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Looking for House Hacking Advice

Discussion in 'General Mindset, Motivation, Beliefs' started by MoreValue, Oct 24, 2018.

  1. MoreValue
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    MoreValue Contributor

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    Need some tips on house hacking for those that have done it.

    My Plan
    - Conventional 3.5% Loan
    - Location: Leaning towards Dallas Texas (thing I am not sure about).
    - Single Family Home for like 150k
    - 2 or 3 Beds / 2 Baths
    - Most likely Airbnb to start off seems like it is easier to get tenants, I might be wrong.

    I decided that I am going to get a lower down payment loan like 3.5% conventional instead of 20% and rent out part of it. I know there is PMI, but when I hit 20% I should be able to get rid of it. Which is why I chose conventional over FHA. I think FHA PMI (MIP) is for the life of the loan. Was hesitant for so long, because essentially taking mortgage like this is essentially "handcuffing me to my job". But I really got to do it, or I will be stuck living in my parents for life.

    I ended up choosing Single Family Home just due to the fact that, duplexes/triplexes are too expensive. Condo HOA would be poor margins.

    But with the house sales going down, prices should follow correct? Wait it off? I want the large metropolitan areas, but they too expensive for me. So closest I can get is like Dallas, TX or around there.
     
  2. Envision
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    Envision Platinum Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass Summit Attendee

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    Househacking is great. Now, lets get into the details.

    Why would you go single family when you could get a duplex? How much more expensive is the duplex? One thing to consider is the income from one of the units of the duplex can be factored into your debt to income ratio when getting financing allowing you to get a loan for more.

    One huge red flag is you buying in hopes of appreciation. Im not sure if you got that strategy from me or from someone on here because i have done what you are saying, buy at 3.5 allow the property to appreciate to 20 and refi. However, i believe those days are gone. Do NOT Buy For Appreciation. BUY FOR CASH FLOW when you are house hacking. And you need to ensure the property cash flows with you not living in it as I would assume you want it to become an investment property.

    Also single family is not ideal for house hacking, sure its possible but realize you're living with your tenants. All of my house hacks have been small multi family for multiple reasons...

    -Seperate your tenants from you
    -More doors = less risk (vacancy rate)
    -You can write off expenditures done on a unit you dont live in.
    -Rent out the other units plus rooms in your side of a multi family.

    Finally, the last thing and probably the saddest (for me atleast). Check the cash flow and your interest rates. With the interest rates going up im unable to refi my FHA without eating a loss on my cash flow so it appears that its no longer on the table. This relates to you in the fact that the interest rate you will probably get locked in at (with everything) will come to over 6% depending on your credit score. It will be harder to cash flow property with the mix of high interest rates and high housing prices in the current climate we are in.

    I expect a softening on housing price over the next 12-24 months.
     
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  3. MoreValue
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    Based on my searches, duplexes were always more money. Does my post imply that I am in hope of appreciation? When I hear the word appreciation, I am thinking of market value of the home. When I start off with 3.5 to go to 20, thats just me gaining more equity. Yeah, never really wanted to buy for market appreciation because I don't have too much control over it.

    Yeah, all about the cashflow. I do realize that SFH is not ideal, but like I said in the OP. Duplexes are too expensive. If I can find a duplex for a good price, I am ALL for it. Believe me I don't want to live with the tenant. What locations should I look for?

    I chose Texas because it is a good balance being somewhat metropolitan and lower cost. I don't see many other options. I do want Seattle, LA, San Francisco, New York, but it is near impossible for me to get started there.

    Not sure what interest rates are going to be for me, but my credit score is 784. Man 6% is high...I can't sit here and wait till I got 20% down payment...If I do get to that amount my cash reserves will be gone.
     
  4. CareCPA
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    CareCPA Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass

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    What do you mean by "duplexes are too expensive"? Is this on a per-door basis or a total cost basis?
    IF SFHs are $150k, and a duplex is $280k, but you can rent out the units for the same amount, then I would buy the duplex all day long. You can get more units at a lower per-door cost, while tying up fewer FHA loans (remember FHA loans are limited as to how many you can have).
    You get get up to a 4-unit on an FHA loan, if I remember correctly. Go as big as you can, as long as the numbers make sense.

    One of the main aspects of real estate is how fast you can build your portfolio. Managing one unit is a pain and it's inconvenient. It's a lot of "on call" for one small check a month.
    Managing more units is just marginally more painful. This is especially true if you have a property manager (you have to babysit the property manager whether you have 1 unit or 100 units, you just end up with more cash if you have 100 units).
     
  5. MoreValue
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    MoreValue Contributor

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    I was calculating SFH on renting out per room. I guess I view a mortgage pretty much like borrowing on margin for the stock market. Never took out that much money before. I just feel very handcuffed to my job. It doesn't pay great either.
     
  6. RayAndré
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    RayAndré Dare to differ. Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass Summit Attendee

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    @MoreValue double and triple check that you want to buy right now. We're at the top of the market.
    Are you able to wait a year or so?
    Things might be better then. (AKA, numbers might make more sense.)
     
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  7. MoreValue
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    MoreValue Contributor

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    I will be ready to purchase in like 3 months technically. Although if I wait, I will be in a much better position financially and might be able to put 20% down at that time. I just want to get started already.

    Yeah everywhere I look, everyone keeps saying it isn't a good time to buy. But who knows how long I will need to wait. A year, or 10?
     
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  8. RayAndré
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    RayAndré Dare to differ. Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass Summit Attendee

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    I was the same way...for a whole year. While I was abroad all I wanted to do was get started with real estate. Eventually I realized the people who already know what they're doing in REI had sold their assets and are waiting for the market to come down.

    So for now, I'm starting a different business.

    Patience.

    Real estate isn't going anywhere.
     
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  9. biophase
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    biophase Legendary Contributor I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    What is your goal here? To live in a SFH and rent out the rooms? I don't understand your question.
     
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  10. UnrealCreative
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    UnrealCreative asdfghjkl;kvjiad;lkdf Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass Summit Attendee

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    Beat me to it.

    Do you have a good picture of occupancy rate?

    If not, run it through AirDNA and get an idea of what you can expect in terms of price per night and occupancy. Dallas can't be a hurting market, but I don't imagine it as a booming tourist destination either.

    Something I'll throw out there many haven't considered.
    If you're looking for a way to live for free without needing to "house hack" specifically, you can rent a single-family from a landlord while subleasing the rooms.

    Of course, the main issue is you need to find a landlord who will allow this.
    Also since you don't own it, you obviously will cashflow less and won't get appreciation. Most of the time you'll break even while living in it.

    A buddy of mine has done this for a few years. In addition, he runs a local service business and takes a hefty tax deduction for running it out of part of the house.
     
  11. exclusives88
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    exclusives88 Silver Contributor FASTLANE INSIDER Speedway Pass Summit Attendee

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    I just moved to Dallas. It’ll be very difficult to find a duplex that will cash flow right now. Prices are high and with the high property tax, it can be very challenging.

    I’ve been eyeing south of Highland Park in Lower Greenville. There are a few duplexes there but still overpriced. It’d be interesting if those duplexes can be converted to a tri-plex.

    My hope is that the housing market will fall so that these duplexes will start making sense to buy.
     
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  12. MoreValue
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    First method, I wanted to do was just a Condo and Rent out room, but with HOA, cash flow would suck. So ruled that out. Next level up is SFH, to rent out rooms. But everywhere I go, people telling me duplexes/triplexes are better for cash flow. I can definitely see it, but couldn't find anything affordable in the desirable locations. Its like I save $1k for example, but house values go up by $10k in this time frame.

    I just want to get started in real estate ASAP, but apparently the market is "high" right now. Maybe I should hold off. But then again, it is all relative. Housing may be considered low today if compared to the future.



    Thanks for the AirDNA source, looks good. I want control, so I really would like to buy that sublease.

    Just watch, if I wait and housing ends up doubling... I also considered Denver, Colorado or Colorado Springs. But thats even more expensive...
     
  13. Envision
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    Envision Platinum Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass Summit Attendee

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    Yeah... they would be more money. But you'll make more money.

    Yes, your post does imply gaining appreciation because going from 3-20% equity in a time frame reasonable to build wealth would mean you are hoping for appreciation. Unless you meant holding it for 10 years while you and whoever you can live with will pay down your mortgage to get you to 20% equity while you buy at the top of a market.

    You keep saying it's too expensive but you havent provided a housing price range, rent prices, or any details to assist us in providing you accurate insights.

    My first house hack:
    157k purchase (duplex)
    7k down
    5k repairs
    current rents were $600/side with a mortgage of 1k all in(break even)

    3.5 years later
    285k value (appreciation)
    Refied FHA loan into conventional
    3k more put in for repairs
    another 4k planned on painting it.
    current rents:
    Side 1: $1075
    Side 2: $875

    Net cash flow: $1k+ per month.
    The return on investment is astronomical factoring in all things its over 800%

    Thats why im telling you to do something bigger than a sfh because you get benefits that are intangible in the short term but pay off big in the long term. (tax, appreciation, cash flow, net worth growth)

    And what do you mean by this, "I can't sit here and wait till I got 20% down payment...If I do get to that amount my cash reserves will be gone."

    Your cash reserves will be gone if you wait for 20% of a down payment through savings? Are you working? Do you know you cannot get an FHA loan without 2 years of work experience. Would you rather lose money owning real estate vs not owning any at all?
     
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  14. biophase
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    biophase Legendary Contributor I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    Give us a rundown on your numbers for a SFH.
     
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  15. MoreValue
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    MoreValue Contributor

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    I am checking Dallas, TX and having trouble working out the numbers now. Where is this location where you can purchase a duplex for 157k and then rent out $600/side?

    What I am finding is that these duplexes in Dallas are 200k for a HALF duplex... 3 Bed/ 2 Baths. That rent for $1,200. This is the low end. Sigh...I might have to avoid metropolitan areas.

    EDIT: I did end up finding a duplex at that price range now, but really run down places.
     
    Last edited: Oct 27, 2018
  16. Envision
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    Envision Platinum Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass Summit Attendee

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    The times passed. You cant find that anymore, its double like you said and thats because the market has changed.. Im interested in Bio's question too let us know the SFH #'s.
     
  17. biophase
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    biophase Legendary Contributor I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    I highly doubt he had made any calculations before making his post. His plan seems all over the place.
     
  18. MoreValue
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    So still using Dallas, TX as example.

    To give some perspective 1 Bed/1 Bath (Not Shared) about $600-$700.

    So if I do SFH, I will be sharing with people, which means my rent will much less than this. I would probably have to do about $400. I would get a 4 Bed/ 2 Bath SFH for example at 130k About. I will be living in one, so rental income is $350-400 x 3 = $1050-1200/month. This is pretty accurate because the entire home (4Bed/2Bath) is around 1200-1300. I don't want to give up on multi just yet. I might give the agent more time.

    Expenses Total $1108
    P&I $690
    PMI $106
    Taxes $246
    Insurance $66

    Cash Flow: $92-$192.

    Did not factor in Property Management, Vacancy, and Repairs. Utilities are tenant responsibility

    I am having a hard time thinking someone would rent a single room though. Most listings are for the entire home. Which wouldn't work, because I am doing FHA loan and need a place as well. I am thinking from a Renter's perspective and just wouldn't bother with renting in someone's room if I could get my own place for the above mentioned price. My other concern is at this low of a price point, does it attract the wrong type of tenants?

    Seems like the best scenario is Airbnb, but laws are changing a lot and will need to read up. I heard there are hotel fees are what not.
     
    Last edited: Oct 28, 2018
  19. Envision
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    Envision Platinum Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass Summit Attendee

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    Those numbers seem pretty similar to my first property. You're correct, it would not be ideal and unless you have 3 friends that are down to move in... i wouldnt do it. one vacancy or major repair would have you out of pocket and dealing with tenants. It depends on how you're looking at it though and what your goals are. You may look at it as a long term play and after a year move out and rent it out to a family for 1.5k/mo and you can cash flow $400/mo...

    That's not a terrible deal however with where the market is at and the current interest rate levels you are buying at a time that is not ideal.

    Another option you could look at is buying cheap houses in the midwest (outright) and cash flowing them... theres no appreciation but ive met multiple people from the forum that do this and have generated immense cash flow and wealth from it.

    Bio would know more on sfh though, i havent bought any as a disclaimer.
     
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  20. MoreValue
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    So was talking to the agent today. I asked her if it was a good time to buy? She said it is a great time to buy...Should I be wary? She has good reviews though.

    What states do you mean by Midwest? No appreciation because nobody wants to live there, I’m assuming.

    Will still continue search on duplex deal.
     
  21. Brian C.
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    Brian C. Rolling Thunder Read Millionaire Fastlane Speedway Pass

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    Any agent is going to say it's a good time to buy FYI, although I think it is as well.

    Here in MA, things have shifted significantly to buyers in the past 5 mo. Homes are sitting on the market longer, more price drops, less bidding wars.

    Interest rates are shooting up - quick. We'll be well into the 5's next year based on how things have been going. It's going to reduce the potential buyer pool, for sure.

    If I were to buy, I'd buy between now and the spring market. That's when it'll pick up again, although there's going to be a TON of confusion. Sellers are going to be using comps to justify their pricing from a year ago (when the market was at its peak: Spring 2018). I think they're going to have to come to terms with the market not being as hot as it was back in 2017- early 2018.

    Just out of curiosity, what conventional program are you going with that only allows for 3.5% down? I've heard of two programs where you need to put only 3% down that aren't FHA (you have to take a class), but I'm not familiar with any 3.5% conventional program.
     
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  22. Envision
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    Envision Platinum Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass Summit Attendee

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    Real estate agents are about as useless as any thing I can think of and almost all of them I’ve ever met are complete morons. She’s using you for a commission... anytime is a great time for you to buy when she can get paid off of you.

    I’d find a new agent that specializes in investment properties
     
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  23. DustinH
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    :rofl::rofl::rofl::rofl::rofl::rofl: Of course she said it was a good time buy because she wants to get paid.

    But to be fair to her, she is probably assuming you are in it for the long-term so that means any time is a good time to buy. It's a question of where to buy.

    If you talked to the listing agent then she's really even more incentivized to get you to sign papers and buy it. Just remember who is working for who.

    I would find a buyers agent to work on your behalf. I would look at all duplexes listed in the area you want to buy. Pick the 3 agents who list the most (because they will have insight on what is coming soon into the market). Interview them and eliminate the two that are least trustworthy. The most trustworthy one is the one who tells you the facts of the situation, not the ones that tell you what you want to hear. An agent that knows the due diligence process and explains it to you is someone you should look for.

    We're not all useless morons. I would say about 97% of us are. I like to think of myself in the 3% minority. :rofl:
     
    Last edited: Oct 29, 2018
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  24. No Excuses
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    Have you read Craig Curlop's from Bigger Pockets latest house hack in Denver? If you are single I think buying a SFR and renting out the rooms is the best and easiest form of house hacking vs a multiplex which you are competing against investor money and is typically more difficult to get a loan for a newbie.

    He is living for free while cash flowing about $1,100/mo

    - He purchased a 4bed/2bath for $343k
    - 5% down ($17k)
    - $13k in rehab, creating another room
    - all in for $30k

    The numbers on the 5bed/2bath

    - $2,000/mo payments (PITI)
    - rented out 4 rooms for $3,100/mo
    - Sets aside $400 for reserves and cash flowing $700/mo

    How I Found & Financed My Second House Hack in the Hot Market of Denver, CO
     
    Last edited: Oct 29, 2018
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  25. No Excuses
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    Fannie Mae offers a couple that only require 3% down. The 97% LTV and the Home Ready loan.

    https://www.fanniemae.com/singlefamily/mortgage-products

    Big banks like Wells Fargo, BofA, Chase, etc., have also have introduced conventional 3% down payment programs.

    Low Down Payment – Conventional Mortgage – Wells Fargo

    Low Down Payment Mortgage - Affordable Loan Solution® from Bank of America

    Types of Mortgages | Home Lending | Chase.com
     
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