House hackers: are you planning your financing past deal #1?

Question

I got started investing through house hacking and did multiple owner occupied purchases. Now that I'm on the mortgage side and work with a lot of house hackers, one thing I've realized is how little people think about financing deal #2 and #3 when they're buying deal #1.

Everyone focuses on "how little can I put down?" which obviously matters.

But I've seen the bigger issue come later.

How will you qualify for the next property?
Can you use rental income from the house you're leaving?
Will your DTI still work?
Did you actually meet the occupancy requirements on the current loan?

I've even had someone try to buy their next house hack before a year was up and underwriting really scrutinized the file because of how recently they purchased their current primary.

House hacking is still one of my favorite ways to get started investing and building wealth. It's how I started. But if your goal is to repeat it, I think you should be planning ahead once you get that first one closed.

Curious for people who have house hacked multiple times, what became the biggest hurdle when you went to buy the next one?

Michael Eskenasy · Answer

I think this is exactly right, and I’d actually push it one step further.

Deal #1 should be underwritten partly based on what it does to your ability to buy deal #2.

The lowest down payment isn’t always the best financing decision if it leaves you with a payment that crushes your DTI or drains the reserves you’ll need six months later.

The other thing people underestimate is how different “this property rents for $X” is from “underwriting will give me credit for $X.”

Lease history, tax returns, current occupancy, how long you’ve owned it, and the loan program can all matter.

If the goal is three house hacks instead of one, I’d map the financing path for all three before buying the first one.

You don’t need to predict everything. You just don’t want deal #1 accidentally blocking deal #2.

Amber Stout · Answer

@Joe Pless Congratulations on your first house hack. That's exciting you're looking into purchasing your second. That was a concern/challenge for me as I was buying my second house hack. Did you use an FHA or conventional loan for your first house hack? Happy to discuss further based on your specific situation.

Aiden Avtgis · Answer

I’d add to this that it’s important to cash flow each individual purchase, but you also have to look at how the portfolio is going to cash flow as a whole.

That thought process really needs to start with property #1. It’s not just, “Can I qualify for this house?” You should also be thinking ahead about how this purchase is going to affect your ability to buy #2, #3, and so on.

Overall profitability aside, I really like DSCR loans for the refi as investors start building a portfolio with non-owner-occupied properties. You’re qualifying based on the documented cash flow of the property rather than primarily on your personal income and DTI, which can give you more flexibility as you continue to acquire.

There’s a lot of value in looking beyond what works best for you personally today and thinking about what property type will make the strongest long-term rental when you’re ready to move on to the next one. You want each property to help set you up for the next one if you plan to go from buying a property to actually building a portfolio.

Wale Lawal · Answer

@Amber Stout

I totally agree that house hacking is very effective; however, the first purchase must be structured in such a way that deal number two is already in mind from the beginning. The DTI ratio, seasoning, occupancy, reserves, and what would make the rental income from the leaving property qualify would definitely make a major impact.

Good luck!

Joe Pless · Answer

I have an FHA, I think I  can only have one FHA at a time. It is currently under my name, I was thinking of putting it in my LLC. I'm not sure if the bank will call the loan due if I put it in a LLC.

Joe Pless · Answer

I am on my first house hack and nearing the one year mark. It has crossed my mind how to aquire my 2nd. I am not sure how to move forward.

House hackers: are you planning your financing past deal #1?

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