Looking to start in Real Estate with a duplex and house hack it
Member since 2023 · 1 post · 2 votes
Looking to start in Real Estate with a duplex and house hack it
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Jason WrayPro Member
Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votesLuis,
FHA can be a great tool to help you buy a home with less down 3.5% but it does come with certain guide lines. FHA is good for low income, lower credit and offers higher DTI ratios to accommodate. FHA is tough on a few things like "Chipped paint" any signs of chipped paint will stop financing and need to be addressed (Painted), Loose or missing hand railings, Water damage, Mold, Termites, Outdated electrical or any wiring that is exposed.
FHA will also stop you dead in your tracks if the appraisal shows anything that is considered a "hazard or safety issue" and must be fixed. You will also have an issue with floors not completed, holes or missing drywall, missing toilets, sinks, etc...
Most of it can be fixed but it does cost money if you allow the appraiser to go out to inspect and if any of the above is missing or damaged. The appraiser will mark the report "Subject to" and you will have to fix it and have the appraiser come back out to finish report which is called a "Trip charge" or cost more money.
Unless of course you decide to go FHA 203K but those can be a nightmare of wasted time and stressful. Most sellers do not want to deal with FHA 203K due to the timeline it takes to close but in a slow market its possible. You can use a co-borrower just make sure they have good credit and a (2) year work history of W2 income.
Try and avoid self employed co-borrowers because their tax returns typically do not show income and are full of deductions. Most self employed people think they make a ton of money which may be true but they "Never" show it on their Net profits because of all of the deductions and write offs.
Duplex or any 2-4 unit property is what you want to target since it offers you the ability to use 75% of the other units rents. Just make sure you have a rental agreement or lease in your name because you are required by FHA to have a housing expense in order to use the 75% of rents on an upcoming purchase. You cannot be living rent free or you cannot use the rents of the subject property to qualify.
5 Replies
- 2yJason WrayPro MemberBanker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
Luis,
FHA can be a great tool to help you buy a home with less down 3.5% but it does come with certain guide lines. FHA is good for low income, lower credit and offers higher DTI ratios to accommodate. FHA is tough on a few things like "Chipped paint" any signs of chipped paint will stop financing and need to be addressed (Painted), Loose or missing hand railings, Water damage, Mold, Termites, Outdated electrical or any wiring that is exposed.
FHA will also stop you dead in your tracks if the appraisal shows anything that is considered a "hazard or safety issue" and must be fixed. You will also have an issue with floors not completed, holes or missing drywall, missing toilets, sinks, etc...
Most of it can be fixed but it does cost money if you allow the appraiser to go out to inspect and if any of the above is missing or damaged. The appraiser will mark the report "Subject to" and you will have to fix it and have the appraiser come back out to finish report which is called a "Trip charge" or cost more money.
Unless of course you decide to go FHA 203K but those can be a nightmare of wasted time and stressful. Most sellers do not want to deal with FHA 203K due to the timeline it takes to close but in a slow market its possible. You can use a co-borrower just make sure they have good credit and a (2) year work history of W2 income.
Try and avoid self employed co-borrowers because their tax returns typically do not show income and are full of deductions. Most self employed people think they make a ton of money which may be true but they "Never" show it on their Net profits because of all of the deductions and write offs.
Duplex or any 2-4 unit property is what you want to target since it offers you the ability to use 75% of the other units rents. Just make sure you have a rental agreement or lease in your name because you are required by FHA to have a housing expense in order to use the 75% of rents on an upcoming purchase. You cannot be living rent free or you cannot use the rents of the subject property to qualify.
- Real Estate Agent · Austin, TX · Member since 2020 · 1k+ posts · 941 votes2y
Quote from @Luis Bencomo:
Hi,
I'm new to BP and Real Estate in general. I've been reading and learning a lot and decided to get started in this by buying a duplex and living in one unit while renting out the other. This would be in the Houston TX area or surrounding areas like The Woodlands, Spring, Katy...
However, I don't have a lot for a down payment so I would probably be buying with another partner. And, I wanted to get some recommendations for:
1) Best place to find duplex under market value2) Can I use FHA for these types of properties?
3) Would it be better to buy something off-market and fix whatever is needed or buying new construction?
Also, if anybody here has deals that they want to share and see if we can work together, I would be more than glad to link up.
I would really appreciate any recommendations here.
Hey Luis, I'd recommend finding an agent in Houston that knows house hacking. They should be able to refer you a lender that can walk you through ways to limit your cash to close.
For your specific questions, an FHA loan is probably going to be your best bet. If you are strapped on cash and have the ability to save a lot of money in the near future, a fixxer upper might be a good option. If you are not able to save a significant amount of money in the near future, I'd recommend something that is already renovated. If you want to do a renovation, ask your agent and lender about an FHA 203k loan. They allow you to roll in the renovation costs into the loan. It sounds great on paper, but is a big hassle to get it done. They should have more examples and experiences of doing them in the Houston area. Good luck!
- Real Estate Agent · Houston, TX · Member since 2022 · 135 posts · 84 votes2y
Hi Luis,
Great idea to house hack. It's one of the lowest risk ways to get into RE investing and a great plan. I am a real estate agent , investor and developer in Central Houston. I build duplexes for long term holds.
Send me a message and I'm happy to connect to go over areas to look in for your house hacking goals.
- Chris Kersey
- Real Estate Agent · Houston, TX · Member since 2021 · 10 posts · 3 votes2y
Hey Luis, welcome to BP! I am a real estate agent in the Houston area. I have two rentals that I house hacked and currently house hacking. House hacking is a great way to get started in real estate when you don't have a ton for a down payment, but after doing 2 myself there are a few things I might have done differently. Feel free to reach out if you want any advice.
- 2yRyan ThomsonBusiness MemberReal Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
Hey @Luis Bencomo! Great questions.
1. Don't spend forever searching for under value. If you are getting it at value and its reducing your living expenses its a huge win.
2. Absolutely although I would consider conventional bc they also have 3.5% down loans.
In Colorado Springs, we have a program that allows my house hackers to buy a house for $1,000 and the rest is covered with a 0% loan. The income limit is 160k! So most people qualify. See if there is something like that in your area. Then you could buy now before competition becomes crazy again and refinance when rates come down.
3. Buy what you can find and get into quickly!
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