to the grocery store? You will...

    2Reply
  • Marquis Okafor
    Flipper/Rehabber · Tampa, FL · Member since 2014 · 31 posts · 8 votes
    6y

    I would most definitely use the 3.5% down, buy a quad and then rinse and repeat. Congrats on the sale of the SFH as well!

    1Reply
  • Account Closed
    Real Estate Agent · North Providence, RI · Member since 2018 · 40 posts · 25 votes
    6y

    @Lewys Jones definitely 3.5% down! Don’t tie up your cash in a property when you don’t have to.. All the best to you and your journey!

    1Reply
  • Matthew Irish-JonesBusiness Member
    Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
    6y

    @Lewys Jones you should move out. Being a successful real estate investor and living at home is an oxymoron.

    Irish Jones Realty4.947 Reviews
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    2Reply
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