Successful househacking in Houston?

Question

Account Closed · Answer

@Joseph Anderson I did my house hack almost a year ago in Montrose. What I quickly realized with FHA is that although there is very low down payment, the mortgage insurance cost will eat your cash flow. It is optimal to do 20-25% for 4 plexes in order to see DCR above 1.4. Since the market is overheated and everyone is chasing for yield, it's extremely important to be careful with your underwriting process and don't jump in without enough cushion.

I bought 4 plex in the mid 600s and spent about 10k for cosmetic fixing. I was lucky enough to find 2b2bs 4 plex which allows me to cash flow around 6.5k a month. I am not very familiar with 3rd ward area but I have been seeing prices going higher and higher to Montrose level which does not make sense at all.

@Dave Fagundes I completely agree with you with conventional buy and hold to reduce the rate and cost of the loan.

PM me if you have any more questions. Happy to network and answer questions.

Whitney Breedlove · Answer

I'm running into this exact problem. House hacking within the loop in Houston may not be the best option with how expensive the market is considering the rents still stay relatively low. Last year I was a tenant living in a triplex in the third ward and had a 1300 SF 3 bedroom unit and my rent was only $1250. I would caution you on the third ward though, it is getting better, but we were forced to move after having to call the cops on the people who hung out around our area and caused issues around our house. Gun shots were heard multiple times. So if you have a family, just be aware of this and be careful!

Omar Khan · Answer

@Joseph Anderson Great advice offered by other posters. I would like to point out that most of the house hacking stories you hear are:

• From 2009-2014: In most markets of the U.S. you could have house-hacked your way to success. Way tougher now
• Usually (not always) smaller or less affluent areas than what you're describing with better rent to price ratio
• Ultra low interest rates (even lower than now)

In your case, you are in a hot market (nationally and in Houston) and the rent to price ratio is not as lucrative as it was a few years ago. Also, you are not looking to buy in a war zone (assumption based off your post) which limits your possibilities.

Account Closed gave good advice especially on the FHA loan front. I'm still shocked that folks default to that loan especially when there are similar or better conventional loans out there (when looking at overall terms).

Dave Chapa · Answer

@Jacey C. Bellville, Brenham, Sealy and surrounding areas. I don't drive for dollars, just work with several REA and my PM.

Jacey C. · Answer

@Dave Chapa I’m definitely keeping my eyes peeled for anything, but I just would really love to find a nice quad in a good area. But I am looking at all options. I have a year on my lease at my apartment, so I’m in no rush. I can always sublet my apartment out once I found a place, I’m not too worried about that.

Where are you looking for your properties if you don’t mind me asking? Driving for dollars?

And @Whitney Breedlove that is my dilemma I keep running into. All the MFH inside the loop are available, but never in a B neighborhood, always D. Bars on all windows and door openings. Yeah the price is right and you can hit the 1% if not more but it’s the location. I found a triplex and it looked so nice from the inside, this guy redid it it was also done. But it was legit in the worse side of 5th ward. At that point I don’t care how cheap it is, or how close to done it was, I’m not dealing with the tenants that live around there. Soooo more hunting it is for me.

Dave Chapa · Answer

My son would like to  coming back to Texas and house-hacking. If I was his age, 30, I would be  all over this, it's a smart way to start in RE. I may sell him my tri-plex to help him start down the RE path.

@Jacey C. Don't settle but be open to all options, SF or small MF. You  never know what you will find while looking. I found a SFH while chasing MFs that I couldn't pass up. I found a tri-plex  while searching for a small office building. Right now, I'm looking at  a commercial retail/office building, when a duplex that looks promising  came up.

Jacey C. · Answer

I know I’m a bit late to the thread, but I’m looking to do the same as well; essentially house-hack my first investment property/first home. But I’m looking more in the out skirts of the Houston area, beyond the Beltway into SE Houston (Webster, Dickinson, Pearland, League City, La Porte, ect)

It’s hard finding MFH that fit my criteria that are also in my target area but I just keep searching and running the numbers. I really don’t want to settle for a SFH as my first investment/home, so I’m trying to look as hard as possible lol. Good luck to everyone’s journey.

Eric Reyes · Answer

@Joseph Anderson Great post. There is always the option of house hacking within a single family home. Just putting the thought out there.....

Dave Fagundes · Answer

I've had the same observation in terms of multifamily I've looked at in the Montrose area. Given the asking prices, the cash flow would still be well negative, especially once you account for things like vacancy rates, capital expenses, possible management fees. I think this is a product of an overheated market, where people are focused on appreciation and willing to lose out on cash flow in the short term.

One point about your numbers is that's a really low down payment, especially for commercial property. The lower your down payment, the higher your finance costs, and the harder it is to cash flow. If you put down 20% on a $350k place that would be a PITI of about $2000 (if you got a low mortgage rate for owner occupancy), so your leftover payment (not accounting for vacancy etc., see above) would be market rent assuming a duplex. That's not really a house hack, though, just a traditional buy and hold rental with the owner-occupancy twist to reduce your interest rate.

Successful househacking in Houston?

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