CAN I HOUSE HACK WITHOUT LIVING IN IT?
Los Angeles, CA · Member since 2017 · 31 posts · 24 votes
Hi Guys! I am planning to buy a duplex using FHA loan so I can make a downpayment of 3.5%. Is it possible to keep the one unit vacant and not live in there? I just want to have the benefits of the low downpayment. (house hacking, los angeles, duplex)
Not sure why some of you feel the need to insult and patranize this man, he had a legitimate question. People should feel free to openly ask questions on BiggerPockets without being shamed. Many of us are at different levels in this game.
@Ben Leybovich given your "status" I would have expected more from you.
@John Michael Rico , aside from the "rules" discussion, I question your financial analysis here.
How exactly are you planning to make money buying this rental duplex and only receiving half of the market rent? It likely won't rent for enough to pay the mortgage with 3.5% down and the high LTV.
In my mind, you're either renting both halves of the duplex (yes, likely requires 25% down payment for non-owner-occupied), or you're living in one-half and truly house hacking with the low down payment (because you're owner occupied).
Just wondering, do I need an LLC starting out? I heard @Ben Leybovich was doing a Q and A, so thought I would ask...
I understand his question perfectly and it is valid. I juggle this question on the daily basis actually.
Have any of you considered he might put the open unit on Airbnb? or let a friend or family member live there? I have not looked at his profile but maybe he goes to school and won't even be there to live in the unit.
There is also the possibility he just doesn't fully understand FHA rules or maybe he doesn't even know what he's thinking would be a violation of the FHA rules. We just do not know his situation or where he's at in his journey. Its good this question was asked. now he knows and can make an informed decision moving forward. It's better to ask the question than it is to get caught up and get into trouble because he did not know.
Lots of things could be going on that would make him ask this question. We'd be better off asking him what he's planning and explaining the rules to him rather than laughing and calling his post stupid. This website was created to educate and build up other RE investors, NOT bring them down.
Thank you for your question @John Michael Rico
Just wondering, do I need an LLC starting out? I heard @Ben Leybovich was doing a Q and A, so thought I would ask...
So the disclaimer is: I am not an attorney. Seek professional advice!
Having said this, the LLC vs. No LLc is a discussion of CF vs. Asset protection. Follow me:
If - property cannot be financed with a conforming 30-year note unless you take the deed in your own name.
And - a 30-year mortgage comes with the lowest payment, and therefore more CF.
Then: In order to underwrite the most CF you have to finance for 30 years in your name.
However - doing so exposes you to some liability,
But - putting the asset into an LLC triggers the DOS,
Then - you have to decide whether the CF out-ways the risk of exposure.
It is always better to have the LLC. But...talk to an attorney :)
1. I wasn't slamming Ben, simply providing constructive criticism to help this community continue to flourish.
2. How can you determine that he didn't spend 10 mins educating himself? Its very possible he has done research but just doesn't fully understand the rules around house hacking, since as you stated, Real estate is very complex.
3. I'm sure there are plenty of questions on BP that people would consider "stupid", but if a person cant provide a respectful response to the question I would just assume they keep scrolling.
Thanks for the convo, have a great day!
So here is the scenario. I found a 4plex that I want to invest in. But I don't have enough cash for downpayment. So I am thinking to apply for FHA loan so I can use the 3.5% downpayment.
Right, now I am living with my parents and I can't leave them by themselves. I just pay a little amount for the rent of our apartment. So right now, I am thinking if it is possible to not really live in one of my unit. I will still go there once and a while but basically, I will not spend much of my time in there.
By the way, I already analyzed the deal. And even if I only rent 3 units, I still cash flow every month.
At the end of 1 year, I will refinance the 4plex and rent the remaining one unit. Thanks for the comments guys.
I really thought that there is no such thing as stupid question, but I think not all people think the same way. #respect
FHA Loans are for primary residence loans. Get married to your tenant and he/she can occupy the other side of the duplex legally. Or you could take your chances and use the FHA loan as an investment loan and hope you don't get caught in the first 365 days, even if you leave it unoccupied.
1. I wasn't slamming Ben, simply providing constructive criticism to help this community continue to flourish.
2. How can you determine that he didn't spend 10 mins educating himself? Its very possible he has done research but just doesn't fully understand the rules around house hacking, since as you stated, Real estate is very complex.
3. I'm sure there are plenty of questions on BP that people would consider "stupid", but if a person cant provide a respectful response to the question I would just assume they keep scrolling.
Thanks for the convo, have a great day!
Fair enough and I agree using the word stupid wasn't the best option. I took the LOL to mean the comment was made in good fun. You are right, it is probably better to just keep scrolling.
@John Michael Rico .... I see, 3 rents pay the mortgage. 4th unit could be vacant.
So here is the scenario. I found a 4plex that I want to invest in. But I don't have enough cash for downpayment. So I am thinking to apply for FHA loan so I can use the 3.5% downpayment.
Right, now I am living with my parents and I can't leave them by themselves. I just pay a little amount for the rent of our apartment. So right now, I am thinking if it is possible to not really live in one of my unit. I will still go there once and a while but basically, I will not spend much of my time in there.
By the way, I already analyzed the deal. And even if I only rent 3 units, I still cash flow every month.
At the end of 1 year, I will refinance the 4plex and rent the remaining one unit. Thanks for the comments guys.
I really thought that there is no such thing as stupid question, but I think not all people think the same way. #respect
It is probably best if you read the HUD document that discusses occupancy. In my opinion what you describe doesn't meet the requirements:
https://portal.hud.gov/hudportal/documents/huddoc?...
There is another saying that the quality of your questions determines the quality of your life.
Good luck.
I would advise everyone to do their research but sometimes the WANT and DRAW of wanting to get started in REI when we may not have the correct means will push investors to do things that might skirt what is considered legal or advisable. Remember the tulip craze, when everyone wants in SO BAD they will do just about anything to get in. Even if it will lose them money. My advise? You did great it asking the question. Just take the responses how they come and use them to learn constructively as you move forward.
I understand his question perfectly and it is valid. I juggle this question on the daily basis actually.
Have any of you considered he might put the open unit on Airbnb? or let a friend or family member live there? I have not looked at his profile but maybe he goes to school and won't even be there to live in the unit.
There is also the possibility he just doesn't fully understand FHA rules or maybe he doesn't even know what he's thinking would be a violation of the FHA rules. We just do not know his situation or where he's at in his journey. Its good this question was asked. now he knows and can make an informed decision moving forward. It's better to ask the question than it is to get caught up and get into trouble because he did not know.
Lots of things could be going on that would make him ask this question. We'd be better off asking him what he's planning and explaining the rules to him rather than laughing and calling his post stupid. This website was created to educate and build up other RE investors, NOT bring them down.
Thank you for your question @John Michael Rico
Please explain to me how what you just described is house hacking... Instead of a investment.
I mean put me on blast if I'm wrong but the key part of house hacking... Is living in it .
Unless I should start telling people I'm house hacking my OOS property vs it's an investment.
@John Michael Rico, how about: ask your parents to come live with YOU for that year? Cheers...
I never said he was right or wrong. I said instead of bashing him, help him understand. Help him learn the terms, maybe he was going to move a friend or family member into the "vacant unit".
No, it's not house hacking but again, maybe he's new, maybe he doesn't understand the terms. We don't know we just jump on him rather than say "@John Michael Rico, could you please elaborate on your plan. What is it you're trying to do? I'm here to help, bro."
Other investors might think your question is stupid but really in your market, a 20% down-payment might not be realistic to you getting into the investment game. ALWAYS THINK OUTSIDE THE BOX, but legally of course. If this is the issue, you really need to consider the costs of having one side as your own residence. Per the FHA guidelines, you would technically have to "live" in one side for the majority of the year. I didn't see anywhere where it stated the exact definition of "living", besides occupying the home for the majority of the year, but this isn't as clear as you might think. So if you travel for 300 days out of the year but have your stuff at your house and maintain all utilities and such would this be considered your primary residence per the FHA rules? Probably, but not if you have a lease signed with an apartment complex somewhere else for the same time frame.. I'm sure you see where I am going. Lets say you have a roommate on your side and they pay half of the costs while you travel 300+ days out of the year... These types of questions would need to be ran by someone who was extremely educated and knowledgeable on FHA rules and guidelines.... I would suggest contacting them for this info to be sure you aren't committing fraud unknowingly, once you figure out a situation that might work best for you. But lets just say that you buy a $500k duplex w/ 3.5% down ($17,500) and you can get a roommate to help with the costs. You might actually make a net profit or break even the first year and then convert this to a fully utilized rental the following year. This actually could be a trend that you use to get in cheap and then convert to a rental just after a years time. Just some things to think about.
- Jake
Hey @John Michael Rico... shoot me a PM and I will give you some real advice on this rather than a smartass comment like these other posters.
@John Michael Rico When you say you will still cash-flow from renting 3 of the units, did you you take into consideration setting aside money for repairs, maintenance, and capitol expenditures? I've analyzed many deals and I've never been able to "cash-flow" with only 3 of the units rented. The best I've seen is breaking even, and you live in a higher cost area than I do. I know its possible, but I'm just making sure you are adding that into your equation. I noticed that you are a new member as of this month, and I totally recommend that you watch as many of the house hacking podcasts as you can, and read as many bigger pockets books as possible.
Other investors might think your question is stupid but really in your market, a 20% down-payment might not be realistic to you getting into the investment game. ALWAYS THINK OUTSIDE THE BOX, but legally of course. If this is the issue, you really need to consider the costs of having one side as your own residence. Per the FHA guidelines, you would technically have to "live" in one side for the majority of the year. I didn't see anywhere where it stated the exact definition of "living", besides occupying the home for the majority of the year, but this isn't as clear as you might think. So if you travel for 300 days out of the year but have your stuff at your house and maintain all utilities and such would this be considered your primary residence per the FHA rules? Probably, but not if you have a lease signed with an apartment complex somewhere else for the same time frame.. I'm sure you see where I am going. Lets say you have a roommate on your side and they pay half of the costs while you travel 300+ days out of the year... These types of questions would need to be ran by someone who was extremely educated and knowledgeable on FHA rules and guidelines.... I would suggest contacting them for this info to be sure you aren't committing fraud unknowingly, once you figure out a situation that might work best for you. But lets just say that you buy a $500k duplex w/ 3.5% down ($17,500) and you can get a roommate to help with the costs. You might actually make a net profit or break even the first year and then convert this to a fully utilized rental the following year. This actually could be a trend that you use to get in cheap and then convert to a rental just after a years time. Just some things to think about.
- Jake
He said he plans to live with his parents and occasionally visit the property. He stated he has residence at his parents apartment and stated he is paying part of the rent. He never said he was traveling. Someone traveling would be staying at hotels, which is temporary housing. That is different than paying rent to live at your parents place.
Occupying a property is when you sleep there, get mail there and you are not paying rent or mortgage for another place. If you invited friends over and said come over to my place, your residence is where they would show up.
I don't follow where the out-of-box thinking comes into play.
There is two choices:
1. Live there for one year
2. Pretend you are living there for one year
So here is the scenario. I found a 4plex that I want to invest in. But I don't have enough cash for downpayment. So I am thinking to apply for FHA loan so I can use the 3.5% downpayment.
Right, now I am living with my parents and I can't leave them by themselves. I just pay a little amount for the rent of our apartment. So right now, I am thinking if it is possible to not really live in one of my unit. I will still go there once and a while but basically, I will not spend much of my time in there.
By the way, I already analyzed the deal. And even if I only rent 3 units, I still cash flow every month.
At the end of 1 year, I will refinance the 4plex and rent the remaining one unit. Thanks for the comments guys.
I really thought that there is no such thing as stupid question, but I think not all people think the same way. #respect
Why not move your folks into one of the units then? Have them "pay rent" directly to you. They get a place while helping you build your equity in the property. How many bedrooms is your current place? If your unit is large enough, you could have them live with you there. Also, never use your real name/picture when you're asking questions that are borderline illegal.
Also curious to find out how strict FHA is on enforcing the rule (FHA agents in the bushes every other month?).