All Forum Posts by: Lawrence Potts

Hey @Ashton Aaron Young, that's a really good question. As far as I know, it is not normal for appraisers to use comparables from two different asset classes. Typically you should only see SFR's being comped with SFR's. You might see something where they'll take duplexes that are larger or smaller that have sold recently in a mile +/- radius from the subject property or even triplexes that are closer to size and make adjustments to them to accommodate, but my bet is that is a last resort measure. The only other ways to determine that an appraiser may look at are:

1. the performance of the property (income).

2. how much it would cost to build new.

I know these don't necessarily help you out, but I would always error on the side of caution in these types of situations and measure the way an appraiser would measure value. Because if you do end up buying this and an appraiser is needed for acquisition lending or for refinancing, you don't want any surprises because you used bad comparables that skewed your numbers.

Hey @Maurice W. Evans,

Typically you can use FHA to owner-occupy a 3-4 unit property. I would double check with the city or county as far as what limits FHA has on acquisition. FHA has limits on how much they will lend you on properties depending on the number of units. The more units the more they'll lend (up to 4 units). This could change your search a bit.

Always consider your location since that is the only thing you cannot DIY! Some members mentioned close to subways, etc. All important things to consider. Just be in the shoes of the tenant and determine where they would want to live long term and what amenities they'll want to get them to sign your lease.

Even if you can't cashflow or break even, it is significantly cheaper than renting. Any way to reduce your expenses is a great way to make money if you take that net savings and reinvest it. If you're mortgage is $5,000 and you can get $3,000 in rental income, your out of pocket is $2,000, and that's a lot cheaper than $3,000 plus you're gaining equity and appreciation, you can depreciate the units that are renting on your taxable income, the write offs you can get for any repairs done on the rented units, and the principal paydown. On top of that, you can refinance down the road or sell. You have options and choices when owning.

Hope these pointers help you out. Best of luck out there! Post on here what you find and if you have any other questions, we are all rooting for you. 

Hey @Justin Haughton,

Typically hard money lenders will not lend to owner-occupied situations. You'll see that more with BRRRR's and Flips. High interest rates, interest only, it's designed for acquisition and incentives borrowers to sell or refinance quickly. On a 3-4 unit situation, you'll have to go FHA. This is great because you only need 3.5% down! PMI is pretty pricey, as soon as you are in the 70-75% LTV range, I'd refinance to a conventional.

We bought a 4plex here in Oregon back in August of 2020. We got lucky when we closed since it was right before the market prices in my area started going nuts. We used FHA with 2.75% interest rate and we went a few thousand over asking and asked for closing credit. Because all of the units were vacant, the self-sufficiency test used market rent rates. The mortgage was about $1800-1900 so we were fine.

The self-sufficiency test is a difficult hurdle to get over though, especially if the tenants living there are significantly below market rent. In this situation (as you should in almost all deals) see if the sellers would consider seller financing the property. You may have to give a little (sweeten the pot for them since they feel they're having to compromise with a seller finance request). But it mitigates the financing hurdles you'll find in traditional financing.

Even if you find something that doesn't completely cover your mortgage (a duplex, a home with an ADU, etc.), you're still winning big, and even more than you would if you bought a non-owner occupied rental that cashflows.

1. You're replacing your living expense and leveraging it through rental income. If you're mortgage is $4,500 but rent is $3,000 for your other unit in this hypothetical duplex, your net payment is only $1,500. But that is a huge savings compared to renting, you're cutting your cost in half. And you have to live somewhere. So why not try to find a way to reduce the cost of the most expensive living expense? The best way to look at it is like you are giving yourself a $1,500 raise. Live like you pay $3,000 and reinvest that $1,500 into yourself or save it for another duplex.

2. Tax incentives. You can depreciate 50% of that living space since it is being used as a rental! That's a huge help in offsetting your taxable income. Plus any repairs or maintenance can be written off as well (for that unit).

3. And you're having your principal paid down every month partially by your tenant.

It may be hard to find a 3-4 unit that you can owner-occupy in Southern California, but if I were you and were in a position to where you can house hack, I wouldn't dismiss duplexes or SFR's with ADU's. Live in them for two years and sell them if there's no way they can cashflow them when you move out and reinvest that profit into a cashflowing property. Even if you don't cashflow, the equity and appreciation might be more profitable than the cashflow in your market.

If you could profit $40,000 tax free (since you lived in it for 2 of the most recent 5 years in this hypothetical situation), how much cashflow would you need per month to net the same amount? If you netted $250/door, that's $500/month, that would take you 80 months, or 6.67 years! Then deploy that profit into a commercial property, partner with someone on a larger multifamily, or buy another house hack.

Cashflow isn't bad, but in your market, make sure you are looking at all different angles to see what makes sense to you and your situation.

I hope that helps and answers more questions and doesn't complicate things more. Let us know how your search goes and if you find anything!

Hey @Petya Toncheva,

Initially I would say bedroom. In my state, it needs to be at least 70 sqft, no wall shorter than 7 feet, a window, closet, door, and 50% of the ceiling height needs to be over 7 feet (for all of those attic conversions we see). If your neighborhood is supporting higher comp values for 4 bedroom homes at that size, then that’s a clear indication to go for it. But some homes may not function as well as a 4 bedroom if it’s not fluid, it’s an awkward location, sqft of the house doesn’t support it, etc., and if your target audience or buyers in your neighborhood are middle/upper class, own their own business and need an office, etc., they may desire that more and comps will reflect that.

Most MLS listings categorize offices/dens/bonus rooms all together and is often overlooked or missed on Zillow, Redfin, etc. But that's my local MLS. I would look at your neighborhood of what's sold in the last year and just see what they were offering and go from there. I think you're less likely to be in the wrong with another bedroom.

Hope that helps!

Hey @Matthew Phillips, all good questions.

Typically hard money lenders are for short term financing solutions, they are not long term solutions. You would use hard money to acquire the property and then would refinance with conventional financing because hard money is very expensive to have but it is quicker to use to get a property. You’ll typically see house flippers use hard money.

If you want to owner occupy this, you can utilize FHA 3.5% down payment. Now you'll find yourself running into some hurdles, they'll want to see work history, paystubs, etc., to make sure you can make the payments. They'll want to see that your credit score reflects that as well.

I highly recommend reaching out to @Grant Schroeder, he’s an expert in owner occupied multifamily and has helped a lot of people start house hacking. 

I think it’s doable but you’ll probably find yourself needing co-signers and some assistance.

There are down payment assistant programs out there. Some are based off of income, others are for Native American tribes, etc., but typically they are grants given to cities/counties by the state. A good lender is always going to be looking out for these kinds of programs and will know if you qualify for them. I utilized one for my first purchase and it was game-changing. If you can qualify, I highly encourage to pursue it.

If you go through traditional financing, my understanding is that lenders will disqualify you for a mortgage if you’re going to use credit cards to use as a down payment. I think hard money lenders will not care, but traditional lenders will see that as highly risky and will reject your application. Always ask a good lender 👍

Lastly, private money is super helpful if you can get access to it. It takes a while, you have to network with a lot of people. My advice is to get plugged in to local real estate investing groups and:

1. Learn as much as you can. Ask all questions. Reach out to people. Read as much as you can. Take action everyday to learn something new.

2. Provide value to other people. Don’t expect anything in return. See how you can help. People like helping people that help them.

I hope that helps you out. Also note that sometimes it’s difficult to buy a multifamily for owner occupied buyers if all units are rented out because of eviction rules. Sometimes it takes 90 days to evict, and that may come in conflict with lenders as most want you moved in to the property within 60 days. And most sellers are not willing to go through an eviction process before closing because of the risk it might cause them. I’d love to hop on the phone with you and go over some other things about house hacking and the Newberg market, connections, lenders, etc. 

Keep posting! It makes everyone better 💪

Great article! Thank you for sharing 👍

Hey @Carlos Ventura, appreciate you asking this. Nothing wrong with starting out with a BRRRR. My first home was a BRRRR that I house hacked. Never made it to the refinance part, we sold it and are now house hacking a 4plex. I wouldn't say no to starting with a BRRRR. No matter what strategy you do, you're going to be green and stuff will come up unexpectedly.
House hacking is great because you are leveraging your living expense and can get started with very little (3-5% down payment). Here’s some advice I would give:

1. House hacking will force you to learn some trade skills unless you want to pay premium for renovations/rehab. If you can do it yourself, you’re going to save a lot. But if not, you pay for a good quality contractor, and that may mean you have to wait for them. Don’t go cheap, don’t cut corners. I recommend all first time investors to do this, it’s not for everyone, but you lower your expenses and you learn a lot more this way. You may find out you don’t ever want to swing a hammer again, or that you are pretty good at it and want to do it again.

2. If you can’t find something to owner occupy, find someone who has experience, a mentor, and partner with them. The amount you’ll learn from that deal will be more than any book or podcast episode will teach you. Even if you don’t make hardly anything from the first deal, the value you’ll gain from this partnership is worth a lot more than you’ll recognize. It can develop network opportunities, great relationships, better reputation, and more deals down the road. Don’t be greedy, be hungry to learn.

3. Be Ready to Pivot. Sometimes deals change unexpectedly or something comes up that may require you to shift gears and look at your deal differently. As mentioned earlier, my first deal was going to be a BRRRR and I saw a 4plex on the MLS and took my shot because I wanted to househack and save money. I went from paying $1250/month + utilities to earning a few bucks and refinancing +$70k after a year of owning the 4plex. Just be ready and always look at multiple strategies with a deal. You may find that you need to bring on a partner, or that it makes for a better flip, or you want to wholesale it. Just be ready. Cashflow will come, it just may be through a different deal.

Hope that helps! Let us know if you find anything or go under contract on a deal 👊

Hey @Vincent Lattuca, that’s a really good question, but it also depends on what you are looking for too.

I currently house hack a 4plex here in Oregon. I used a spreadsheet I made myself to calculate a "good deal". Looking back over the last 2.5 years, I under estimated rehab expenses. It's almost double what I had though. But the greatest number I miscalculated was time. I thought I'd be able to rehab all units within a year while working full time being married and running a side hustle. I am still rehabbing as of today. Stuff always comes up. It's an older home, built in 1890. I was spot on with PITI, PMI, etc., but I was way off on rehab. To be honest though, if I had known the true numbers, I might not have gone for it and would have missed out on a life changing deal. Despite my shortcomings, this property lets me live for free every month and have grown my net worth significantly over the last two years. I have equity that I can utilize in other deals and learned a lot of skills in trades, negotiating, networking, and personal development (lots of patience). This is where analysis paralysis kills. Run your numbers conservatively but just always expect things to change and be ready to pivot. But also consider everything else real estate gives you and try to quantify it and see if the deal makes sense for you. I highly encourage house hacking 💪👊 let us know if there's anything else you need, we love questions!

Hey @Michael Fung, thanks for posting! It seems everyone seems to have a problem with finding quality contractors….if you have the means to float holding costs, I say get it under contract. Once it’s under contract, you are not competing with anyone else and now you have options. Maybe you are able to flip the contract to someone who has contractors and are looking for a deal. Maybe you hold on to it until you find the right contractor. Maybe you swing the hammer yourself and learn some new skills and meet new people in the trades? Or you bring on a partner with lots of experience and has connections to contractors to get the flip done. There are a lot of options. Consider the worse case scenario of purchasing and see if you can create a plan out of it. If it seems too much for your goals and your capital, you should pass. But if you feel you can overcome it, then go for it. Chose your hard, but be wise. I always encourage to bring on partners and be generous. Maybe you won’t make as much compared to if you did it yourself, but the relationship is worth its weight in gold and could lead to more deals down the road. Don’t be greedy, provide value. Maybe your value is bringing this deal to someone? Best of luck, let us know what you decide to do! Hope this helps.

Hey Ansar, vey happy to have you here! 

@Grant Schroeder and I both went to school at GFU and Grant has quite a few investment properties in Newberg. There are opportunities out in that area, it really depends on what you're wanting to accomplish. But house hacking with FHA is a great strategy, especially if you're young 👍

You’re definitely not way over your head. I got started a year older with less cash and not making as much as you. 

I highly recommend talking to Grant to go over loan products, he’s got experience in the area, loan products, and multifamily. 

Don’t hesitate to ask questions on here!