How do I get rid of my monthly Rent/Mortgage cost?
Have you been thinking...
"We are tired of paying rent. We really want to get into real estate investing, but it is just not going to happen for us. The money down to purchase an investment property, and the interest rates are just too much for us. Is there anything we can do to get into Real Estate investing"?
The Answer to your question:
House Hacking! This is a housing strategy that has been around with this name for a short time. It has been being done though for quite awhile. It is an obvious and very financially smart plan. I love this strategy for beginners. Another great example is someone who is starting off in college with a solid job that could get them qualified for a loan on a property. Like all investment strategies, you have to do your homework, and look for the key pieces for all investments. When you have done this and have a solid recipe it can spell great success. This strategy is great for when you are trying to save money as well. What better way to save than to cut out your own housing cost from your budget?
So here is what "House Hacking" is. You are able to qualify for a loan, or have enough money saved up to purchase a single property. You are in a great position to really storm ahead in the financial department if you are open to making some sacrifices. Instead of looking for that beautiful starter or dream home that you were thinking of, take a look at your first investment. You can have the best of both worlds here, and in the future you may not be able to make this living decision. When shopping, focus in on a Multi-family property in need of some repairs. If you can find a Triplex, or something with more units, great. If you can only find duplexes, or large homes that you could potentially convert (make sure your city or area will allow the conversion) then that works as well. The reason you would prefer more doors, is that it is easier to offset any vacancy, and you still have some rent coming in.
The Perks of this plan:
- You can get a great rate with very little down using this as your primary residence when you apply for the loan. You can actually apply for an FHA loan on this where you could have as little as 3.5% down instead of the 20% down that would be required for a conventional loan. You will need to check with the lender to see what they specifically offer for you. If this is your first home, you may even qualify for some financial assistance where you could pay nothing down! (ASK ME HOW!!!)
- Since you will be living in the home, you can reduce your taxes by taking it as partially homesteaded!
- You have write offs, and tax breaks that will apply since it is an income property. Check with your CPA/ Tax professional to see what you may be able to do with your mortgage interest, monthly expenses, and other perks.
- You can learn about collecting rents, and land lording with a lot less risk since you are currently used to paying a monthly rent yourself... It is like having training wheels.
- If done correctly you have erased your biggest monthly expense from your budget and are getting closer to debt free and financial freedom.
- If you decide to purchase another property in the future, this one can stay on an FHA with a lot lower interest rate!
With a house hack, you have multiple avenues you can go once you purchase the property. There are countless plans, here are three quick ones.
1. You can look at moving into the most move in ready apartment and focus all of your time on one single unit at a time getting it where you want it before renting it out. You would then move on to the next unit needing repair and get that one where it is needed, rent it, and eventually get to your unit and get that where you like.
2. You could do all at the same time... obviously this would take the longest to start seeing any money come back.
3. You could list all for rent as is, and take whatever does not get rented as your own, remodel that and when another unit opens up, move and rent out your more expensive and updated unit. Then repeat this process.
There are several key factors to success here, and this plan is obviously not for anyone who is not open to living near their tenants, or in a scenario with shared walls. The keys with finding a good rental property still apply.
- The physical property condition and renovation costs/ timeline need to fit in your budget/ timeframe
- Purchase price, carrying costs, and all total expenses ideally would be covered by your tenant rental income. Review what rents are going for in the area.
- You need to review the location and make sure that it is a good location that people would want to rent in. Amenities in the area, jobs, and convenience to shopping/ entertainment will be key to this.
- Do not bank on appreciation, however if you can see the property appreciating and building equity in the home quickly you may have the ability to move on to another multiunit home for yourself to live in and restart this process while having your first one still bringing you a nice income stream.
Let me know if you would like more information on how to get this started.
I would love to give you some assistance. If you are selling on your own, want to list, buy, become an investor, become an agent, or just have Real Estate questions let me know. I have past experience in Hillsdale County, Lenawee County, Jackson County, Ingham County, and really enjoy Napoleon, Grass Lake, Michigan Center, Jerome, Brooklyn, Cement City, Somerset, Addison, Jackson, and the other surrounding Michigan areas.
Korey Rowlson
Realtor® EXIT Realty 1ST
740 Laurence Ave
Jackson, MI 49202
517.414.1230
Korey@ExitJackson.com
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"I am a Realtor® and have been redeveloping residential homes in Jackson, and Hillsdale Counties here in Michigan since 2012. I enjoy all aspects of Real Estate, and strive to be the best Real Estate agent in Jackson, Michigan".
