How Would You Allocate $20,000 for a House Hack?

Question

I'm planning to purchase my first investment property by the end of this year or early next year. My current plan is to use an FHA loan to house hack a 2–4 unit property by living in one unit and renting out the others.

By then, I'm expecting to have around $20,000 available to put toward my first investment for things like my down payment, closing costs, and reserves.

For those of you who have been through this process, would you consider that a reasonable starting point, or would you continue saving before buying?

If you were in my position, how would you allocate that $20,000 between the down payment, closing costs, and emergency reserves? Is there anything you wish you had budgeted for before closing on your first deal?

For context, I've been educating myself by listening to the BiggerPockets Podcast, practicing underwriting deals, and working with an investor-friendly real estate agent and lender. My goal is to be as prepared as possible before making my first purchase.

I'd really appreciate any advice or lessons you've learned along the way!

Austin Kolb · Answer

Thanks, I really appreciate the advice!

I'm trying to be very conservative with my underwriting by budgeting for vacancy, CapEx, repairs, and other operating expenses. For my first deal, I'm also leaning toward a more turnkey property or one that only needs cosmetic updates like fresh paint and minor renovations.

I like the "one bullet" mindset, that's exactly how I'm trying to approach my first purchase. I'll definitely check out Property Alpha as well. Thanks again!

Minho Lee · Answer

Austin, if you’re working with ~$20K total for down payment, closing costs, and reserves, the biggest thing is backing into a realistic purchase price.

Realistically, you’re probably shopping in the ~$250K–$300K range if you want to:

• Keep some reserves• Not be stretched thin after closing

If I were in your position, I’d:

• Target a price where your all-in cash stays under ~$17–18K
• Negotiate seller credits aggressively
• Make sure you still have at least a small buffer left over

If the deal wipes you out completely, it’s probably too tight. If you can close and still breathe a little, you’re in a good spot.

Ryan Spath · Answer

Austin,

Great question, you are thinking about this the right way! This is one of those “it depends” looking at your market I found 445 North Duke ST @450k. Lets assume you can get all closing costs covered and use the other concessions to buy the rate down to 5.5%. putting 3.5% down you would need $15,750 to put down, this doesn’t include any type of inspection you will pay for, and you may have to pay for appraisal out of pocket also, lets say these two items cost $1,000. You have now used $16,750 out of your 20k. So you have ~3k left to put in reserves. On this property using a 5.5% rate I have an estimated payment of $3443.23, ($7343 for taxes, 2,000 insurance and $$199.03 MIP) referencing rentometer it looks like you can rent the upper unit for ~1700, so you would be responsible for ~1544.21 of the mortgage, we also do not know if this is a separate metered property for electricity and water, also who pays for garbage.

The question now becomes is ~3k enough to have in reserves for a building that was built in 1900? In my opinion no, unless factoring in the above you can easily save aggressively with your day job.

For a general rule of thumb we want 3-6 months of mortgage in reserves so in this case you would want $~10k minimum.

Austin MacKay Childs · Answer

@Austin Kolb - hard to know whether it's enough without knowing details of your target property (price point, age, condition, etc...). Good rules of thumb are to set aside 5% of annual estimated rent for vacancy & capex each (so 10% total). Perhaps you have that covered in "reserves" already, but assume you have to eat those up front, especially vacancy. If it's not a turn-key property, budget out some funds for repairs.

When I got started, my business partner and I liked to say "we have 1 bullet". So we had to be certain the deal we pulled the trigger on would work. After 6 months of research, studying, and iteratively go through hundreds of zillow listings, we finally found one we had enough confidence in. It's ok to take that time, but you can speed up the process these days with more efficient analysis engines (checkout Property Alpha) and more widely available educational investor content. Hope you land that perfect deal like we did all those years ago!

Wale Lawal · Answer

@Austin Kolb

The $20k is definitely enough money to do a house-hack, but it really all depends on where you are buying and how the house is. For myself, I would want to ensure that even after buying the house I would have a couple of months left for unforeseen repairs, vacancy, etc. The one thing I believe people often fail to consider with respect to budgets is "all the small stuff." This includes maintenance, utilities, turn, and small fixes that may not be caught in underwriting. In this case a good deal with reserves will always trump an amazing deal with no funds.

Good luck!

Georgii Grigoriants · Answer

One thing I'd be careful with is the word "turnkey."

I've seen plenty of multifamily properties that looked turnkey because they had fresh paint, new flooring, and updated kitchens, while the expensive systems were still at the end of their life.

For a first deal, I'd worry less about cosmetic condition and more about the major systems that could consume a large portion of your reserves after closing.

Henry Lazerow · Answer

You can always wrap 3% of closing costs in loan on owner occupant deals to minimize cash out of pocket. For example offer $206k with a $6k credit. Things break and repairs can be costly so still you really want way more than $20k though to buy a multi unit. Maybe can do a small condo with that amount down.

Austin Kolb · Answer

I appreciate the advice!

That's a good point about preserving cash and negotiating seller concessions. I'll definitely keep that in mind when I start making offers. I'm also continuing to build my cash reserves between now and when I purchase my first property.

Out of curiosity, how much would you personally want to have saved before buying a 2–4 unit house hack?

Caleb Brown · Answer

Depends on price points. For a 200K it's doable. 500K it's tight. 750K not enough. You might be able to have seller pay closing costs so the money should be for down payment and reserves.