House Hacking a SFH?
Missoula, MT · Member since 2018 · 7 posts · 1 vote
Ive been trying to find properties to house hack in Portland but all the multifamily units even duplexes seem about $400,000 +.
Have any of you ever house hacked a single family home? I have read Craigs blogs, which his method seems to be the only way i can make something work. Ive seen some single family homes with 4- 5 bedrooms for around $375,000-400,000
Hey Camron, I would lobby your lender to use 75% of rental income towards your mortgage. Are you factoring this into your strategy?
I would definitely not do SFH, but at minimum a duplex. So you never know how long a SFH remodel will take. You will be out that income and paying mortgage, taxes, insurance (get the right insurance), utilities, THEN materials, and your time, and other's time (labor is killer). So what I have seen happen, as an agent in the state of Montana, is a lot of half finished projects either bec the flipper ran out of steam or money.
So to hedge your strategy against the eventual burnout (I've burnt myself out a few times before) I would invest in a multi-family, the bigger the better. Run your numbers again and see what you get when you go with more units. Make sure you have signed leases from the seller's agent (with reasonable and not inflated rents for a sale), and have at it!
If you are paying $400k for a duplex, rents are what, $1,500? x75% = $1125 in gross rents towards your debt obligation. Your mortgage on that will be about $1333 at a 4% rate, before escrow, and about $1600 all-in. So you're looking at $475 as your end to cover.
Now with a 4plex, Let's say you are paying $700k (I have no idea about pricing in your market), and your rate is close to 4%, then you will be looking at $2333 before any costs, and around $2650 all-in escrow payment. With similar rents, you are going to live in one unit I assume, aand rent the others, for 3 units @ $1500, gross rents at $4500.
Now you can see the power of scaling up. A bank would, and should, count 75% of rental income towards debt obligation. If not, go somewhere else, make the lender work for you.
One thing of note is that a commercial loan maaaaaay be necessary for a 4plex, but you can also swing an FHA and purchase up to 4 units to live in. Be very careful with your financing, as there are caveats to both loans. But also keep in mind that to be successful in your strategy you will need to factor in the cost of assuming the refinanced loan, which will be upwards of $3k roughly, but is rolled into the new loan. For your first time, an FHA loan with 3.5% down should be your best bet, but I have not done this in so long, I don't know what rules they may have adopted since then. Always go bigger, and make the numbers work. If you can't then just move on.
Your CPA will also be your best friend here... You want to hold for at minimum of 2 years to avoid capital gains tax of like 20%+. So make sure your basis can be covered for 2 years minimum. 12 years if our economy takes a huge dump right now.
I would immediately set up an LLC for your property, quit claim it into that name, and pay your taxes, so that in 2 years, you can approach a bank with a business entity to get commercial loans. These are the loans you want if you want to get creative in real estate. If not, you may be stuck with the same old FHA and residential loans for a long while. But residential real estate is strong right now... at least by me, so it is still nice to be able to invest in that class right now. I wonder if that will change soon.
Hope this helps. There's a lot more tweaks you can do to be more successful in your strategy, I covered the basics!
Morning Camron,
One other wrinkle to look at is location-where is the property located and what class of tenant will that property attract?
I’d rather pay a little more for a better location and end up with a better tenant situation than go as cheaply as you can and end up with what you paid for!
Have you looked out in Beaverton/HIllsboro area? At least there (depending on the area) you’ll have access to Nike/Intel employees as potential tenants for your house hack. There’s some 4 bedrooms out there in decent areas under 400k
Maybe reconsider a duplex-rent out one side on a long-term lease and run your side as a more involved house hack by the room? I just sold a 3/2 one side, 2/1 other side Beaverton duplex for 410,000. In your case, you could live in the 3/2 side and rent out both extra rooms. Plus, the advantage of a duplex is that a lender will count some of the rent towards your income unlike a sfr where you’re going to get roommates.
Keep your head up! You’ll find a way to make it happen!
Mathew
Hey @Camron Ferguson. If you are comfortable renting out by the room, you can make a SFH cash flow in Portland. There are lots of people looking to rent out single rooms in a home. That is the basic trick is to take a large unit (home, duplex, etc) and break it out into smaller rental units. If you are willing to live like that for a couple of years, you could be on your way.
Im currently HH a SFH that had a basement apartment in the Gresham area. I was able to quickly rent out my upper unit with some great tenants which are paying 3/4's of my mortgage. I think its totally doable it just depends on how creative you can be & how uncomfortable you are willing to get :)
Hope this helps, feel free to ask more. Good luck on your search
@Mathew Wray
Thank you for your response Mathew!
I will definetly check out beaverton and hillsboro area, your advice is extremely helpful and appreciated!!
@Brad Hammond
Thank you Brad! This is reassuring and will definetly keep the hunt going. I should look into value adds or turning a basement into a room!
@Natalie Lopez
Thank you for your insight Natalie! That sounds alot like my plan though didnt consider using the basement for myself as privacy would almost be lile a duplex. Giving me lots of ideas to work with!
I can only respond around evenings just because work is go go go and bad service at this hospital remodel in Bozeman Montana thank you for your guys advice!!
Hey Camron, I would lobby your lender to use 75% of rental income towards your mortgage. Are you factoring this into your strategy?
I would definitely not do SFH, but at minimum a duplex. So you never know how long a SFH remodel will take. You will be out that income and paying mortgage, taxes, insurance (get the right insurance), utilities, THEN materials, and your time, and other's time (labor is killer). So what I have seen happen, as an agent in the state of Montana, is a lot of half finished projects either bec the flipper ran out of steam or money.
So to hedge your strategy against the eventual burnout (I've burnt myself out a few times before) I would invest in a multi-family, the bigger the better. Run your numbers again and see what you get when you go with more units. Make sure you have signed leases from the seller's agent (with reasonable and not inflated rents for a sale), and have at it!
If you are paying $400k for a duplex, rents are what, $1,500? x75% = $1125 in gross rents towards your debt obligation. Your mortgage on that will be about $1333 at a 4% rate, before escrow, and about $1600 all-in. So you're looking at $475 as your end to cover.
Now with a 4plex, Let's say you are paying $700k (I have no idea about pricing in your market), and your rate is close to 4%, then you will be looking at $2333 before any costs, and around $2650 all-in escrow payment. With similar rents, you are going to live in one unit I assume, aand rent the others, for 3 units @ $1500, gross rents at $4500.
Now you can see the power of scaling up. A bank would, and should, count 75% of rental income towards debt obligation. If not, go somewhere else, make the lender work for you.
One thing of note is that a commercial loan maaaaaay be necessary for a 4plex, but you can also swing an FHA and purchase up to 4 units to live in. Be very careful with your financing, as there are caveats to both loans. But also keep in mind that to be successful in your strategy you will need to factor in the cost of assuming the refinanced loan, which will be upwards of $3k roughly, but is rolled into the new loan. For your first time, an FHA loan with 3.5% down should be your best bet, but I have not done this in so long, I don't know what rules they may have adopted since then. Always go bigger, and make the numbers work. If you can't then just move on.
Your CPA will also be your best friend here... You want to hold for at minimum of 2 years to avoid capital gains tax of like 20%+. So make sure your basis can be covered for 2 years minimum. 12 years if our economy takes a huge dump right now.
I would immediately set up an LLC for your property, quit claim it into that name, and pay your taxes, so that in 2 years, you can approach a bank with a business entity to get commercial loans. These are the loans you want if you want to get creative in real estate. If not, you may be stuck with the same old FHA and residential loans for a long while. But residential real estate is strong right now... at least by me, so it is still nice to be able to invest in that class right now. I wonder if that will change soon.
Hope this helps. There's a lot more tweaks you can do to be more successful in your strategy, I covered the basics!