Working Toward the House Hack

4 Replies | Chattanooga, Tennessee

Hello all. Let me get started by saying that house hacking is the best early investor living opportunity I have ever come across. I absolutely love the idea and am planning to use this method as my start in the REI community.

Here's how I'm working towards it right now. First of all I took a look back at my spending for the past half year to get a good idea of ways I could optimize it. Then I built a budget around putting me on the fast track to getting into my first owner-occupied investment property. Fast forward to today and I am saving $1k a month towards a down payment and have kept up this budget for four months. This gives me $4k to work with. I could do a FHA loan with the $4k but I want to have a bit of a cushion to work with when things go wrong such as various capital expenditures. All of that being said, I am planning to save $10k to start.

Now my question to the BP crowd. Am I going a little too far with my startup amount? It seems like a safe figure to me, but I could also try to get started with what I have now and let my tenant income build my cushion. What are your thoughts?

Hi Christopher! 

I haven't actually done any deals yet but am in similar shoes to you so I thought I could chime in. As you mentioned, it all comes back to your tolerance for risk. Could you buy a property with a $4K down payment ASAP? Absolutely, but you could be stuck with a big expense if something goes wrong early on.

Regardless, you are taking the right steps by saving aggressively to mitigate your risk. There are 2 things I might suggest to mitigate risk if you are uncomfortable proceeding with your current savings: (1) The better a deal you find, the less risk is inherent to any purchase you make. If you purchase a $200k property at $120k, you have more flexibility if anything goes wrong because you already have $80k in equity (this can also be achieved through renovating and forced appreciation). This brings me to (2) - look into a potential 203(k) loan to fund not only your purchase but your renovation. This way you can make your money stretch further and potentially gain some equity early on, which can be borrowed against for another deal or refinanced to reduce your debt servicing cost.

Like I said, I still haven't done a deal so I am just saving like you and investing my time as much as I can to reading here and studying up to be ready to make a deal when the opportunity presents itself. Regardless, I would keep saving the $1k a month as it can't hurt to be saving extra $$$. Hope this was at least a little helpful, best of luck!

Hi Christopher! 

It sounds like you are doing great so far! I just read this article, and thought it might be helpful.

@Christopher Randall - I came across your year-old post about you prepping to do a house hack in/around Chattanooga, and I wondered how it is going for you!! Did you find anything? We have a property to sell that could be good for someone as a house-hack, as it has cash flowing properties on the premises. It is too far from Chattanooga to work for you (90 miles east, in the Copperhill, TN tourism area), but my point is there are Mom and Pop owners out there who are aging out of their properties and need to sell. I hope you can find one like that. A good option may be to go to a property manager's office and discuss with the manager. Describe that you are looking for a duplex, triplex or 4-plex that you can buy, and wonder if they have any investors that are looking to get out of the business or that may be interested in selling one property (especially due to age, but also due to change of interest/strategy). Remember you can get a FHA renovation loan on a single-family owner-occupied home, as well as on a 1-4 plex (when you intend to live in one of the units), and wrap the renovation cost into the whole loan (you can only pay to renovate the unit in which you will live, but sometimes that can include a shared furnace or water heater or electrical infrastructure, or roof, that qualifies as "your unit" but benefits the whole property). You would still only pay 3.5% or so down payment (of the whole deal, of the after-repair value, based on the estimated post-remodeled appraisal). A great mortgage broker would be able to help you figure that out. We have one out of GA, but I am not sure if he can do TN. Hope this helped. Contact me if you have any questions at all!