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)

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Rickie Mincy

cincinnati, OH · Member since 2016 · 25 posts · 119 votes

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.

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Sanjeev Advani
Investor · Bakersfield, CA · Member since 2015 · 483 posts · 234 votes
9y
My question: Has anyone had experience/success with house hacking with a conventional loan? Is there a higher return that can be achieved or would you recommend sticking with the single tenant rental? EX. 3/2 SFR Rents in area $1200/mo Versus House hack 3 bedroom $600 (master), $500 (bed 2&3) Is the return worth the hassle?
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Joseph M.
Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
9y
As others mentioned you need to occupy property for FHA.. but the challenge in L.A is actually finding something that cash flows. Every multi on the market is marketed as a "great investment property" even if it's a duplex for $600,000 with each side rented for below market rent of $800 a month to a rent control tenant .
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Fernando E.
Rental Property Investor · SF Bay Area · Member since 2016 · 234 posts · 103 votes
9y
Hi John, one of the stipulations of FHA is for the owner to live in the property for at least one year. This funding is from the government aimed to support home buyers to have their own home as such the lower down payment. Thread carefully and listen to the advice of the good folks here in BP, it's illegal and you may face repercussion on it. Read Brandon Turner's "Book on Investing in Real Estate with No Money or Low Money Down" it's a good read and will provide you guidance. Happy investing!
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Account Closed
Los Angeles, CA · Member since 2016 · 156 posts · 113 votes
9y
Hi John, I personally don't recommend you attempting to use FHA for non-primary residence property because you'll be crossing a fine line called "Fraud". However, you can purchase a property using FHA financing, move into the property aka househack, rehab the property as much as possible (in a manner that makes financial sense), and after 6-12 months you can refinance the property with a conventional loan. Once you get the property's LTV at 80% LTV or less, you can remove any PMI (or MIP) and begin the process to legally rent out your unit so you can move out of the property. Hope this helps.
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Steve C.
Las Vegas, NV · Member since 2017 · 89 posts · 52 votes
9y
Do some more research, but I believe you need to live in it for a year at least. After finding BP & learning about house hacking. I would have definitely house hacked for a year with an FHA loan.. But now I have a wife & a baby on the way and an FHA loan already on a SFR. Depending on what you find & your personal situation (other people living with you & the areas this sort of housing is available in in your market) you may be able to live there for the length of time required & then move out after and rent both units. Though you won't be able to get another FHA loan down the street, you can only have one unless you change jobs & location because of it, I believe. There are no stupid questions, just un-researched ones.
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Brandon Hicks
Investor · Avilla, IN · Member since 2013 · 796 posts · 769 votes
9y
Of course and that's what all landlords who don't want to live "with" their tenants do. My tenants make my house payment and I don't have to see them when I walk to my mailbox.
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Brandon Hicks
Investor · Avilla, IN · Member since 2013 · 796 posts · 769 votes
9y
You just can't use an owner-occ loan
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Paul Bojinov
Investor · San Diego, CA · Member since 2015 · 36 posts · 21 votes
9y
@John Michael Rico Yes you can do that.
Is it mortgage fraud? Yes it is as you had no intention from day one to leave in the property.
Will anyone check on you? Probably not I don't remember FHA knocking on my door to check on me when I had a FHA loan.
So if you go ahead with your plan find out what the consequences are if you get caught.
Good luck.
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Scott L.
Investor · Flower Mound, TX · Member since 2017 · 182 posts · 198 votes
9y
Define "live there for one year"... I think you'll have to look into the FHA guidelines...If you travel for business, but return to your condo when not working...is that ok? What about nights you spend at the GF house? Do they count toward occupancy? If you come in from partying after midnight does that lose a day of owner occupancy? If no one else is living there and you get your mail there and store some of your stuff in a unit is that occupancy? ;-)
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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
9y
Originally posted by @Sanjeev Advani:

My question: Has anyone had experience/success with house hacking with a conventional loan?
Is there a higher return that can be achieved or would you recommend sticking with the single tenant rental?
EX. 3/2 SFR
Rents in area $1200/mo
Versus
House hack 3 bedroom $600 (master), $500 (bed 2&3)
Is the return worth the hassle?
You could house hack with conventional. You may be able to do a lower down payment with FHA, so that can help your return on investment. Conventional doesn't require owner occupancy, so could be an option for someone not wanting to house hack.
Living in a home and renting bedrooms or doing vacation rentals is a valid house hacking strategy. The big difference between renting bedrooms versus the other side of your duplex is that you will share living space with someone. If that doesn't bother you, then renting by the room could be more profitable.
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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
9y
Originally posted by @Scott L.:

Define "live there for one year"... I think you'll have to look into the FHA guidelines...If you travel for business, but return to your condo when not working...is that ok? What about nights you spend at the GF house? Do they count toward occupancy? If you come in from partying after midnight does that lose a day of owner occupancy? If no one else is living there and you get your mail there and store some of your stuff in a unit is that occupancy? ;-)
It is really simple. Either you live there or you pretend you are living there. Pretending is mortgage fraud. I agree that assuming your mail is sent there, you probably won't get caught.
There is nothing confusing about the FHA guidelines. The fact that they don't spell out occupancy in detail is because people know what it means. Someone who wants to scam the system will find a way around regardless of any fine print.
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Scott L.
Investor · Flower Mound, TX · Member since 2017 · 182 posts · 198 votes
9y
Originally posted by @Joe Splitrock:

Originally posted by @Scott L.:
Define "live there for one year"... I think you'll have to look into the FHA guidelines...If you travel for business, but return to your condo when not working...is that ok? What about nights you spend at the GF house? Do they count toward occupancy? If you come in from partying after midnight does that lose a day of owner occupancy? If no one else is living there and you get your mail there and store some of your stuff in a unit is that occupancy? ;-)
It is really simple. Either you live there or you pretend you are living there. Pretending is mortgage fraud. I agree that assuming your mail is sent there, you probably won't get caught.
There is nothing confusing about the FHA guidelines. The fact that they don't spell out occupancy in detail is because people know what it means. Someone who wants to scam the system will find a way around regardless of any fine print.
So it's real clear because you just "know" whether you're living there or not. Single military officer on deployment right after closing?
"Your honor, the United States will prove, beyond a reasonable doubt, that 2LT Smith 'knew' he wasn't 'living there', because he was in Iraq."
I think the OP's original thought was he could leave one unit available for his use as a primary residence, but would spend most nights taking care of his parents at their apartment. I would suggest that this meets most definitions of "owner occupancy".
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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
9y
Originally posted by @Scott L.:

Originally posted by @Joe Splitrock:
Originally posted by @Scott L.:

Define "live there for one year"... I think you'll have to look into the FHA guidelines...If you travel for business, but return to your condo when not working...is that ok? What about nights you spend at the GF house? Do they count toward occupancy? If you come in from partying after midnight does that lose a day of owner occupancy? If no one else is living there and you get your mail there and store some of your stuff in a unit is that occupancy? ;-)
It is really simple. Either you live there or you pretend you are living there. Pretending is mortgage fraud. I agree that assuming your mail is sent there, you probably won't get caught.
There is nothing confusing about the FHA guidelines. The fact that they don't spell out occupancy in detail is because people know what it means. Someone who wants to scam the system will find a way around regardless of any fine print.
So it's real clear because you just "know" whether you're living there or not. Single military officer on deployment right after closing?
"Your honor, the United States will prove, beyond a reasonable doubt, that 2LT Smith 'knew' he wasn't 'living there', because he was in Iraq."
I think the OP's original thought was he could leave one unit available for his use as a primary residence, but would spend most nights taking care of his parents at their apartment. I would suggest that this meets most definitions of "owner occupancy".
Yes, people know whether they are living some place. Don't you know where you live?
The OP specifically said he will not be living there. He plans to stop occasionally. He will sleep at his parents, where he will continue to pay his portion of rent. His idea was to leave a unit vacant, which doesn't meet the definition of owner occupancy.
HUD states active duty exclusions to the rule, so that example is covered. That being said, I think a VA loan is a better option in that case.
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Sanjeev Advani
Investor · Bakersfield, CA · Member since 2015 · 483 posts · 234 votes
9y
@Joe Splitrock I wasn't planning on living in the property at all. That is why I would use a conventional loan, but my question was more along the line of wanting to know if having essentially three tenants in a SFR with a slightly higher return would be worth the hassle, or would it be better to take the normal return on the property and move on to the next one?
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Luke Aubut
Flipper/Rehabber · Madison, WI · Member since 2017 · 49 posts · 14 votes
9y
@Matthew Olszak, Best answer.
Also, what if OP didn't use the term "house hack" but just asked, "Can I buy a duplex using FHA loan so I can make a downpayment of 3.5%...and not live in there?" Obviously he doesn't want to "house hack" by the literal sense of the term.
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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
9y
Originally posted by @Sanjeev Advani:

@Joe Splitrock I wasn't planning on living in the property at all. That is why I would use a conventional loan, but my question was more along the line of wanting to know if having essentially three tenants in a SFR with a slightly higher return would be worth the hassle, or would it be better to take the normal return on the property and move on to the next one?
Lots of people rent by the room. It is most common in student rentals. I personally rent the whole house. I just have one tenant and remove myself from inter-tenant issues. In my market you could take a house that rents for $1100 and get $1900 renting by the room. It probably comes down to time and property location.
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David West
Investor · Opa Locka, FL · Member since 2015 · 1 post · 0 votes
9y
Why bother getting a FHA Mortgage for the lower interest rate if you don't plan on using the unit to cash flow. Pay the 20% down and you can avoid all the legal stuff.
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Sanjeev Advani
Investor · Bakersfield, CA · Member since 2015 · 483 posts · 234 votes
9y
@Joe Splitrock thanks for the advice! I would like to take myself out of the inter-tenant issues, but the return keeps drawing me back in...
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Account Closed
Los Angeles, CA · Member since 2016 · 156 posts · 113 votes
9y
Have you considered moving your parents into the 4-plex with you? If there are tenants in 3 of the units, you can legally evict one of them to move your parents into a separate unit from your unit. Check with an eviction lawyer for the process, do not do this on your own if you choose to go that route.
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Jordan MoorheadBusiness Member
Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
3y
@John Michael Rico you have to live in it, but it's a great way to save a lot of money and buy assets with a really low down payment. If you say you're going to live there and don't it's loan fraud and can be punishable with jail time.
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