With all the mess that's been going on with the housing market out of
thought, what about house hacking as a potential to help overcome the high
costs and risks of buying in this market?
And there are three big risks that people are considering when
they're looking to buy right now.
And this is, these risks are caused by bidding wars that are going on
because of a lack of inventory.
So number one is increasing prices, right?
We're.
This is not uncommon.
We're not a unfamiliar with the increasing prices that are happening right now.
The median home value is three 47, 500.
And right now we're seeing a year over year appreciation of 13.2%.
So if that increases for the next 12 months, we'll see the median home
value increased to three 93, three 70.
All right.
So not only is this changing the price, but this is impacting
your monthly payment as well.
Your monthly payment is increasing along with the price increase.
And so is the down payment making it really difficult for people to stay.
Just keep up with the appreciation that's going on, because if we're looking at
a conventional loan, we're looking at a down payment somewhere around 17,000,
three 75 for the median home price.
And if that increases, if the home price increases again by 13.2%.
So does the down-payment and that means you'd have to save an extra $200
per month over the next 12 months, just to keep up with appreciation.
That's on top of the savings that you're already doing to meet the
minimum that you need for your closing costs and your down payment already.
And this market presents the risk of a downturn.
As we're seeing home prices continue to rise, no matter what your economic view
is, there is a risk of a downturn, right?
Some people are calling this a crash or a correction or a downturn or
whatever you want to call it and whatever your outlook looks like for
the next one to five to 10 years, there is a potential for a market downturn.
And so what this would look like is in red, what we would
have is your loan balance.
Okay.
And that's going to continue to decline over time as you pay down your loan.
And then we have our price up here in blue, and this gap is positive equity.
That's the value you have in your home.
When you look to sell now, what happens if the home value decreases
over a period of time below your loan balance, this is what people call
being underwater in their mortgage.
And so what becomes really risky here is when you're looking at
owning a home and living in it by yourself or with your family.
Your timeline changes, right?
Because it, it tends to be something for a lot of people that
they only live in their home and anywhere between five to 10 years.
And so what ends up happening if at this point?
Let's say this was a year three.
All of a sudden you have negative equity in your home.
Now you can't sell the home.
This is where it can become risky if we're facing or potentially looking
at a market downturn in the future.
And this is a healthy fear to have, right?
This is not unreasonable because it might be wondering how can I possibly
afford a home and not put my family at risk when the market feels like.
I gamble.
So when you're only considering a home that only you live in are only you and
your family live in the risk is greater.
You're responsible for the full payment, the full monthly
payment, and your timeline impacts your profitability, right?
Because if there is a market downturn, at some point in the future, When you
choose to sell the home, that's all of a sudden where you're going to realize
the profitability, or you have to bring money to the table to be able to sell
the home if you need to get out of it.
And maybe you've been priced out by the market.
Either the monthly payment is too high as home prices increase for your budget
or a lender hasn't approved you for the amount that you want in house hacking
could be a solution for you to explore.
So what is.
How hacking so Forbes puts this really brilliantly.
They say simply put house hacking is a strategy that involves renting
out portions of your primary residence to generate income.
That's used to offset the cost of your mortgage and other expenses associated
with owning a home when done correctly.
It allows people to live in expensive areas, completely free, or even generate
positive income through home ownership.
So basically what we're doing is we're hacking a primary residence
loan to take advantage of the better terms that someone gets when they.
Buy a home as a primary residence and set up as an investor.
And one way that we can take advantage of this loan is the one year occupancy role.
So when we get a primary residence alone, we don't actually have to be, it doesn't
have to be our primary residence for the entire time that we have the loan.
It only has to be a primary residence for 12 months.
Okay.
And we can take advantage of that with different types.
Of strategies.
See, the terrifying thing about this market is the increasing prices
and the potential risk of downturn.
How's hacking allows you to have a long-term view of owning a home.
So you can explore being able to afford a home and a red hot market
while still hedging against.
Risk from a downturn.
Again, it takes our timeline from this shorter view, and maybe it was long for
you as a primary residence, but for a lot of people, it's a shorter term view as
a primary residence and extending that.
So we have time for fluctuations if they happen.
It's okay.
It's just like holding a stock over a long period of time.
It's a more risky to hold a position of stock position in a company
for a shorter period of time.
If we say we're only going to be in a stock for three months, while there might
be a downturn, there might be an upturn.
But if we hold it for a longer period of time than we had against
some of that risk, obviously there's some more things in there.
If you are familiar with stock investing, but we don't have to go into those.
The analogy breaks down at that point.
So let's compare the two together.
Most people are used to hearing about investing and they think of a
conventional investment type of loan.
However house hacking is a little bit different because we
use a primary residence loan.
So if we compare these two together, we first look at rates house hacking
wins because we get a primary residence rate instead of a higher
investment rate, dumped payment.
How sacking winds again?
We can use the minimum down payments.
Most of the time for these loans, FHA is 3.5% conventional 3%.
VA 0%.
USD is 0%.
Ease of use house hacking wins again, house hacking is just so
much easier because it's a primary residence we're going to live there.
We can just create a strategy that helps us offset some of those costs
compared to traditional investing.
Now traditional investing wins is in the protection, right?
The legal production that we can have.
If we turn this into something where we put the home into an
LLC, maybe we need some additional legal protection and creativity.
There are options that we can explore.
With loans on the commercial side that can be a lot more creative in the ways
that you're using the loan or qualifying for the loan than you can with a
primary residence and house hacking.
So I'm going to give you four strategies to consider with house.
I think there are plenty of more that you can do and be creative with them,
but here's just four to look at.
I'm going to rate these with tinfoil hat, hobby airs.
This is going to be the best way for you to decide or to determine how these
strategies fit into this current market.
At the moment.
So more tinfoil hat Javier is better than less tenfold H Javier okay.
So strategy one is to rent after one year, I'm going to give you this five.
Second is Airbnb.
I'm going to give this to number three, two to four units home.
I'm going to give this four.
This is classic house hacking.
And the number four is the rehab flip.
I'm going to give it one, the lowest honor that we can ever
give is one tinfoil hat hoppier.
So let's talk about these strategies.
Number one.
Is to rent after one year.
And I give this five tinfoil hat.
Javier is because I think this is the easiest one.
This is the one that's most profitable long-term I think I think it's really
going to be accessible for most people.
So here's the plan use any loan with the minimum down payment or whatever down
payment is more comfortable for you.
You live there for one year.
Again, we're looking at the occupancy role.
And then we rent out without having to refinance.
We can refine it if we want to, but if we refinance, we have to convert
it into an investment mortgage, which increases the interest rate.
So we live in there one year.
We don't have to refinance and then we can rent it out.
Okay.
So we rented it out and then we can go purchase another home that we
live in for the minimum down payment.
Take advantage of another primary residence loan.
So this primary residence loan still stays there.
We rented out after we live in there for a year.
Go use another primary residence loan to purchase our new home.
As far as how it affects our approval and debt to income ratio, it does not
because we're not renting it out yet.
We're renting it out a year from now.
The lender can't use that rental income.
As far as our budget, it's not going to impact our budget right now, monthly
until we rent it out in the future.
And then it's going to lower our mortgage costs significantly.
Ideally, if your mortgage payment is 1000, you'd likely are renting
that home for maybe a 1200 a month.
So it should, the rental income should be able to cover the future
mortgage payment a year for now.
Now long-term.
What the benefit is here.
Again, we took our timeline from here and we stretched out a little bit longer.
So this helps us gain appreciation and weather a downturn.
It helps us weather depreciation if it happens right, because let's say that
we purchase the home now, and then let's say all hell breaks loose, and
the market crashes and home values tank.
And so if that were to happen, That's okay.
We're planning on holding on to this loan for a long period of time and we're
still collecting rental income, ideally.
So it shouldn't affect us as much.
We're okay with purchasing a little bit more expensive because we're
collecting rental income and we can weather that depreciation because
we don't realize the appreciation.
It doesn't actually affect us unless we sell.
Okay.
As far as difficulty, this is super easy, right?
You don't have to do anything upfront.
You get a house like you normally would.
And then when you choose to leave instead of selling, you're
just going to rent it out.
And it doesn't have to be after one year, the one year as a minimum, if you want
to, it can be three years from now, five years from now, 10 years from now, it's
just the one year is the minimum here.
Second is Airbnb.
I'm gonna give this to tenfold hobbies and that's because I
personally wouldn't like doing this.
I wouldn't like people coming in and out of my home.
Maybe you find a home where you can lock off certain areas or maybe there's
a downstairs basement that has access.
You can do things like that.
I just personally wouldn't like this strategy.
I think it could be a little bit a little bit of a logistic nightmare, but
the plan here is to buy with any loan.
Live in the home while renting a room with shorter long-term rental with something
like Airbnb, or it can be whatever other site you want to use, the approval
that's income issue will not impact the lender can not use any of that income.
As far as your budget, it should lower your costs.
Pretty moderately.
This is gonna depend on where you live.
Airbnbs.
Aren't super hot here in Dayton, Ohio, right?
Not a lot of people are coming here.
So there's a lot of money in the Airbnb market here, but there's a lot of money
in the Airbnb market in Nashville or San Francisco or somewhere like that.
Long-term does the same thing as these other strategies helps you gain
appreciation and weather depreciation and can be combined with strategy
one maybe for the first year or so.
We do some stuff with Airbnb and then we choose to fully rent it out and go
use another primary residence loan.
When we choose to get another property, if we want.
In difficulty here.
I'm going to say this is hard because it depends on a lot on the market.
You also have to do the upkeep of making sure that you've clean and run
your Airbnb, almost like a business.
And you have people coming in and out which may not be favorable
for what you want in a home.
Especially if you have a family, number three, this is where you
purchase a two to four units, a home.
And then you live in one unit rent out the rest.
I'm going to give this for tenfold, how he hears this is classic house hacking.
So the plan here is a use an FHA loan, and you can use conventional,
but conventional starts at a 15% down payment where FHA is 3.5% down.
You live in one unit and rent out the other units.
Now.
As far as your approval and debt to income ratio, it's going to lower your debt to
income ratio and increase affordability.
And that's because you can use the rental income from those other units
to offset your mortgage payment.
Since that's lowered your debt to income ratio is lowered.
You can increase how much a purchase price you're able to qualify for and your budget
should lower your costs significantly.
Again, this is going to depend a ton on your market, but I'd say if you have a two
unit, you're probably going to be able to have half of your mortgage costs offset.
Possibly more, especially if you're looking at a three or a
four unit long-term again, we're gaining appreciation and we can
weather depreciation because we have a longer time horizon and it
can be combined with stretchy one.
Now, difficulty.
I think this is a moderate difficulty.
The hard part here is that if you think the one unit world of buying
a home or putting in offers as competitive, the two to four unit
is even more competitive because you're seeing more investors coming
in and there just are fewer of them.
So it can be a lot more competitive to get a two to four unit home.
And then if you don't like people, I think this is going to be hard
because keep in mind, you're going to be sharing walls with your tenants,
at least with something like Airbnb, you have people coming in and out and
you can turn it off if you want to.
Or you can, book spots where you don't have people coming in with this.
You might be having one tenant or two tenants or three
tenants, all living next to you.
Is that something that you want and can handle?
Because for a lot of people, I know that they would not be
able to handle that at all.
So keep that in mind.
Number four, this is the hardest one.
I'm gonna give you this one.
Tin foil hat hobby.
This is because or this is doing a rehab flip in the plan.
Here is you can use a rehab loan, something like an FHA, two or three
K or a Fannie Mae homestyle to renovate a distressed home and live
there for a minimum of one year.
Then you can choose to.
Brendan out or live there for as long as you want to really depends.
But as far as the distressed, it can be as little or as most.
Does that make sense distressed as you want it to be?
It could be some cosmetic work and fixing up the kitchen or it
could be full renovation depending on what you're looking for.
Approval and debt to income ratio.
This could increase the debt to income ratio and lower affordability
because you're not only financing the purchase price of the home,
but you're also financing the rehab costs in the loan as well.
That extra loan, the increased loan size is going to increase your debt to income
ratio and lower how much you can get approved for them as far as your budget.
It doesn't affect monthly unless it's a rented in the future.
Right?
Same thing with, if we're looking at strategy, one is we're going to
be living in the home for a year.
We can't rent it out for a year.
So the lender can't use any of that rental income that we project 12 months from now.
So in 12 months, if we do choose to rent it out, or we do Airbnb in the
middle of that, then that can help offset your payment for your budget.
Long-term again, gaining significant appreciation this time.
And this is because you're doing the rehab cost.
So you should be seeing quite a bit of equity coming from you doing the work
to renovate a distressed property or a property that just needs a little
bit of work to bring it up to normal.
Market condition.
And so even if the market stays flat or declines, you should
see considerable equity coming from the repairs that you made.
If you did them correctly, if you price them according to the market, right?
You're not going to go put in granite countertops in a market.
And, in a neighborhood that has $40,000 homes because you know
their neighborhoods and dating, they have 30 and $40,000 homes.
I'm not going to go put granite, nice granite countertops
and things in those homes.
I'm not going to get my money back.
If I do that.
Difficult to hear.
This is hard.
Because rehab loans are just inherently difficult, especially in this market
with the cost of materials and labor.
I think it's going to be difficult to use this type of loan, but
you could see considerable profit coming from something like.
This.
Okay.
And what are the best loans to use?
So there's four main types of loans.
You can use FHA.
This isn't really common in the house hacking world.
You can do 3.5% down and it's best for multi-family because we can do 3.5% down
anywhere from a one to four unit property.
Kim Mitchell is another option.
This is best for one unit.
And the reason why is we can do 3% down primary, but as soon as we
get to a two unit, it's 15% down, three to four unit is 25% down.
You used to be able to use a Freddie Mac's home possible program to do
I believe 5% down, but that program got sunset, I believe, last month.
So that's not available anymore.
Unfortunately.
USDA only for one unit here, you can do 0% down.
And if you're a veteran, you can do 0% down.
This is best for multi-family.
If you are a veteran here as well.
Okay.
And if you're interested in these loans and want to connect
with a broker, I connect with the brokers across the nation.
So if you'd like a referral, you can click the link in the
description or go to win the house.
You love.com/apply.
And I can connect you with a broker who can help you through these steps,
explore some different strategies and get pre-approved for a loan
and take a look at some quotes.
If you plan on collecting rental income, just as a side note, I highly advise a
minimum of three month buffer of reserves.
That means if the mortgage payments $1,000 a month, you have $3,000 set
aside in case of repairs or a vacancy.
So no one's renting at the moment or you lose your primary source of income.
You don't want to have this extra cost and not be prepared for anything that, any
emergency or anything unexpected comes up.
So how's hockey helps you take.
A more objective, look at a home rather than an emotional punch
with every dollar that feels like it's slipping out of your hands.
As home prices continue to rise.
And it also helps you stretch out your timeline to be a little bit longer,
so you can stomach the price increases and whether a potential downturn.
So if you're interested in seeing, if you can qualify for, one of the top
two loans for house hacking FHA and conventional, check out these videos
over here, there can help you explore.
If you can qualify and what you need to do to go ahead and get
preapproved for one of these loans.
So you can house hack.