Hey everyone this is my first post. I am in the saving stages of my investment journey and am trying to figure out what the best path to success would be.
I am interested in my first deal to be one that I can house hack. I am not interested in large single family homes ( girlfriend wants privacy), so really am interested in duplex, triplex, and quadplex's. I have been analyzing deals of duplex's that have sold in the NE/SE area and am not seeing a way to get close to breaking even on the mortgage cost let alone taxes, repairs ect while occupying one of the units.
I will be looking into an FHA loan, so hopefully that means I would only need 3.5% down. Would I be wiser to save a higher downpayment and look for a 3-4 plex that will be likely to break even/ cash flow? My hope is to not stay more than a few years, so eventually that occupied unit will be rented out as well.
I would love to hear from any investors in the area who have any advice, or have gone through the sort of path I am looking to take.
Welcome to the BP community! Just by joining you are taking the first step to financial freedom. I think house hacking is a great way to get your feet wet in rental investing... that's how my wife and I did it here in the Portland area (We purchased a duplex in Milwaukie).
If you are using a low down payment option, it's not really realistic to expect to be cash-flow positive while you’re house hacking and living in the property. However, the property must cash flow after you move out for the deal to make sense (in most scenarios). Like @Brad Hammond said, when an investor is looking at being cash flow positive, they are typically putting down 20 percent or more. If you are in a high demand metro area like we are, it's simply not realistic to expect to be cash flow positive if you are putting down 0-10%.
Now if that is all the capital you have, that is what it is. Is it better to keep renting than to buy? Typically it is better to buy. Better to build your own equity through the debt paydown, enjoy the tax benefits of ownership, and garner the equity of an appreciating asset. You just can't expect to cash flow on an initial purchase with a low down payment. Now with time and rent growth, what could be a negative cash flow property might very well become a cash flow king, but that takes patience.
When I’m analyzing the numbers on a house hack I go through this progression. These “hurdles” typically go from easy to clear to harder and harder to clear. Better “deals” will clear more of the hurdles.
The buyers housing cost must be lower than it was before. This one doesn’t always apply. What if you were living with your parents rent free? What if you were living with a friend and they were charging you way under market rent?
Will the buyers portion of the mortgage payment be LOWER than the market rent for the unit they plan on living in. If you are renting a 2/1 and the market rent for that type of rental in the area is $1,000, then the amount of the mortgage payment you will be responsible for must be lower than $1,000. Otherwise, why would you pay more to live there? Remember, the goal of house hacking is to reduce your housing costs
The property must be cash flow neutral or cash flow positive at the current rents if you were to never move in. If a unit is vacant I use current market rent.
This is where I start. If a property clears these hurdles, I’ll then start to dig a little deeper.
And the 1 percent rule doesn't really apply here. When I'm running 1 percent calculations, if I get something that is 0.6 percent or higher that is usually a sign to, again, look deeper into the property.
Besides figuring out what your goals are, how you want to get started, and meeting like-minded people, the first action item would be to talk to a lender. In my experience working with house hackers, the majority of the questions center around financing the deal.
When it comes to finding the right lender there are a few things you’ll want to keep in mind. Lenders, like realtors, are not all created equal. In order of importance, here’s what I think is important to look for in a lender. You want to make sure your lender:
Has worked with house hackers before; the rules change depending on what loan type you use and how many units you purchase. There are A LOT OF TRAPS along the way that can/will make the deal fall through (and cause you to lose your earnest money). You want to be sure the lender you choose has navigated them before.
Can help you strategize the lending piece for this purchase AND purchases in the future
Is an investor themselves
If you’d like a recommendation for a lender DM me. I have one that I have closed many house hacking sales with (my own house hack included), and checks off all of the boxes above as well.
Real Estate Agent · Portland, OR · Member since 2016 · 1k+ posts · 605 votes
6y
Hi @Jacob Alastra. As you've noticed it is very hard to make something cashflow with just 3.5% down in Portland. You basically have two choices right now, you can put more money down or have a higher monthly payment. Most properties won't start to cash flow until you get to 20%.
There are areas outside Portland with better cashflow. Basically the further you go the better the cashflow.
Welcome to the BP community! Just by joining you are taking the first step to financial freedom. I think house hacking is a great way to get your feet wet in rental investing... that's how my wife and I did it here in the Portland area (We purchased a duplex in Milwaukie).
If you are using a low down payment option, it's not really realistic to expect to be cash-flow positive while you’re house hacking and living in the property. However, the property must cash flow after you move out for the deal to make sense (in most scenarios). Like @Brad Hammond said, when an investor is looking at being cash flow positive, they are typically putting down 20 percent or more. If you are in a high demand metro area like we are, it's simply not realistic to expect to be cash flow positive if you are putting down 0-10%.
Now if that is all the capital you have, that is what it is. Is it better to keep renting than to buy? Typically it is better to buy. Better to build your own equity through the debt paydown, enjoy the tax benefits of ownership, and garner the equity of an appreciating asset. You just can't expect to cash flow on an initial purchase with a low down payment. Now with time and rent growth, what could be a negative cash flow property might very well become a cash flow king, but that takes patience.
When I’m analyzing the numbers on a house hack I go through this progression. These “hurdles” typically go from easy to clear to harder and harder to clear. Better “deals” will clear more of the hurdles.
The buyers housing cost must be lower than it was before. This one doesn’t always apply. What if you were living with your parents rent free? What if you were living with a friend and they were charging you way under market rent?
Will the buyers portion of the mortgage payment be LOWER than the market rent for the unit they plan on living in. If you are renting a 2/1 and the market rent for that type of rental in the area is $1,000, then the amount of the mortgage payment you will be responsible for must be lower than $1,000. Otherwise, why would you pay more to live there? Remember, the goal of house hacking is to reduce your housing costs
The property must be cash flow neutral or cash flow positive at the current rents if you were to never move in. If a unit is vacant I use current market rent.
This is where I start. If a property clears these hurdles, I’ll then start to dig a little deeper.
And the 1 percent rule doesn't really apply here. When I'm running 1 percent calculations, if I get something that is 0.6 percent or higher that is usually a sign to, again, look deeper into the property.
Besides figuring out what your goals are, how you want to get started, and meeting like-minded people, the first action item would be to talk to a lender. In my experience working with house hackers, the majority of the questions center around financing the deal.
When it comes to finding the right lender there are a few things you’ll want to keep in mind. Lenders, like realtors, are not all created equal. In order of importance, here’s what I think is important to look for in a lender. You want to make sure your lender:
Has worked with house hackers before; the rules change depending on what loan type you use and how many units you purchase. There are A LOT OF TRAPS along the way that can/will make the deal fall through (and cause you to lose your earnest money). You want to be sure the lender you choose has navigated them before.
Can help you strategize the lending piece for this purchase AND purchases in the future
Is an investor themselves
If you’d like a recommendation for a lender DM me. I have one that I have closed many house hacking sales with (my own house hack included), and checks off all of the boxes above as well.
Hey Jacob welcome to BP!!! The Portland market is very tough to cash flow in right now even with a house hack. If you are willing to look at some of the outlying towns near Portland house hacking to live for free is very do-able. Then you can save for your next investment. @Chace Fraser and @Brad Hammond gave some excellent advice. Stick to that and I don't think you can go wrong.
Real Estate Syndicator · Portland, OR · Member since 2014 · 453 posts · 312 votes
6y
House hacking is an awesome idea. I don't know that you can expect to find something with no money down that you can live in for free in those areas. Maybe in another market, but in Portland, that's going to be really tough, especially with investment properties (people who already know how to value property by income). We just purchased a 4 plex for 400k in N portland, 4 1-bed units. It's renting out currently at 575 per unit, these are way under market so we are going to put about 70-90k into it and they will rent out for 1100 per unit. This was a pretty good deal and will almost hit the 1% rule. But even so, not sure that 3 rents would cover the mortgage on it. I think that when house hacking the intent is to get the largest amount of rent possible to increase your income. You may have a couple years where you are paying market rent or slightly less, but as rents increase and your payment does not the amount in rent that you pay yourself will be less. Additionally your principal will go down every month that you have renters paying you, ie the larger your payment and larger rents is more equity paid down.
Property Manager · Portland · Member since 2020 · 16 posts · 1 vote
6y
With low money down in Portland, I think you should be looking for properties that come close to breaking even with market rents. As mentioned by commenters above, you can always increase cash flow by putting more money down on properties, but I think it's more risky and limits your available funds to do any rehab work after closing.
Deals are out there, but require patience to find and you'll need to be quick to analyze and submit offers when they appear. We picked up a duplex in Woodstock last August for $410,000 with a 3.5% FHA loan off the MLS. After light remodels on both sides, the Duplex cash flows about $150 per door each month, which I think is a great return on a property that cost around $18,000 in total to close. Once we can refinance and get out of paying PMI, it will cash flow nicely.
If you are new to RE and planning on renting any property in the City of Portland, I'd also recommend spending a considerable amount of time learning the city specific renter protections, and landlord tenant law more generally. That, or hire a property manager. Things are getting difficult in Portland, particularly for smaller landlords. If you need advice or help on that front, please don't hesitate to reach out to me directly.