Currently house-hacking. Help with Next steps?

[Christian Estrella]

Good Morning wonderful people of bigger-pockets,

Like the title says, I am currently house-hacking a 2 family property in Ct, I live in the second unit and rent out the first (2 Bd/1 bath). I enjoy living here as I finally have my own driveway, backyard, attic, and garage (luxuries coming from NYC). I know once I rent out my unit I would be able to cash flow about $500 a month.

I was thinking of downsizing and purchasing a condo to live in for about 2 years, the reason for this is that with my current salary and money saved up I can only afford to put 5-10% down payment on a condo valued at 250k or less. Which means I would have to owner occupy. Basically if I can reduce my mortgage payment on my condo by using the cash flow, I can continue to save money and in 2 years be able to purchase another property. I do have a wife and a 1 year old daughter so house-hacking into another 2/3 unit property doesn’t sound too appealing, however, we are willing to sacrifice living in a 1 bedroom condo for the time being (better privacy but smaller). The goal would be to save money, eventually rent out the condo, and then purchase another property. 

Another option is to continue living here and save money to purchase an investment property (would need to save minimum 20% down payment). I like the condo idea, as I am eager to start cash flowing and making use of that money.

Just wanted to throw this idea out there to see what other investors think, any and all feedback is appreciated. If anyone has been in a similar situation feel free to share your story. What steps did you guys take after your first multi-family purchase?

[Theresa Harris]

You should be able to do 5% down on a duplex if you live in one of the units.  I'd avoid a condo if you can. While the mortgage payments may be lower and have a lower entry point, once you add in the condo fees...do the math as to how much extra mortgage you can get with that.  You could also look for a place with a legal suite and move into the suite.  Less space, but you'd still have a yard and short term, get further ahead by renting the top. Once your daughter is a bit older, move to the other unit...or back to the duplex you are in now.

Last summer when I was looking for a rental, I compared a higher end condo with a house.  Costs were a bit different ($250K vs $275K), but once I did the math the cash flow on the two was very comparable.  What's more, the difference was with the condo, more of the rent was going to the condo fees whereas with the house, it went to the mortgage.  I bought the house and it ended up renting for more than we expected.

[Trevor Alexander]

I would start cash flowing the duplex for $500/mo and buy a Condo with 5% down - especially since you have a family now.

Then when you are ready for an upgrade, you can put as little as 5% down again. Two investments under your belt and a nice home for a family - sounds like a good goal to me!

[Rick Albert]

So I sort of did the opposite. I house hacked a condo and then bought a house and built out the ADU. A couple of things to note:

1) 1 bedroom condos don't typically appreciate as well as 2+ bedrooms.

2) You have a 1 year old. You are going to grow out of that condo quickly.

3) What's the difference between having a two unit with tenants next door versus a condo where the unit next door is rented out? I don't agree that you have better privacy. Walls are still shared and depending on where the unit is I would argue you have less privacy.

4) Condos are great for starting, but have its challenges. If there is a roof leak, yes the HOA typically handles it, but you still are at their mercy and schedule.

5) Things come up with condos like special assessments, rising HOA dues, and changes in the condition of the complex. These are all out of your control.

I would recommend sticking with the duplexes and continuing growing that way. 

[Christian Estrella]

Quote from @Rick Albert:

So I sort of did the opposite. I house hacked a condo and then bought a house and built out the ADU. A couple of things to note:

1) 1 bedroom condos don't typically appreciate as well as 2+ bedrooms.

2) You have a 1 year old. You are going to grow out of that condo quickly.

3) What's the difference between having a two unit with tenants next door versus a condo where the unit next door is rented out? I don't agree that you have better privacy. Walls are still shared and depending on where the unit is I would argue you have less privacy.

4) Condos are great for starting, but have its challenges. If there is a roof leak, yes the HOA typically handles it, but you still are at their mercy and schedule.

5) Things come up with condos like special assessments, rising HOA dues, and changes in the condition of the complex. These are all out of your control.

I would recommend sticking with the duplexes and continuing growing that way. 

Hi Rick, thank you for the reply. I appreciate the new insight you have given me regarding condos. There are a lot of factors that aren’t in the owners control. I have been looking into ADU’s to see if I can possibly convert my garage.

[Christian Estrella]

Quote from @Theresa Harris:

You should be able to do 5% down on a duplex if you live in one of the units.  I'd avoid a condo if you can. While the mortgage payments may be lower and have a lower entry point, once you add in the condo fees...do the math as to how much extra mortgage you can get with that.  You could also look for a place with a legal suite and move into the suite.  Less space, but you'd still have a yard and short term, get further ahead by renting the top. Once your daughter is a bit older, move to the other unit...or back to the duplex you are in now.

Last summer when I was looking for a rental, I compared a higher end condo with a house.  Costs were a bit different ($250K vs $275K), but once I did the math the cash flow on the two was very comparable.  What's more, the difference was with the condo, more of the rent was going to the condo fees whereas with the house, it went to the mortgage.  I bought the house and it ended up renting for more than we expected.

Hi Theresa, thank you for the reply. I didn't really factor in the condos fees, nor the other HOA costs, assessments, and things that would be out of my control. I think I would rather put a 5-10% down payment and purchase another duplex to live in.

[Rick Albert]

Quote from @Christian Estrella:

Quote from @Rick Albert:

So I sort of did the opposite. I house hacked a condo and then bought a house and built out the ADU. A couple of things to note:

1) 1 bedroom condos don't typically appreciate as well as 2+ bedrooms.

2) You have a 1 year old. You are going to grow out of that condo quickly.

3) What's the difference between having a two unit with tenants next door versus a condo where the unit next door is rented out? I don't agree that you have better privacy. Walls are still shared and depending on where the unit is I would argue you have less privacy.

4) Condos are great for starting, but have its challenges. If there is a roof leak, yes the HOA typically handles it, but you still are at their mercy and schedule.

5) Things come up with condos like special assessments, rising HOA dues, and changes in the condition of the complex. These are all out of your control.

I would recommend sticking with the duplexes and continuing growing that way. 

Hi Rick, thank you for the reply. I appreciate the new insight you have given me regarding condos. There are a lot of factors that aren’t in the owners control. I have been looking into ADU’s to see if I can possibly convert my garage.

Good luck! I have an ADU now and love it. Depending on where you are, you might want to think about off street parking, especially if there is snow.

[Nicholas Coulter]

@Christian Estrella I would see if you can qualify for a 5% down SFH and do a room rental situation. Lenders wont typically be concerned with you going from a shared home to a single family and they will use the income from the unit youre moving out of to qualify for more money!

[John Alosio]

@Christian Estrella

Hey Christian,

Congrats on making your first move! You're already on your path to generational wealth through real estate. 

I would highly recommend trying to go with another muti-family house-hack. Use the owner-occupied loan products as many times as they will allow. This will boost your ability to scale much more efficiently in the beginning. Why not leverage your comfortability for a few short years in order to increase your portfolio with least amount of capital invested?
One issue that you need to keep in mind when going this route is "intent to occupy". Lenders will want you to justify how the new purchase will be a "lifestyle improvement" I.E. closer to work, more space (Growing family), + garage etc. 
If you buy a SFH next, you will most likely lose the ability to go back to low down payment options for any future investment properties.

For me personally, I made it through (2) duplexes before settling into our "starter home"(SFH) .

Purchasing a property every (2) years allowed me time to stabilize the property, add value, then refi out of the FHA loan. rinse and repeat.

Here's how it went down:

2018 #1 duplex FHA 3.5% down. My unit was 2/1 (1200sqft) Refied into conventional after 1.5 years
2020 #2 duplex FHA 3.5% down. My unit was 3/1 (1500sqft)
2022 #3 Single family home 3/2 (1400 sqft) with 5% conventional primary residence loan

hope this helps.

cheers!

[Christian Estrella]

Quote from @John Alosio:

@Christian Estrella

Hey Christian,

Congrats on making your first move! You're already on your path to generational wealth through real estate. 

I would highly recommend trying to go with another muti-family house-hack. Use the owner-occupied loan products as many times as they will allow. This will boost your ability to scale much more efficiently in the beginning. Why not leverage your comfortability for a few short years in order to increase your portfolio with least amount of capital invested?
One issue that you need to keep in mind when going this route is "intent to occupy". Lenders will want you to justify how the new purchase will be a "lifestyle improvement" I.E. closer to work, more space (Growing family), + garage etc. 
If you buy a SFH next, you will most likely lose the ability to go back to low down payment options for any future investment properties.

For me personally, I made it through (2) duplexes before settling into our "starter home"(SFH) .

Purchasing a property every (2) years allowed me time to stabilize the property, add value, then refi out of the FHA loan. rinse and repeat.

Here's how it went down:

2018 #1 duplex FHA 3.5% down. My unit was 2/1 (1200sqft) Refied into conventional after 1.5 years
2020 #2 duplex FHA 3.5% down. My unit was 3/1 (1500sqft)
2022 #3 Single family home 3/2 (1400 sqft) with 5% conventional primary residence loan

hope this helps.

cheers!

Hey @John Alosio thank you for the reply. I spoke to a lender which basically gave me an understanding of the "intent to occupy" and just like you stated, he told me that if I buy a condo I would probably be unable to buy another multi-family to house-hack. I think I would prefer purchasing the second multi-family to househack and then focus on getting a SFH to settle in with the family to be more comfortable. I do agree that I should take advantage of the low down payment options while I still can. Thanks for the input will keep you posted!