House Hacking: Lets You Get Your Housing For Free

This Hack lets you get your housing for free by having someone else pay for it, house hacking. investment, property, rental, rent, life, hacks, invest, fixer, upper, income, property http://jessicacoaches.com/2017/05/house-hacking/ ‎
This Hack lets you get your housing for free by having someone else pay for it, house hacking. investment, property, rental, rent, life, hacks, invest, fixer, upper, income, property http://jessicacoaches.com/2017/05/house-hacking/ ‎
This Hack lets you get your housing for free by having someone else pay for it, house hacking. investment, property, rental, rent, life, hacks, invest, fixer, upper, income, property http://jessicacoaches.com/2017/05/house-hacking/ ‎

No, this is not about marrying rich! This is a real solution to make living expenses more manageable, or even make money. And while this is not about getting a sweet sugar mama or daddy to pay your rent, it is having someone else pay for it.

Your renter.

What I’m talking about is commonly referred to as House Hacking. House hacking is when you buy a property with the intention of renting out units or rooms to people to pay for the property. The HGTV show Income Property often makes a reference to this when people are making a rental unit in their basements and such.

 

If you are in need of more immediate housing solutions, I would like to point you to https://portal.hud.gov/hudportal/HUD?src=/topics/rental_assistance

 

I have been house hacking for the last six years. What we do is purchase a home, we have a family, so we aim for multi-unit homes. We keep the property prices low as we don’t have a huge income and have lots of skills by buying fixer uppers, usually living in the unit we are fixing up. Right now we are living in a duplex, in the larger of the two units: a three bedroom two bathroom. The other unit is a two bedroom 1.5 which is completely separate is paying the entire mortgage. Pretty sweet right?

Related: How I never have to pay another penny for my retirement at age 34 on a 30,000 per year salary!

It gets better, once everything is fixed up we find a new property and do it all again, renting out the other property fully.

Examples of house Hacking situations:

–  Buy a 3 unit property, live in 1 and rent the other two out.
–  Get a large single family home with four bedrooms, you live in one bedroom and rent the others out.
–  Purchase a house with a guest house or basement that will function as a rental to help cut costs on your large residence.

Pros:

 

House Hacking allows for low-income investors to squeak into the investment property world. This is because the rental property will qualify for owner occupied loans with down payments of 3.5%-5% as long as it is four units or under.

Related: How to Buy a Property With No or Low Money Down!

It can lower your expenses, allowing you to save more money to invest in yourself. I do love it when other people pay my mortgage!

You are close to your tenants, so they tend to behave better, it is also convenient being your property manager allowing for more profits.

If you buy a fixer, you can live in a unit that needs to be fixed up and slowly do the renovations. No driving to the site. No lapse in rent during a renovation. Improve slowly, or by the room, as you have the money to do it, the only one who has to suffer a construction zone is you.

house hacking construction zone

Cons:

You will be living next to your tenants. For some, this can be awkward.

You may be giving up the privacy that having a whole lot between you and your adjoining neighbor provides.

Have you ever lived in a construction zone? While amazingly rewarding, there is nothing like building something to make you feel accomplished. It is stressful. There is always something to do.  In fact, that half done project might be right in front of you while you are trying to get some relaxation in. It also always tends to take longer than you expect!

 

Advice for first-time house hackers:

If you are going to get a fixer upper, and do the work yourself, try not to be too ambitious, stick to surface problems and properties that do not need to be gutted.

Get rid of your mortgage insurance by forcing appreciation with improvements. You can do this once you feel you have 20% equity. You can either refinance or try to get a reevaluation from your current lender, and they will likely want an appraisal.

Just because you are living in the home does not mean the numbers do not matter! Plan for possibly turning it into an investment property in its entirety. You still want a cash flowing property. When evaluating net income just use a fair market rent for the unit you will be living in.

 

Do you Have any experiences house hacking?  Would you recommend it?  Planning on trying it?

What you need to know before you buy a home!

What you need to know before you buy a home, financial freedom, money, real estate, Tucson, AZ http://jessicacoaches.com/2017/03/what-you-need-to-know-before-you-buy-a-home/

Here is the honest truth about renting versus buying.  The popular line is you are just throwing your money away renting when you could be paying yourself! Right? I know all the investing books I read seemed to tout that line.  It, however, is so much more complicated than that.  So here it is the nitty gritty, no slanted views, pros and cons to owning versus renting.

Renting:

Pros:

You have more freedom.  Leases can somewhat limit this, but you are not tied down.  You don’t have to be in a good seller’s market to leave quickly.  If you get a new job and the commute is far, just move.  Want to take a three-month sabbatical traveling?  Just plan it between moves for no at home costs.

-Simplicity.  You get to pay one lump sum for many housing needs. Maintenance? That isn’t you.  Property Tax? Included! Sometimes even your utilities are included.  Does something need a repair? Just call! No stress for you, one less thing to think about.

-Amenities.  If you are renting an apartment, you get access to many luxuries through communal space.  Pools, Gyms, Lounges, and more. Houses with those amenities can increase price drastically.

-Low upfront costs. An application fee, a security deposit. These can be very small compared to the upfront fees of purchasing a house.

Related:  How to Buy a Property With No or Low Money Down!

 

Cons:

-You have no control.  A landlord can choose not to renew their lease with you, and you will have to find someplace new.

-Your rent will increase.  Your rent should keep pace with market conditions and likely will go up unless the property is in disrepair.

-Does not build net wealth. You are building someone else’s net wealth not your own.

moving boxes financial freedom minimalism real estate renting vs buying

Buying

Pros:

-You have control. While HOAs (Homeowners associations) if you are in one, lenders, and the government has some say on your property it is relatively minimal.  You can change things in your home.  No one can kick you out unless you are seriously delinquent and do not catch up in time.

-The mortgage does not increase. When you buy your house, if you chose a fixed rate mortgage, your mortgage payment is set at the market values when you purchased your home.  This means that your debt will become less significant as inflation increases.  Property taxes and Insurance which are lumped into your payment, however, can and will increase.

-You build net wealth.  Yes, you can build net wealth in your home, but you will also be giving a lot of other entities a cut. There is money lost to fees of buying and selling, and of course, the interest which is front loaded into those first years.  It takes a long time! The longer you hold the home the better.  I would suggest not buying a home, if you do not plan 100% on owning it for the next five years, even then you are gambling on the market to have been stable or good to be able to get out without financial harm so try to plan for ten years.

-You get options. You could rent out your home and make money.  In a tough spot (While generally not advised it is better than credit cards if done correctly.) you can take out equity from your home.  Paid off your home? You could Seller Finance out to get a nice high predictable rate of return that is secured by a property you know better than the buyer.

 

Cons:

-If you are not careful, it can end up a financial trap.  If markets dip as they have done before home value can go down and you could end up stuck in your house for a very long time.  My methods of protections are never buying a home that if rented the price fetched would not cover the mortgage, insurances, and taxes and still leave some wiggle room.

-You cannot control everything.  A methadone clinic could move in close to your house.  A large employer could go belly up.  Your neighbor could let their house go to pot.  All of these can tank the value and your ability to sell your home.  Bye, bye equity.

-It can be an expensive hassle.  Insurance, taxes, maintenance, repairs.  These are all things you have to plan for and come out of your pocket.  Unseen, non-mortgage costs can sneak up on you in a house. Doubling your electricity bill, all those tools and stuff you end up buying, that urgent repair that comes up and costs three thousand dollars.

How to Buy a Property With No or Low Money Down!

How to buy a property with no or low money down investment real estate http://jessicacoaches.com/2017/03/how-to-buy-a-property-with-no-or-low-money-down/

Most of us have heard that it is smart to have 20% downpayment to purchase a home.  And it is.  Your payments will be lower, less interest will be paid over the course of the loan with a large downpayment.  However, if you are using these loans as a vehicle to purchase an investment, meaning not just a place to live but to make money, it can be a wise choice for a variety of reasons.  There are also people who just prefer to own a home, though sometimes it does not make sense.  Check out this article about the pros and cons of homeownership:  What you need to know before you buy a home!

Loan Types

1. FHA – Federal Housing Administration. 3.5% Downpayment.
Pros: Low down payment, good for up to 4 unit properties, accepts lower credit scores.
Cons: MIP (Mortgage Insurance Premium)  this is additional insurance you must purchase and pay monthly with your mortgage which lowers buying power.  If you are competing with other offers with everything but the financing being the same, FHA tends not to get the contract.  This is because FHA loans have a base quality standards the house must maintain to loan on it, and the lender will often require repairs.

 
Can I get an FHA Loan? LendingTree.com
 

2. VA – Department of Veterans Affairs Loans 0% Downpayment
Pros: No down payment, good for up to four unit properties, mortgage insurance is only a one-time premium which gets wrapped into the loan.
Cons: None to speak of.  If you have access to a VA loan you should have a house.

 

3. Insured Conventional – 3% Downpayment
Pros: Low down payment, good for up to four units
Cons: Not as widely advertised, PMI (Premium Mortgage Insurance), this is additional insurance you must purchase and pay monthly with your mortgage which lowers buying power.

 

4. Seller Financing (Seller Carryback, Land Contract) – terms vary widely but can be low or no downpayment.
Pros:  You are dealing with a person so you may be able to negotiate your terms as there are no standards anyone is being held to. Closing fees will be lower as the mortgage company will not be charging fees such as the origination fee.  You can sometimes get this type of financing with lower credit scores.
Cons: They are harder to find, most people just want all the cash up front when they sell.  The interest rates can be much higher than standard loans.  When you default on a seller financed home the property reverts to the owner and does not go through a standard foreclosure or trustee auction.

 

5. USDA Rural Loans – 0% downpayment
Pros: No downpayment, low-interest rates, not just rural also encompasses small towns, available to people who would normally not qualify for loans.
Cons: There are strict property and borrower restrictions.  Check those out here: https://www.rd.usda.gov/programs-services/single-family-housing-direct-home-loans

  

Related: How I never have to pay another penny for my retirement at age 34 on a 30,000 per year salary!

Additional ways to keep up front costs down

1. Negotiate in 3% closing cost coverage into your purchase offer.  This will cover all other fees and leave you with just the down payment.  Be considerate of the seller though and know that this is worse for the seller then selling the property for 3% less due to commissions.

 

2. Purchase a HomePath.com property.  These are foreclosures and short sales.  They have low 3% down payments and often give 3% in closing costs.  They also work to accommodate the first time buyer, giving some homes owner occupant preference and try to make it easier to qualify for.

 

3. Pathway to Purchase Programs.  This program may or may not be renewed with the changes in the government.  It was downpayment assistance program.  There are income and purchase price limits, but they are relatively high.  There is a limitation to what cities the program is in.  For Tucson, AZ they would give up to $20,000 toward your mortgage.

 

4. NHF Grants (National Homebuyers Fund Inc.). http://www.nhfloan.org/programs/index.shtml   Non-repayable grants up to 5% of the mortgage amount.  Not available in all states.  Low to moderate income requirements.

 

5. Other Downpayment assistance programs.   Check out  http://downpaymentresource.com for a search of programs you could be eligible for.

 

6. Ask your lender to see what fees they will waive.  I have found the big lenders more willing to waive fees than small lenders.  Small lenders tend to work harder to get borderline qualifiers into loans though!

 


Do you have any experience with any of these?  Any that I missed?