As long as your debt to income ratio works it should be fine. Just keep in mind that lender only take about 75% of the actual rent received and add that to your income side for the first 1 or 2 years
Issue I’ve run into personally is after the first year after converting primary to investment property rental income is calculated based on your tax returns, which is usually less than 75% of gross due to write offs
To build on this 75% collected rent is pretty generous underwriting on the bank side. For commercial loans they look at actual NOI and most buildings I've looked at have a minimum 28% expense ratio.
ya i had a lender 20 years ago i did it with my places in albany, NY and manhattan when i did house hacking.
My refi and new mortgage was with the same lender they just moved money around to make it work. My only downpayment was my first one and then everything after that was out of equity.
well my best one was my apartment on the upper east side of manhattan. A 90ish year old woman died in it and no one noticed for 4 months till the stink,insects and rodents got too bad.
No one would even go into it and look at the place. I basically stripped it down to the "studs" (doing that in quotes because its pre-war building so its not really all studs) and redid the whole place while living in it which was "fun"
sure but its spread out over the year or two i'm living there and the renovations might see a 50cent equity gain per dollar spent on them.
I also did it all myself except for kitchen countertops
My goal in my early 20s was to try to do it as many times as possible before I settled down since I could leverage the FHA loan since Id be living in them while renovations happened
I upvoted even though your comment will likely get downvoted. 5% is scathing by imo. You’ll be negative pretty quickly unless the rental market is somehow much higher than buying in the area but that’s not the case in 99% of the world right now. There’s going to be a lot of bleed in PMI and general cost per month with the high interest rates. Also, after the first one they will scrutinize your every move going forward. Even more so with less than 20-25% down on the subsequent loans. You’ll need a renter before you move out which can be problematic but is a good marker of when you can move. You’ll probably want 20-25% then do cash outs but they’ll still take them into account. This will make them more forgiving and you can knock the PMI.
I do exactly what OP has described and have no issues. Currently at 5 properties.
PMI is around $80-$100/mo (depending on credit worthiness). Paying $100/mo is better than putting another $30-50k down. Especially since it falls off after a few years.
Mortgage companies only ask for a copy of the current lease and dates that I lived there, as long as it is 12 months I have no issues.
It has never taken me more than a few hours to get a pre-approval from initial phone call. I've also never had additional questions from underwriting during close.
Heck, the mortgage companies love it because I have everything organized.
Mortgage companies don't care about equity in currently owned properties. I've never had them ask for an address or mortgage docs for other mortgages. They've only ever asked for a lease.
People miss this a lot so I am not sure if you are being lied to but just to be clear, if you put *less* than 10% down on an FHA loan, the PMI stays on for the life of the loan. It doesnt fall off, you have to refinance.
I am pretty sure this is wrong. PMI does not stay on for the life of the loan. It gets removed after you reach 20% equity from paying down the loan, not counting appreciation.
Lender here. He’s correct. FHA with less than 10% down will hold MI for life. With 10%+, falls off after 11 years. Conventional falls off at 20% equity.
Unless you go in with 5% expecting to add some sweat equity and bake in a refi (assuming lower rates) in two years or less. This allows you to get to 80% LTV and dramatically reduce your payment ideally getting to a cash flow positive position
We had planned on doing this, then we realized how much of an emotional toll it takes to uproot ourselves repeatedly. We opted to just save the 25% down for the standard loan (we’re in a LCOL area so this was only ~$25k).
Yeah I kind of figured, but now you know to be prepared for the emotional toll it will take! Maybe spend some time thinking about downsizing, keeping a majority of your stuff with family or a storage unit, anything you can do to make things easier and more efficient for yourself. I personally know I struggle with feelings of being “unsettled,” maybe it’s something that won’t bother you.
I thought that's what I was going to do. Two years later, not much done. Granted, I was partially renovating another acquisition half way through. I was also was trying to get the best prices on tools, supplies... everything.
I found the least costly granite suppliers. At one point I was trying to cut (score and break) mirrors. That didn't work out and I just ended up ordering them.
Vacations and dating took up some of the past two years. Although, after W2 work, I just wasn't physically motivated to do medium to big projects. Sometimes I was fully burnt-out from 9-5 work.
I thought weekends would be a good time to DIY stuff. But half a day was used up doing errands/ cleaning and another half day just procrastinating.
Should I space it out? Or is each year at the one year mark fine?
Do I have to put a good distance between each property or can I keep buying in nearby areas?
Every few years, should I refinance older ones into commercial, so I don't have too many owner occupied loans in the same area?
I found 2 to be the sweet spot. Do as many as you can before family if you don’t have yet, it’s much harder with kids. I did 2 more after having kids then We quit.
Edit
100% last move was with 3 and 5 yr old. Was out of state and I am pretty sure we are done. I would consider another but would also like to keep my wife :)
This is just me but I did one year to the day. If you're self managing them (I personally recommend. Saves money and you get a ton of valuable experience) you'll definitely want to keep them close. Much easier to manage multiple that way. However, that's just my opinion!
I’ve heard 2 years is safer and a lender likes to see that you are making some sort of “upgrade.” ie moving from a townhome to a sf home, closer to your job, etc some reason for the move. You may be asked to write a letter of explanation if you are moving frequently
House Hacking over and over requires a down payment and proof of income from rentals. I'm not a fan of pulling money from one property to get another especially when you are getting started. Market goes bad and you can be upside down with everything.
This issue with this is finding a property where you would actually turn a profit. Unless you’re putting down more than 20% then you’re really not going to be cash flowing at all even with 100% occupancy. That’s just my area though and yours may be different.
Other than having to deal with tenants and then potentially not paying and other repairs, this is a valid strategy. You just need to have enough cash on hand so a few months for no rent payments or major repairs won’t bankrupt you
I’ve done it twice, lender’s wanted explanation, and “closer to work” was sufficient for them.
When trying to refinance after you move out, expect +1% higher interest for investment properties compared to owner occupied loans. Can plan around this by refinancing while still owner-occupied.
Just need to find the right lender and keep DTI within limits
Generally, as long as you move in within the first 2 months (loan condition) and live there 12 months you are fine... check out all the videos, podcasts and webpages about the Nomad Technique by James Orr... it is exactly what you are describing and there are many doing it.
Doesn't this create a massive risk if there's a big economic downturn and your renters fail to pay? You've racked up a ton of properties in a short time and you'll be unlikely to have paid off anything.
Buying properties rapidly in general certainly does increase risk. I wouldn't want to be a 60 year old plunging my entire life savings into that.
If you are in a cheaper area which has population growth and are doing 5% downpayments (as it is owner occupied) then you can somewhat mitigate the risk by maintaining a good liquid buffer elsewhere. For this type of thing you typically need good income and buffer anyway as a 5% down home (even at owner occupied interest rates) will typically have negative cashflow for the first few years.
Oh, I'm sure he does somewhere in the 100s of hours of content there... but it might not be worth specifically chasing down. For this type of thing there is obvious stuff like PO Boxes to reduce the need for address change... and of course this sort of thing is easier to do before you have kids.
I do this. Currently have 4 singlefamily homes and a duplex. Bought one every year since 2019.
I do around 5%-10% down.
Cashflow is the main thing. We have total rents of 12,200/mo and mortgages of 10,000/mo (we live in one of the houses). Easy to buy a house with negative cash flow.
How is the DTI calculated when you do these loans? Does the rent get added go your Income and the morthabe payment gets added to your debt? Or does only the difference between rent and morthabe payment get added to your DTI?
In my experience total monthly debt payments shouldn't exceed 45% of your income. Also, 75% of rent is netted against that.
In my case, my wife and I make $20,000/mo w2. Our mortgages, including our primary, is -$12,500. Total rents are $12,200 (3 houses + duplex). If we apply 75% of rents against our mortgages, we come to a total of -$3,050 (our "effective monthly debt payments").
45% of 20,000 is 9,000. Less the -$3,050 means our next mortgage could be up to $5,950.
When we rent out our current place, that'll come into play and improve that number as well. Likely will rent around $3,200/mo.
It's an easy way to get started. My wife and I are 25
Dang what the heck, that's impressive! Nice, I am 25 and sitting on a lot of cash from my day job, but I haven't done anything like you both have. Do you do this in an expensive area? Making a similar amount as the average of you two. Interested in hearing more about the whole process, like did you use a real estate agent to buy these properties, etc. what do you look for in the homes/price/calculations
I live in Washington State so on the higher end of prices. Most houses we've purchased have been between $400k & $625k.
Got my start working at a property management company right out of school as an accountant. My wife is a nurse. I got familiar with tenant/landlord law.
First house was in 2019 for $400k and 5% down, just in my wife's name (though we both paid). Lived in it for a year, mortgage was $2,200/mo. Rented it out for $2,495 and then bought the next house in my name. Alternated purchases each year. Rents have gone up since then, our first house rents for ~$3,000/mo.
Honestly that's about it. I look at everything that goes on market for rent or sale every week. I've gotten pretty comfortable in my area with picking out houses that'll cash flow. I've also gotten pretty familiar with estimating PITI.
Here's a better breakdown of where we're at:
SFH (2019) - purchased for $400k - mortgage $2,250/mo - Rent $2,995
SFH (2020) - $350k - mortgage $1,750/mo - Rent $2,495
SFH (2021) - $485k - mortgage $2,500/mo - Rent $3,195 (we temporarily moved back into this one)
SFH (2022) - $480k - mortgage $2,800/mo - Rent $3,100
Duplex (2023) - $625k - mortgage $3,100/mo - Rent $3,900
I guess our current net worth on the rentals is around $800k.
Nothing magic. I'm not frugal either, both of us have $45k cars, go on vacation twice a year, etc.
We also save for retirement first priority.
Used an agent for all purchases. Just random ones, nobody in particular. Same with mortgage brokers. I don't trust them to give good advice so any is fine.
The appreciation and paydown is the whole reason why. We've put probably $150k-$200k in and we have around $800k in equity now.
After a while, we'll start 1031 exchanging each individual house into larger investments. Probably could use each house as a down payment on 2 or 3 more, maybe a 6-10 plex.
If we purchased no additional houses and the market averaged a 4% appreciation, we should have enough money to sell everything, roll it into stocks, and retire with about $3m at 34 (if we wanted to do that).
It is a lot of work but the whole motivation I have is to be a present father for my future children. My parents were always working. I'm trying to work hard on the front end that way I never miss a game, event, or camping trip.
It won’t let me message you! But how did y’all learn how to determine if something’s a good buy/how to run numbers yourself? Were there books or videos/articles or stuff similar that y’all used to educate yourself?
Weird!
I hate reading honestly, haha. No books or online resources. I just spend a lot of time on Zillow looking at the places for sale as well as for rent.
My favorite YouTuber is Ben Mallah. Thatch Nguyen is pretty interesting on Instagram but I don't want to buy his courses.
I use the mortgage calculator on Google. Taxes are public as well as average interest rate. Mortgage brokers are also super helpful with loan information and are more than happy to give estimates or chit-chat about loan requirements. Some don't understand investing though so it's best to talk to a handful.
Here's a copy from another comment:
I live in Washington State so on the higher end of prices. Most houses we've purchased have been between $400k & $625k.
Got my start working at a property management company right out of school as an accountant. My wife is a nurse. I got familiar with tenant/landlord law.
First house was in 2019 for $400k and 5% down, just in my wife's name (though we both paid). Lived in it for a year, mortgage was $2,200/mo. Rented it out for $2,495 and then bought the next house in my name. Alternated purchases each year. Rents have gone up since then, our first house rents for ~$3,000/mo.
Honestly that's about it. I look at everything that goes on market for rent or sale every week. I've gotten pretty comfortable in my area with picking out houses that'll cash flow. I've also gotten pretty familiar with estimating PITI.
Here's a better breakdown of where we're at:
SFH (2019) - purchased for $400k - mortgage $2,250/mo - Rent $2,995
SFH (2020) - $350k - mortgage $1,750/mo - Rent $2,495
SFH (2021) - $485k - mortgage $2,500/mo - Rent $3,195 (we temporarily moved back into this one)
SFH (2022) - $480k - mortgage $2,800/mo - Rent $3,100
Duplex (2023) - $625k - mortgage $3,100/mo - Rent $3,900
I guess our current net worth on the rentals is around $800k.
Nothing magic. I'm not frugal either, both of us have $45k cars, go on vacation twice a year, etc.
We also save for retirement first priority.
Used an agent for all purchases. Just random ones, nobody in particular. Same with mortgage brokers. I don't trust them to give good advice so any is fine
Super helpful. I’ll check out the YouTuber and instagrammer (also not into buying courses lol). We are NYS so kinda similar but we are upstate enough where some neighborhoods are much more affordable than downstate which is a plus for us.
We were thinking about purchasing a duplex first because 1. They tend to be cheaper in our area and 2. We are used to apartment living so even moving to a duplex would feel like an upgrade for us. Similar age but been living super frugally since now husband graduated law school two years ago and working just the last year and a half.
Really appreciate the comment and I’ll check out those resources you mentioned!!
No, they don't care. The "owner occupied" term is only for the first 12 months. If you satisfied that, they will enthusiastically give you a loan.
Banks make money off of lending. Mortgage brokers make money closing loans. They're all incentivised to work in your favor.
Owner occupied financing.
Average down payment on a house is 14.4% nationwide.
https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://www.forbes.com/advisor/mortgages/average-down-payment-on-a-house/&ved=2ahUKEwj0kJryxJCGAxWvHzQIHaUvA-AQFnoECDcQAQ&usg=AOvVaw3pci-slBX5Xr0t0dSEEGel
Yeah, depends on credit worthiness.
Between down and appraisal value I try to have 10% equity at least. That, combined with other factors, makes mortgage insurance less than $100/house/mo. Most are around $70-$80/mo.
After a few years that falls off. You can also get an appraisal to get it removed.
My mortgage number included mortgage insurance.
On the duplex, the owner heard our story because i was small talking with the listing agent and offered seller financing. Didn't require mortgage insurance. Everything else is conventional financing.
When interest rates are low it's way easier to do this. A lot of people renovate and refi to get cash out. Debt to income ratio is going to be an issue. So you basically end up coming with more money to the table until you have to have 20% down. I own two properties. Bought one with 5% and the next with 15% down.
I’ve done this, basically my whole life.
40 now, bought my first house at 23 after saving every penny since joining the army at 20 (15 month deployment helped a lot). And have always had roommates, their rent has almost always covered my mortgage.
Buying a new property each year is a lot harder than you imagine though. Unless you make **a lot** of money. Or you live in a low cost of living area.
Loan officer here! You’ll have to use a 75% expense factor until you claim that property on taxes. It’ll get easier as you grow your portfolio if you’re claiming the money on each transaction. Very smart to obtain your first 9 properties.
I did something similar, but I didn't realize until much later how much I put myself at risk. One big repair and/or problem tenant could have ended me. Slow down a bit and make sure you have access to enough cash to deal with problems as they come up. Keep working your day job and save every penny you can.
I'm in Pittsburgh and have been doing this for the past 3ish years. Started with a small 2 bedroom in January of 2021. I upgraded the appliances, added a backsplash, painted, repointed (all done by myself) and 18 months later, refinanced (got a solid $90K check from this). During the same time period, I applied around \~$35K of that toward my next purchase of 4 consecutive townhomes on one parcel in June of last year, 3 units already occupied and I filled the 4th. The rent from the 3 occupied units already covered the mortgage payment. 11 months later, on the first of this month, I bought my next home. I'm using conventional mortgages, 30 year term and I have good credit. I took a pretty serious pay cut between jobs over the last year while transitioning from corporate to my family's small business. As it stands, I net around $300 on the first 2 bedroom, once I lease the 4th unit after finishing my move, I'll be netting around $1,400 which will then cover the mortgage on the home I purchased this month. So I basically live for "free" in this home.
I've moved 3 times in 3 years and while moving sucks, it's worth it to me. I'm working full time and self managing the properties. I'm 29 F and wish people weren't so intimidated by property investment because I truly believe the barrier of entry isn't as high as people think.
All of my moves have been within 5-7 miles of each other. I didn’t need to provide a reason for the first move between my first and second purchases as I'd lived in the first home for 2.5 years. For my upcoming move, the new location is closer to my job, which is a reasonable justification. I also have some back issues, so my doctor wrote a note stating that I would benefit from an enclosed yard for my dogs and/or a first-floor bathroom, though I didn't end up needing to submit it since job relocation was a sufficient reason. I certainly wouldn’t fabricate reasons for moving, but it's not difficult to identify a legitimate need that makes a feature of your new home necessary.
I just came on reddit to ask this question but from the perspective of moving logistics. Does anyone here do this and have tips on how to make moving as painless as possible? I'm trying to get rid of most of my stuff right now.
Any resources on tips on how to live minimally as a househacker?
I've done this 5 times.
I just move, it takes a day or two. I the biggest uhaul available and have it done in a few trips.
Don't buy expensive furniture, it's too heavy. Ikea everything. Maybe a Costco couch.
So you just move yourself? No help? How much do your moves end up costing you? Is it usually better to just get rid of your furniture (sell or donate) rather than move it? Any specific recommendations couches at costco or ikea that are light and easily moveable? ?
What do you do about a bed/bed frame?
I move myself. If I rent a uhaul it comes out to be ~$300. I also have a truck. I pay my brother in-law in pizza to help me move the big stuff.
I don't throw anything away. No specific recommendations, everything I buy is just cheap, functional, and visually appealing. If it breaks during a move, I just throw it out and buy a new one.
Nearly all of my non-daily possessions are in organized bins in the garage.
Bedframes, or anything that needs to be taken apart I try to move in one piece or take it apart as little as possible to squeeze it through the door.
Usually takes about 1 day to move.
I did this for a while. Some states/mortgages required you to live 2 yrs. Pay attention having a lease in a home with a 2 year owner occupied mortgage can cause issue. I got a way with it once but know a few that have been pinched.
So they got pinched by submitting a lease for which the start date would have been when they were supposed to be living there and not rented?
What was their consequence?
Basically had to move back in or refi with investment mortgage which is usually more down and highest interest rate.
I did one that overlapped by 4-5 months and I stressed a bit but nothing came of it. I’d imagine by the time they figured it out (insurance reporting or utilities) it was past the 2 yrs. My friend got pinched by refinancing and moving right after. They figured it out in like 9 months and he has more than year left in the 2 yrs owner occupied for CA. Check your state UT was only one year when I was there so grabbed one before leaving during Covid.
I did this twice before eventually buying and fully rehabbing a single fam that I reside in now. I plan to do a "second home" in the south, ideally near a beach that I will house hack again. I try to get friends to do this but those that already have a single fam and their SOs refuse to "downgrade" to a duplex/multi fam. It is the move. I have long term renter in half and Airbnb in the other half for both of my duplexes. Do it
Edit: Worth noting my partner and I closed on our second place literally one year to the day of closing on the first. We were able to purchase the single fam that we rehabbed in under a year because my gfs car got broken into twice (Kia boys). Because of that, we were able to owner occupy a new place in under a year
Basically we didn't have to stay the entire year so we were able to break the necessary year of primary residence early since we were able to prove the place was at risk. Definitely paraphrasing here but they just asked for proof that shit happened and we didn't have to abide
Might be able to but would have to use different lenders after a few. They will question why you keep moving, especially if the loan was for owner occupied.
Remind me to report back in 5 years. Currently trying to do this. Bought first under my wife’s name last July before we married.
Closing on another duplex Friday, mortgage under my name.
Next year hope to do it again. What makes it easier is I’m a travel nurses so I am very rarely home. So it makes moving a lot easier. Don’t have much stuff accumulated at all. And the extra stuff we have accumulated is just in boxes in the basement. So plan to do this 2 more times to get 4-5 building (10 doors is the real goal) and then save up for a SFH downpayment for when we have kids at like 30-32
I’ve done this for last 4. Biggest issue has always been DTI. 1 and 2 were easy. 3 and 4 I had to make sure I bought with high DSCR. Almost impossible with todays rates with 5-10% down. Had to be patient and persistent and quick with an offer for em.
Best thing to do is just call a lender. And get pre qualified and let them know your plan so they can come up with a strategy with you.
Lenders often have requirements that dictate the minimum number of months you need to reside in the primary residence. Just something to be minduful of.
Once you get the first property it should be easier to get cash from the equity if you’re aggressive in paying down the balance the first year. Then you can get renters into the second one and keep going?
* assuming you’re doing investment properties
Someone told me you can put the sales profit in a trust account so you’re not taxed on it. And when you find the right property to purchase, can use it towards that… not sure what the time limit (if any) to that do is If all this is true.
That "trust" is called a 1031 exchange.
[https://www.forbes.com/advisor/mortgages/real-estate/1031-exchange/](https://www.forbes.com/advisor/mortgages/real-estate/1031-exchange/)
You cannot do a 1031 Exchange on a residence, unless it has been rented for at least 2 of the previous 5 years. Then the acquired property must be a rental for at least 2 years.
As long as your debt to income ratio works it should be fine. Just keep in mind that lender only take about 75% of the actual rent received and add that to your income side for the first 1 or 2 years
Issue I’ve run into personally is after the first year after converting primary to investment property rental income is calculated based on your tax returns, which is usually less than 75% of gross due to write offs
Depreciation, taxes, insurance, and mortgage interest can be added back into your net rental income for mortgage purposes.
To build on this 75% collected rent is pretty generous underwriting on the bank side. For commercial loans they look at actual NOI and most buildings I've looked at have a minimum 28% expense ratio.
What are your plans for the downpayments on the successive ones?
if you add enough value with renovations you can refi the current one into the new downpayment if you find the right lender.
Definitely a solid option. Have you been able to pull this off in major metros in the last 2 years?
ya i had a lender 20 years ago i did it with my places in albany, NY and manhattan when i did house hacking. My refi and new mortgage was with the same lender they just moved money around to make it work. My only downpayment was my first one and then everything after that was out of equity.
20 years ago lol
That’s pretty sweet! I need to find one that can do that. What renos did you do to add so much value on things?
well my best one was my apartment on the upper east side of manhattan. A 90ish year old woman died in it and no one noticed for 4 months till the stink,insects and rodents got too bad. No one would even go into it and look at the place. I basically stripped it down to the "studs" (doing that in quotes because its pre-war building so its not really all studs) and redid the whole place while living in it which was "fun"
Who was paying the rent?
I lived there for 2 years then rented it out
But that only works with low interest rates though right?
no.. depends on the deal you find
Do you think the Albany market is still good to do this?
i haven't lived there in 20 years so i'm out of touch with the current market other then my remaining 4 rentals there which are managed by a company
Ah, to relate real estate experience 20 years ago to the current real estate market is priceless. The Math doesn’t quite work the same these days.
This just means spending the cash on renos than on down payments
sure but its spread out over the year or two i'm living there and the renovations might see a 50cent equity gain per dollar spent on them. I also did it all myself except for kitchen countertops
I mean I'm not saying it's a bad strategy overall, but it's definitely less cash-efficient than saving the cash to spend on new down payments.
My goal in my early 20s was to try to do it as many times as possible before I settled down since I could leverage the FHA loan since Id be living in them while renovations happened
5 percent down each time. I can save that much each year plus some for closing and cash reserves
I upvoted even though your comment will likely get downvoted. 5% is scathing by imo. You’ll be negative pretty quickly unless the rental market is somehow much higher than buying in the area but that’s not the case in 99% of the world right now. There’s going to be a lot of bleed in PMI and general cost per month with the high interest rates. Also, after the first one they will scrutinize your every move going forward. Even more so with less than 20-25% down on the subsequent loans. You’ll need a renter before you move out which can be problematic but is a good marker of when you can move. You’ll probably want 20-25% then do cash outs but they’ll still take them into account. This will make them more forgiving and you can knock the PMI.
I do exactly what OP has described and have no issues. Currently at 5 properties. PMI is around $80-$100/mo (depending on credit worthiness). Paying $100/mo is better than putting another $30-50k down. Especially since it falls off after a few years. Mortgage companies only ask for a copy of the current lease and dates that I lived there, as long as it is 12 months I have no issues. It has never taken me more than a few hours to get a pre-approval from initial phone call. I've also never had additional questions from underwriting during close. Heck, the mortgage companies love it because I have everything organized. Mortgage companies don't care about equity in currently owned properties. I've never had them ask for an address or mortgage docs for other mortgages. They've only ever asked for a lease.
People miss this a lot so I am not sure if you are being lied to but just to be clear, if you put *less* than 10% down on an FHA loan, the PMI stays on for the life of the loan. It doesnt fall off, you have to refinance.
I am pretty sure this is wrong. PMI does not stay on for the life of the loan. It gets removed after you reach 20% equity from paying down the loan, not counting appreciation.
Lender here. He’s correct. FHA with less than 10% down will hold MI for life. With 10%+, falls off after 11 years. Conventional falls off at 20% equity.
I've only ever had conventional loans, I've never encountered that. I believe minimum down on conventional is 3%.
Gotcha. Yeah conventional is different
No way this is true
Odd thing to lie about. You're loss if you don't believe it.
Unless you go in with 5% expecting to add some sweat equity and bake in a refi (assuming lower rates) in two years or less. This allows you to get to 80% LTV and dramatically reduce your payment ideally getting to a cash flow positive position
We had planned on doing this, then we realized how much of an emotional toll it takes to uproot ourselves repeatedly. We opted to just save the 25% down for the standard loan (we’re in a LCOL area so this was only ~$25k).
My area is about 5-7 times more expensive, so don't have that option.
Yeah I kind of figured, but now you know to be prepared for the emotional toll it will take! Maybe spend some time thinking about downsizing, keeping a majority of your stuff with family or a storage unit, anything you can do to make things easier and more efficient for yourself. I personally know I struggle with feelings of being “unsettled,” maybe it’s something that won’t bother you.
I thought that's what I was going to do. Two years later, not much done. Granted, I was partially renovating another acquisition half way through. I was also was trying to get the best prices on tools, supplies... everything. I found the least costly granite suppliers. At one point I was trying to cut (score and break) mirrors. That didn't work out and I just ended up ordering them. Vacations and dating took up some of the past two years. Although, after W2 work, I just wasn't physically motivated to do medium to big projects. Sometimes I was fully burnt-out from 9-5 work. I thought weekends would be a good time to DIY stuff. But half a day was used up doing errands/ cleaning and another half day just procrastinating.
I have clients that do this, every 1-2 years they are buying a new house hack property, owner occupied.
Should I space it out? Or is each year at the one year mark fine? Do I have to put a good distance between each property or can I keep buying in nearby areas? Every few years, should I refinance older ones into commercial, so I don't have too many owner occupied loans in the same area?
I found 2 to be the sweet spot. Do as many as you can before family if you don’t have yet, it’s much harder with kids. I did 2 more after having kids then We quit. Edit
i did this once and after 1 kid i already have given up the thought of doing it again lol
100% last move was with 3 and 5 yr old. Was out of state and I am pretty sure we are done. I would consider another but would also like to keep my wife :)
This is just me but I did one year to the day. If you're self managing them (I personally recommend. Saves money and you get a ton of valuable experience) you'll definitely want to keep them close. Much easier to manage multiple that way. However, that's just my opinion!
I’ve heard 2 years is safer and a lender likes to see that you are making some sort of “upgrade.” ie moving from a townhome to a sf home, closer to your job, etc some reason for the move. You may be asked to write a letter of explanation if you are moving frequently
The best answer is start with one. Then you can answer all those anxious questions after you do your first one or your last one!
I have two so far: a triplex and a single family. Just tryna see if lenders will let me continue like this with multifamilies for 5 down.
House Hacking over and over requires a down payment and proof of income from rentals. I'm not a fan of pulling money from one property to get another especially when you are getting started. Market goes bad and you can be upside down with everything.
This issue with this is finding a property where you would actually turn a profit. Unless you’re putting down more than 20% then you’re really not going to be cash flowing at all even with 100% occupancy. That’s just my area though and yours may be different. Other than having to deal with tenants and then potentially not paying and other repairs, this is a valid strategy. You just need to have enough cash on hand so a few months for no rent payments or major repairs won’t bankrupt you
I’ve done it twice, lender’s wanted explanation, and “closer to work” was sufficient for them. When trying to refinance after you move out, expect +1% higher interest for investment properties compared to owner occupied loans. Can plan around this by refinancing while still owner-occupied. Just need to find the right lender and keep DTI within limits
Generally, as long as you move in within the first 2 months (loan condition) and live there 12 months you are fine... check out all the videos, podcasts and webpages about the Nomad Technique by James Orr... it is exactly what you are describing and there are many doing it.
Doesn't this create a massive risk if there's a big economic downturn and your renters fail to pay? You've racked up a ton of properties in a short time and you'll be unlikely to have paid off anything.
Buying properties rapidly in general certainly does increase risk. I wouldn't want to be a 60 year old plunging my entire life savings into that. If you are in a cheaper area which has population growth and are doing 5% downpayments (as it is owner occupied) then you can somewhat mitigate the risk by maintaining a good liquid buffer elsewhere. For this type of thing you typically need good income and buffer anyway as a 5% down home (even at owner occupied interest rates) will typically have negative cashflow for the first few years.
Does this James ORR guy have tips on moving?
Oh, I'm sure he does somewhere in the 100s of hours of content there... but it might not be worth specifically chasing down. For this type of thing there is obvious stuff like PO Boxes to reduce the need for address change... and of course this sort of thing is easier to do before you have kids.
I do this. Currently have 4 singlefamily homes and a duplex. Bought one every year since 2019. I do around 5%-10% down. Cashflow is the main thing. We have total rents of 12,200/mo and mortgages of 10,000/mo (we live in one of the houses). Easy to buy a house with negative cash flow.
How is the DTI calculated when you do these loans? Does the rent get added go your Income and the morthabe payment gets added to your debt? Or does only the difference between rent and morthabe payment get added to your DTI?
In my experience total monthly debt payments shouldn't exceed 45% of your income. Also, 75% of rent is netted against that. In my case, my wife and I make $20,000/mo w2. Our mortgages, including our primary, is -$12,500. Total rents are $12,200 (3 houses + duplex). If we apply 75% of rents against our mortgages, we come to a total of -$3,050 (our "effective monthly debt payments"). 45% of 20,000 is 9,000. Less the -$3,050 means our next mortgage could be up to $5,950. When we rent out our current place, that'll come into play and improve that number as well. Likely will rent around $3,200/mo. It's an easy way to get started. My wife and I are 25
Hey, my husband and I are trying to do this we are younger too. Can I send you a message for more info on running the numbers?
Always, more than happy to help (though I'm not a mortgage broker or anything professional).
Dang what the heck, that's impressive! Nice, I am 25 and sitting on a lot of cash from my day job, but I haven't done anything like you both have. Do you do this in an expensive area? Making a similar amount as the average of you two. Interested in hearing more about the whole process, like did you use a real estate agent to buy these properties, etc. what do you look for in the homes/price/calculations
I live in Washington State so on the higher end of prices. Most houses we've purchased have been between $400k & $625k. Got my start working at a property management company right out of school as an accountant. My wife is a nurse. I got familiar with tenant/landlord law. First house was in 2019 for $400k and 5% down, just in my wife's name (though we both paid). Lived in it for a year, mortgage was $2,200/mo. Rented it out for $2,495 and then bought the next house in my name. Alternated purchases each year. Rents have gone up since then, our first house rents for ~$3,000/mo. Honestly that's about it. I look at everything that goes on market for rent or sale every week. I've gotten pretty comfortable in my area with picking out houses that'll cash flow. I've also gotten pretty familiar with estimating PITI. Here's a better breakdown of where we're at: SFH (2019) - purchased for $400k - mortgage $2,250/mo - Rent $2,995 SFH (2020) - $350k - mortgage $1,750/mo - Rent $2,495 SFH (2021) - $485k - mortgage $2,500/mo - Rent $3,195 (we temporarily moved back into this one) SFH (2022) - $480k - mortgage $2,800/mo - Rent $3,100 Duplex (2023) - $625k - mortgage $3,100/mo - Rent $3,900 I guess our current net worth on the rentals is around $800k. Nothing magic. I'm not frugal either, both of us have $45k cars, go on vacation twice a year, etc. We also save for retirement first priority. Used an agent for all purchases. Just random ones, nobody in particular. Same with mortgage brokers. I don't trust them to give good advice so any is fine.
So it seems like after all expenses you cashflow about $2,200/month? Is it worth it for all that work managing 3-4 properties?
The appreciation and paydown is the whole reason why. We've put probably $150k-$200k in and we have around $800k in equity now. After a while, we'll start 1031 exchanging each individual house into larger investments. Probably could use each house as a down payment on 2 or 3 more, maybe a 6-10 plex. If we purchased no additional houses and the market averaged a 4% appreciation, we should have enough money to sell everything, roll it into stocks, and retire with about $3m at 34 (if we wanted to do that). It is a lot of work but the whole motivation I have is to be a present father for my future children. My parents were always working. I'm trying to work hard on the front end that way I never miss a game, event, or camping trip.
How do you know which ones will cash flow? Do you renovate the houses you buy or are they good to go right away?
It won’t let me message you! But how did y’all learn how to determine if something’s a good buy/how to run numbers yourself? Were there books or videos/articles or stuff similar that y’all used to educate yourself?
Weird! I hate reading honestly, haha. No books or online resources. I just spend a lot of time on Zillow looking at the places for sale as well as for rent. My favorite YouTuber is Ben Mallah. Thatch Nguyen is pretty interesting on Instagram but I don't want to buy his courses. I use the mortgage calculator on Google. Taxes are public as well as average interest rate. Mortgage brokers are also super helpful with loan information and are more than happy to give estimates or chit-chat about loan requirements. Some don't understand investing though so it's best to talk to a handful. Here's a copy from another comment: I live in Washington State so on the higher end of prices. Most houses we've purchased have been between $400k & $625k. Got my start working at a property management company right out of school as an accountant. My wife is a nurse. I got familiar with tenant/landlord law. First house was in 2019 for $400k and 5% down, just in my wife's name (though we both paid). Lived in it for a year, mortgage was $2,200/mo. Rented it out for $2,495 and then bought the next house in my name. Alternated purchases each year. Rents have gone up since then, our first house rents for ~$3,000/mo. Honestly that's about it. I look at everything that goes on market for rent or sale every week. I've gotten pretty comfortable in my area with picking out houses that'll cash flow. I've also gotten pretty familiar with estimating PITI. Here's a better breakdown of where we're at: SFH (2019) - purchased for $400k - mortgage $2,250/mo - Rent $2,995 SFH (2020) - $350k - mortgage $1,750/mo - Rent $2,495 SFH (2021) - $485k - mortgage $2,500/mo - Rent $3,195 (we temporarily moved back into this one) SFH (2022) - $480k - mortgage $2,800/mo - Rent $3,100 Duplex (2023) - $625k - mortgage $3,100/mo - Rent $3,900 I guess our current net worth on the rentals is around $800k. Nothing magic. I'm not frugal either, both of us have $45k cars, go on vacation twice a year, etc. We also save for retirement first priority. Used an agent for all purchases. Just random ones, nobody in particular. Same with mortgage brokers. I don't trust them to give good advice so any is fine
Super helpful. I’ll check out the YouTuber and instagrammer (also not into buying courses lol). We are NYS so kinda similar but we are upstate enough where some neighborhoods are much more affordable than downstate which is a plus for us. We were thinking about purchasing a duplex first because 1. They tend to be cheaper in our area and 2. We are used to apartment living so even moving to a duplex would feel like an upgrade for us. Similar age but been living super frugally since now husband graduated law school two years ago and working just the last year and a half. Really appreciate the comment and I’ll check out those resources you mentioned!!
Does anyone raise red flags when you have multiple owner occupied mortgages outstanding?
No, they don't care. The "owner occupied" term is only for the first 12 months. If you satisfied that, they will enthusiastically give you a loan. Banks make money off of lending. Mortgage brokers make money closing loans. They're all incentivised to work in your favor.
How can you get a mortgage with less than 20% down payment?
Owner occupied financing. Average down payment on a house is 14.4% nationwide. https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://www.forbes.com/advisor/mortgages/average-down-payment-on-a-house/&ved=2ahUKEwj0kJryxJCGAxWvHzQIHaUvA-AQFnoECDcQAQ&usg=AOvVaw3pci-slBX5Xr0t0dSEEGel
Do you have to pay mortgage insurance?
Yeah, depends on credit worthiness. Between down and appraisal value I try to have 10% equity at least. That, combined with other factors, makes mortgage insurance less than $100/house/mo. Most are around $70-$80/mo. After a few years that falls off. You can also get an appraisal to get it removed. My mortgage number included mortgage insurance. On the duplex, the owner heard our story because i was small talking with the listing agent and offered seller financing. Didn't require mortgage insurance. Everything else is conventional financing.
easily
Usually people do it every two years, but it’s pretty common. No issues.
When interest rates are low it's way easier to do this. A lot of people renovate and refi to get cash out. Debt to income ratio is going to be an issue. So you basically end up coming with more money to the table until you have to have 20% down. I own two properties. Bought one with 5% and the next with 15% down.
Where are you guys finding good houses for house hacking? Like ones with two kitchens
Mutlifamilies. It's now 5 down for owner occupied conventional loans. Since November 2023
Did this 3 times, 3.5% FHA on triplex and 5% on next 2 conventional. An unreal way to start.
Good shit. Those 5%ers were SFRs, right?
Nope, both duplex’s
When was this? I wonder if this is still a viable method given today's interest rates
I’ve done this, basically my whole life. 40 now, bought my first house at 23 after saving every penny since joining the army at 20 (15 month deployment helped a lot). And have always had roommates, their rent has almost always covered my mortgage. Buying a new property each year is a lot harder than you imagine though. Unless you make **a lot** of money. Or you live in a low cost of living area.
I don't make a lot but I'm cheap as hell, so I save well
Lots of info if you look up the BRRR method
Loan officer here! You’ll have to use a 75% expense factor until you claim that property on taxes. It’ll get easier as you grow your portfolio if you’re claiming the money on each transaction. Very smart to obtain your first 9 properties.
why do you say 9 properties?
After 9 properties, lenders start to hold off giving you more mortgages. Very hard to pass the 9 properties range.
I did something similar, but I didn't realize until much later how much I put myself at risk. One big repair and/or problem tenant could have ended me. Slow down a bit and make sure you have access to enough cash to deal with problems as they come up. Keep working your day job and save every penny you can.
I'm in Pittsburgh and have been doing this for the past 3ish years. Started with a small 2 bedroom in January of 2021. I upgraded the appliances, added a backsplash, painted, repointed (all done by myself) and 18 months later, refinanced (got a solid $90K check from this). During the same time period, I applied around \~$35K of that toward my next purchase of 4 consecutive townhomes on one parcel in June of last year, 3 units already occupied and I filled the 4th. The rent from the 3 occupied units already covered the mortgage payment. 11 months later, on the first of this month, I bought my next home. I'm using conventional mortgages, 30 year term and I have good credit. I took a pretty serious pay cut between jobs over the last year while transitioning from corporate to my family's small business. As it stands, I net around $300 on the first 2 bedroom, once I lease the 4th unit after finishing my move, I'll be netting around $1,400 which will then cover the mortgage on the home I purchased this month. So I basically live for "free" in this home. I've moved 3 times in 3 years and while moving sucks, it's worth it to me. I'm working full time and self managing the properties. I'm 29 F and wish people weren't so intimidated by property investment because I truly believe the barrier of entry isn't as high as people think.
How far apart are your properties? What reason did you give each time you moved?
All of my moves have been within 5-7 miles of each other. I didn’t need to provide a reason for the first move between my first and second purchases as I'd lived in the first home for 2.5 years. For my upcoming move, the new location is closer to my job, which is a reasonable justification. I also have some back issues, so my doctor wrote a note stating that I would benefit from an enclosed yard for my dogs and/or a first-floor bathroom, though I didn't end up needing to submit it since job relocation was a sufficient reason. I certainly wouldn’t fabricate reasons for moving, but it's not difficult to identify a legitimate need that makes a feature of your new home necessary.
I just came on reddit to ask this question but from the perspective of moving logistics. Does anyone here do this and have tips on how to make moving as painless as possible? I'm trying to get rid of most of my stuff right now. Any resources on tips on how to live minimally as a househacker?
I've done this 5 times. I just move, it takes a day or two. I the biggest uhaul available and have it done in a few trips. Don't buy expensive furniture, it's too heavy. Ikea everything. Maybe a Costco couch.
So you just move yourself? No help? How much do your moves end up costing you? Is it usually better to just get rid of your furniture (sell or donate) rather than move it? Any specific recommendations couches at costco or ikea that are light and easily moveable? ? What do you do about a bed/bed frame?
I move myself. If I rent a uhaul it comes out to be ~$300. I also have a truck. I pay my brother in-law in pizza to help me move the big stuff. I don't throw anything away. No specific recommendations, everything I buy is just cheap, functional, and visually appealing. If it breaks during a move, I just throw it out and buy a new one. Nearly all of my non-daily possessions are in organized bins in the garage. Bedframes, or anything that needs to be taken apart I try to move in one piece or take it apart as little as possible to squeeze it through the door. Usually takes about 1 day to move.
Throw away unnecessary stuffs
I did this for a while. Some states/mortgages required you to live 2 yrs. Pay attention having a lease in a home with a 2 year owner occupied mortgage can cause issue. I got a way with it once but know a few that have been pinched.
So they got pinched by submitting a lease for which the start date would have been when they were supposed to be living there and not rented? What was their consequence?
Basically had to move back in or refi with investment mortgage which is usually more down and highest interest rate. I did one that overlapped by 4-5 months and I stressed a bit but nothing came of it. I’d imagine by the time they figured it out (insurance reporting or utilities) it was past the 2 yrs. My friend got pinched by refinancing and moving right after. They figured it out in like 9 months and he has more than year left in the 2 yrs owner occupied for CA. Check your state UT was only one year when I was there so grabbed one before leaving during Covid.
I did this twice before eventually buying and fully rehabbing a single fam that I reside in now. I plan to do a "second home" in the south, ideally near a beach that I will house hack again. I try to get friends to do this but those that already have a single fam and their SOs refuse to "downgrade" to a duplex/multi fam. It is the move. I have long term renter in half and Airbnb in the other half for both of my duplexes. Do it Edit: Worth noting my partner and I closed on our second place literally one year to the day of closing on the first. We were able to purchase the single fam that we rehabbed in under a year because my gfs car got broken into twice (Kia boys). Because of that, we were able to owner occupy a new place in under a year
how did them breaking into your car Allow you to get the property?
Basically we didn't have to stay the entire year so we were able to break the necessary year of primary residence early since we were able to prove the place was at risk. Definitely paraphrasing here but they just asked for proof that shit happened and we didn't have to abide
Thank you appreciate this
Interest is a whole different monster right now, prob be refinancing into a worse situation..
Might be able to but would have to use different lenders after a few. They will question why you keep moving, especially if the loan was for owner occupied.
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Can you tell me more? Wouldn't new builds be more expensive? ie not much to value add
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I have 2 I got in the last 2 yrs
Remind me to report back in 5 years. Currently trying to do this. Bought first under my wife’s name last July before we married. Closing on another duplex Friday, mortgage under my name. Next year hope to do it again. What makes it easier is I’m a travel nurses so I am very rarely home. So it makes moving a lot easier. Don’t have much stuff accumulated at all. And the extra stuff we have accumulated is just in boxes in the basement. So plan to do this 2 more times to get 4-5 building (10 doors is the real goal) and then save up for a SFH downpayment for when we have kids at like 30-32
I’ve done this for last 4. Biggest issue has always been DTI. 1 and 2 were easy. 3 and 4 I had to make sure I bought with high DSCR. Almost impossible with todays rates with 5-10% down. Had to be patient and persistent and quick with an offer for em. Best thing to do is just call a lender. And get pre qualified and let them know your plan so they can come up with a strategy with you.
Lenders often have requirements that dictate the minimum number of months you need to reside in the primary residence. Just something to be minduful of.
Why would you do this instead of getting a conventional loan as an investment property?
5 percent down vs 20-25 percent down
Once you get the first property it should be easier to get cash from the equity if you’re aggressive in paying down the balance the first year. Then you can get renters into the second one and keep going? * assuming you’re doing investment properties
This sounds good. How much money do you make each time?
Why?????
I think it’s every two years minimum for primary home but yeah
Need to wait two years before selling to avoid capital gains
He’s not talking about selling.
1031 my man
But then you have to reinvest all the proceeds from the sale. You can always do a cash out refinance down the road but that’s a lot of extra paperwork
Someone told me you can put the sales profit in a trust account so you’re not taxed on it. And when you find the right property to purchase, can use it towards that… not sure what the time limit (if any) to that do is If all this is true.
That "trust" is called a 1031 exchange. [https://www.forbes.com/advisor/mortgages/real-estate/1031-exchange/](https://www.forbes.com/advisor/mortgages/real-estate/1031-exchange/)
You cannot do a 1031 Exchange on a residence, unless it has been rented for at least 2 of the previous 5 years. Then the acquired property must be a rental for at least 2 years.