In this episode, Dr. Matt Motil talks about house hacking rentals.
This is how he got started in real estate, and rental properties at a young age.
In the Spring of 2003, he decided to fix n flip a house he was living in.
Let’s get started…
House Hacking Rentals
1. What Is House Hacking?
It is when you want to get into an investment deal by leveraging owner occupant financing (loans) to buy a primary residence.
Eventually, keeping in mind it will be a rental property.
When going into a rental property, you need the mindset: the standard people are looking for.
In my opinion; a 3 bedroom home with 1 1/2 baths, ranch style, brick.
When trying to get investor money from a traditional bank they WILL lend you money, but they want equity in case something happens with the rental property and for whatever reason you aren’t able to pay.
The bank will then be able to take back the home and have enough equity within it.
An investor loan is 75% of the purchase price. Say if you buy a property worth $100,000, the bank will lend you $75,000.
To get into a traditional investment property as an investor you need $25,000 in cash.
How do you do this?
An FHA loan is a government insured loan. You need to put 3.5% down.
People use an FHA loan when they have bad credit or a high debt/income ratio.
A conventional loan is less than 3.5% down. There is lender assistance even.
3. Single Family Rental
Say you need a place to live, so you tell the bank.
They give you a 3% conventional loan.
For every $100,000 you borrow, you will need to put down a $3,000 downpayment AKA 3% down.
Say you are ready to move onto house #2.
To get a loan on house #2, explain how you want to keep house #1 as a rental (renting out your unit as well).
They can provide an off set mortgage payment on the property with the future rent you are collecting.
4. Small Multifamily Rental
I give this advice to every young person who doesn’t know whether to rent or buy.
Instead of buying a single family house, buy an apartment.
You can get a residential loan. It has the same financing for both homes and apartments. (1-4 units)
Say the 4 unit apartment is $200,000. You need to put $6,000 down.
Your rent is $2,000.
You rent out the other 3 units collecting rent of $1,000 from each tenant.
You are now making a $1,000/cashflow on top of not paying for your rent.
After some time, you can go to a lender and do this all over again.
You can rent out your unit in the first apartment and go get a second apartment.
In the second apartment, you rent out again 3 units.
This time you are making $3,000/cashflow on top of not paying your own rent.
$2,000 from the first building. $1,000 from the second building.
Now you’ve just generated a 2nd stream of cashflow.
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