All Forum Posts by: Jonathan Cai

Hi Thomas,

I see that you are interested in doing a house hack, a great strategy, indeed. Low down payment and reduce monthly expenses. From the scenario you described, the deals you've analyzed are all negative cash flow and you are expecting the market you are investing in has great appreciation potential. I would advise you to compare the cost of your current living and the expense you will be expecting after purchasing this property. If you are having less overhead then that should allow you to save your downpayment for the next deal at a faster rate. Since you are moving to a new location, is your income still the same? Otherwise, you should factor that into consideration. The goal of the house hack is to help you get started in REI and decrease monthly expenses.

Although, the ideal scenario is that you will be able to house hack every year. You can also look into selling the house after living in it for 2 years. The proceed from the sale will be tax-free and allow you to invest in other higher-performing properties. This can be a great alternative if the current deal does not cash flow even after you move out. Be conservative when estimating the appreciation, treat it as icing on the cake.

This is interesting, I am surprised that the lender didn't deny the approval after you told them that the intention of use is not feasible with the local regulation. From the information given, I think that at this point all your contingencies expired except the financing. You are trying to get out because it cannot be used as an STR due to the regulation. I would look at this situation in a couple of ways:

1) Does the deal make sense as an LTR? You can also ask them to underwrite as an LTR which may affect their decision

2) Can you be open about it to the seller and see if they'll let you out?

3) Can you get a new lender or loan brokerage just to issue you a denial letter?

4) If this is a conforming loan, you can try to get a couple of credit card applications in (they'll ask why you have additional hard inquiries) or buy a bunch of stuff and then return them after the denial. I have heard the story from my realtor that their client got denied right before closing because they maxed out their credit card for ordering furniture.

I see that you are trying to add an ADU to your property or consider purchasing a property and then adding an ADU to increase the income. There are a lot of variables when it comes to answering your question. The location of which part of the house you want to extend can greatly impact the cost of the ADU. The availability of the contractor and the holding cost of the project may affect your budget. You should definitely get a contractor and get an estimate from them. Did you consider making changes to the existing structure to make an ADU? For example, you can consider turning the garage or master's bedroom into an ADU which may significantly reduce the cost of building a new one. You already have a bathroom and existing plumbing in the master's so it can be an easier project. Lastly, have you checked with the local zoning whether it is legal to build an ADU? ADU can be complicated sometimes if you don't have the above information and some area wouldn't provide bank financing due to lack of comps.

Hopefully, these makes sense.

1: Your income from the rent is most likely to be covered by the depreciation, a tax term that defines the useful life of your rental property. It is considered as a phantom expense in tax law

2: This is very specific. Personally,  I have not encountered one that does not allow you to have any cash in the bank. You should consult with your loan officer in case they have some unique product.

3: Same as the first part, depreciation. The tax benefits are very well elaborated on BP youtube. You should definitely check it out.