I predict a housing crash due to people buying homes over asking price, lacking equity if prices decline further. Foreclosure becomes likely if they can't afford the house, and selling won't yield profits. With anticipated layoffs and rising living costs, many individuals may face this situation.
I suggest you offset your real estate and get into stocks, A recession as bad as it can be, provides good buying opportunities in the markets if you’re careful and it can also create volatility giving great short time buy and sell opportunities too.
You are right! I’ve diversified my portfolio across various market with the aid of an investment coach, I have been able to generate a little bit above $830k in net profit across high dividend yield stocks, ETF and bonds.
Diana Casteel Lynch is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.
I just googled her and I'm really impressed with her credentials; I reached out to her since I need all the assistance I can get. I just scheduled a meeting.
I am on my 3rd sneaky rental. When I discovered this I could not believe it. I couldn't believe the bank would give me another mortgage and let me turn my old home into a rental. All I needed was a lease agreement to cover my DTI. I grew up doing carpentry work (home remodels) with my uncle. I started a few businesses instead of ever getting a real job. When my wife and I purchased homes we always have looked for something we could improve upon and have projects to work on. Something we could force equity into. I have grown my businesses to where I own them and they don't own me, allowing me more time with family and to renovate our current sneaky rental/home. It took about 8 years into our "real estate investment" journey to start realizing some decent cash flows. We're in year 9 now, and the snowball is starting to really roll. Exciting stuff. Glad you guys shared this.
Congrats...os there a way you can explain the 5% down using a lease agreement t from my other rental properties....I'm stuck in the middle of the process and not understanding what to tell my banker......also dontou find with mortgage insurance added because not puttingv20% down messes with your cash flow? Thanks in advance....and congrats again on your journey
@@madbarber1670 Just be super transparent. You own the home your in, you want to buy another for 5% down. If it is the DTI that is messing up the possibilities, a lot of lenders will cover the debt you have on your first home with a lease agreement. I've found honesty is the best policy paired with conservative cash management and you should be good.
You've managed to overcome perhaps the most difficult part of the sneaky rental strategy, which is to have a wife that shares your long-term financial goals and is willing to repeatedly move every 2 years and live in fixer upper properties and even share those family living arrangements with renters (strangers). This is a great strategy for single people, but I don't think most women would want their families to live like this. So you're way ahead of the game if your wife is on board with the plan.
I’ve been doing this since 2017. Bought a 4 unit with 4% down, two years later, sold it, bought a 12 unit, duplex, and invested in 5 cabins. Since then I’ve bought a single family home with an adu that’s on Airbnb. I wasn’t able to buy in good areas until the latest house. Ready to quit my day job in less than a year.
I bought a duplex back in 2020 before Covid and now how can I get another property with the interest rates so high and the prices of the homes that are so high I do live on one side and rent out the other how can I do this to get another property, please help
@@switchkey2010 you'll have to widen your search to neighborhoods, or cities, or even states with lower prices. Ideally you find one in an area where short term rentals are allowed, in areas where people travel to. If your first place has less than 20% equity, I'd look into getting it appraised to see if you have enough equity now. When you buy your second, make sure you let the lender know you're buying it as a primary residence. Fortunately, interest rates will likely come down by the end of the year. Most lenders will auto refi within 2 years, if the rate comes down.
Love it! This is how I bought my first two sfh in Phoenix. I got in to the first one for 210k at 3.5% down fha. Did a cash out refi 2 years later, used that for a 5% down payment on a 400k house. Now the first one is a long term rental, and I’m currently saving up for another one to redo this same process. Very powerful strategy imo for new investors.
There is some nuance to what they’re indicating that does not make this 100% accurate..in the sense that if you vacate your property and still want to hold on to the previous home as a rental have to still qualify for the new loan that you are getting based on personal and/or rental income from old property. So the gentleman mentioning 25 homes in 25 years is assuming you could carry the note from a creditworthiness standpoint for that many homes, which is unlikely for most people. At some point you will need to sell off some assets Which is a smart strategy for liquidity but as far as the low barrier of entry to get into rental investing for 1-3 homes this advice is solid. I’m a Realtor that loves biggerpockets fyi
If your income doesn’t go up significantly in this time your buying power is still limited. They add 75% of the rental income to your income but require 2-3x the mortgage payment on your income so each time you get a new property you have less buying power. Also, there are conventional loans that allow you to put 5% down on a property so you don’t necessarily need to do it this way unless you are using an FHA loan
This really depends on where you live. There is still historically low inventory in the US. This also means there are historically fewer properties that qualify to be able to do this. Not all locales or neighborhoods allow adding ADUs to an existing multi or single-family home either. So please do the research before buying a property to execute this strategy.
I was going to do this but I found it very difficult to find a 3 or 4 unit building that would be even break even cashflow when I was putting down only 5%, even when including what I would have paid in rent. A lot of them would have been $4k out of pocket per month vs $2k if I was renting.
@@charm71297 LA area, I've looked in several neighbourhoods here but none of them really work unless you're OK with a really run down building in like Compton.
This is my exact concern. The high cost of housing coupled with the fact that you can only so much for rent make it hard to see how you can be cash flow positive
You could consider reaching out to David Greene and Christian (his lender in the video). They've got a great team, live and invest in your area! I'm going to use the David Greene Team when I'm ready to buy in CA, which is 2023. David (and team) specializes in finding value add properties.
Well your not renting to the right market then. Have you ever heard of insurance relocations.. they will get you to the price you need to cover the mortage or mid term professionals. In your market this can be smarter because rent won't cover
Excellent, you two! So helpful. However, I think Christian may have made a math error. When you do your third house/houshack, that single property wouldn’t likely be expected to DOUBLE the gains of the first two properties. Using your example, you might go to bringing in $72K with two properties and then by adding another $36K with the third property, you’d be closer to $108K, and not closer to $150K. Now, if you did TWO more properties at $36K each then, yes, you would be closer to the theoretical $144K/$150K.
Just don't understand how is the mortgage on 475k loan is 2000 a month when the rates are 6.5-7 percent? According do Zillow calculator the monthly mortgage including the property tax and PMI will be around 3900
This doesn’t apply to out of state investors looking to purchase their 2nd, 3rd or 4th investment property without having to put down 25%. I wish they would do an episode specifically on purchasing out of state investments without putting 20% - 30% down. Not everyone can or wants to house hack
One thing they should address is the significantly higher mortgage payment when you put 5% down. If you have a high mortgage and still have to pay to renovate the house, it is very possible your expenses will exceed your income (if you are a moderate wage earner). Also, if you turn a single family into a multi-family you will pay more in property taxes. When you do end up renting it out, if the rent(s) don’t exceed the costs (mortgage, vacancy, cap ex, shared utilities etc) you may still be coming out of pocket after you move. My point: this approach is conceptual, you must run the realistic numbers to see if it will make sense.
I have like $200k in equity in my house right now, after my tenants move out this coming April, any suggestions on the best way to invest? With the DSCR loan option or FHA or Conventional? and are TurnKey rentals a good investment to get into? They are all set with tenants ready to go...idk any recommendations thanks!
Adding a dwelling unit is not a ordinary thing to do.... zoning laws wont allow you to do that. He's talking about a unicorn.... that's not the common find. I agree with him on putting that $ into improving them.
Why in Florida if its a Multifamily you need 25% down? (It doesn't matter if tis a Primary Residence or an Investment). *I am not talking about commercial, I am talkin about residential multi.
This works great on the first home and maybe the second. However if you plan to get an agency loan each time you will end up having a DTI that is too high to qualify for the next purchase. Even with the rental income.
@@Mrzdavis11 no that will not work. You can move the ownership under the LLC, but the mortgage will still be in your name and on your credit report. So, when you go to buy the NEXT property and apply as if it is your primary residence, the lender will still see that other mortgage there and you will need to qualify with that mortgage being calculated in your DTI.
That might be in the US. Here in New Zealand you need 20% for a residential property and up to 50% for investment property. The cheapest house in the country is 350k and salaries $60k a year.
I love this! I purchased my first home (w/ a granny flat) with 20% down. I then purchased all my other properties with 5% down with granny flats. I STILL regret putting 20% down on the first house, which is a lot bc I’m in San Diego! 😅
Purchasing those multiple rental properties in San Diego must’ve been several years ago when the home prices and mortgage rates were significantly lower than today
@@kdvwusm I’ve purchased a house every 12-18 months since 2016 to 2022. But it always seemed expensive when I purchased. I was convinced I was purchasing at the the top of the market and each time
@@JCizzleSoCal Started in 2016 and continued through 2022. Each property cash flows, even the property purchased recently. It just needs to pencil at the end of the day
Isn't there a limit to 10 conventional loans with this strategy? Technically 4 in some cases depending on credit and your debt to income ratio? I'd like to see a video on how to manage getting to 25 properties if there is a hard cap on getting traditional loans in the scenario you're talking about there.
Portfolio lending or investor friendly lenders. I believe there are a few videos from BP on this topic and definitely a lot of info on their site. Always good to partner to local banks and build relationships with lenders.
@chadhamlet I own 13 properties. The 10 loans you are referring to are only in your personal name. You are able to secure a bunch of different loan products like a DSCR loan that looks at a property's revenue potential rather than just your personal income and existing debt. I took three properties I had in my personal name and refinanced with a portfolio loan to get them outta my name. Where there's a will there's a way!
I turned my condo into a rental. I purchased low, and now I rent it out. I would like to purchase a duplex, but if you get a primary property in another city. You have to be a 100 percent remote employee, or plan to.move there.
I think these are great talks and very educational, thanks for providing this info to the community. If I can make a suggestion, since we're talking numbers and how they evolve in the process, I think a written visual support (like a slide, or a whiteboard) will be tremendously helpful.
If you purchase a property 5% down with a convention loan (Owner Occupied) and then live in it for 2.5 years. During that time, you make improvements to the residence then buy another owner-occupied residence does the first residence have to be refinanced into an investment mortgage? If so, wouldn't that property than require 20% down on the loan?
You know I'm doing this already on my primary residence. No one is talking about insurance! You have a regular HO-3 insurance policy so what if the insurance company does a search on the web of your property and finds out you are advertising your residence for rental? I know I know you can do what you want with your rooms in the house, but can the mortgage company call your loan? Can the insurance company cancel your policy if they find out you're renting the rooms out? Mine almost did when I inquired into it and I said I wasn't doing it just thinking about it. There is no liability if the roommates/renters or their guests get hurt on your property and the insurance may not pay out if you didn't tell them you were renting. It's a risk guys,.....but it's worth it.
Why does it matter if the property is turn key that you bought ? As long as it cashflows when you move out thats what matters. Buying one property and making two more units out of it sounds like alot of money and zoning issues with the town.
great strategy but concerned how does this play with a family (wife and kids). Not sure my wife wants to move from houses every year or live in a MFH unit. Can this be used for SFH?
My favorite podcast I've listened all recent ones so now I'm going backwards and glad to be able to listen to all the great people on the podcast they all seem to want to progress and grow it's awsome thank you David and all the hosts.
Hold up! Some of those mortgages require you to stay in the house for a period of time and if you move out that would be considered a violation of your mortgage agreement. If you don't tell them (read, sneaky) thats mortgage fraud and you may find yourself in a bad place.
As veterans we have it made when it comes to RE investing. I wish more vets would take advantage of the VA loan. Those I have been able to help so far have been doing great things (I'm a lender).
Does the bank in the US allow you to use rent to cover your mortgage fully if the rent covers the monthly mortgage payment? the reason i ask this is because in canada, even if the rent covers the monthly mortgage payment, the bank will only give you about ~1/3 of the mortgage, the rest will need to be covered by your salary. so keep buying property and renting out become extreme difficult.
VERY GOOD CONTENT . SAVES YOU ALL RENT MONEY PLUS YOU OWEN HOME AND 5 YEARS LATER YOU OWN MORE PROPERTIES JUST BECAUSE YOU PURCHASE THIS ONE ONE TIME .
This is a great strategy to get started, good talk. Not so feasible if you have a family. I’ve done two properties like this but my family grew quicker than my properties so I switched to brrrrrrrrr
Can you explain what having kids has anything to do with it? Are you guys saying you need more bedrooms for said children so you can’t find a smaller property to start with?
I am doing it with my small family right now. I have a full basement with 3 beds and 1 full bath. Renting it out to a young couple while my kids and I live upstairs.
@@tavianstewart7960 when you have kids, you can do this until kids enter school. After that, you wouldn’t want to move every year or two, and have kids change schools that often. It’s practically unstable for kids.
My question is can you keep the mortgage on your first house hack as 30 year 5% down? Or do you have to then transfer that loan into a commercial loan, which would then force you to come out with money for the higher down payment.
In Pennsylvania you have to put down 15% on a duplex conventional loan even if it’s a primary residence. It’s 25% for three units or above even on primary residence. Where are you getting the 5% down number for multifamily primary residence?
I live in PA. You either use a FHA 3.5% down on a 2 to 4 unit or use David’s strategy of buying a single family with a 5% conventional and dividing it into ADUs.
There’s certain conventional products that allow 5% down on a multifam but you have to meet their income requirements. It’s usually capped up to a certain point. It’s more so for lower income households.
Can't imagine how many people are going to try this and find out the harsh realities of zoning laws, permitting, etc. Not to mention getting blacklisted for trying to bail before FHA loan has seasoned.
Hi David, Been watching and listening for a long time. Can you do a detailed episode on 1031 exchanges. Pros, cons. and all the nitty gritty details and ins and outs. how you 1031 into a new build ie Lennar or DR horton build. what if you 1031 down instead of the usual up (as in 1031 to getting more units and bigger deals). it would be great with a lot of examples too. Thank you!
I have a family and want to get in RE investing but how do I get away with the requirement though. I live in my primary currently and want how to buy another one to move in and rent out the current property. Approved for conventional, they want my next house to be same or more size such as # of bedrooms, bath, and sf. This is a big obstacle that stop me from finding a match or bigger property with my price range. Thoughts?
Hello! Very valuable video but what does one do who has a huge family living together in their current house (kids and seniors) and cannot just pickup and move to one house to another easily
Hi David! New listener, 8 yr investor. Been using this tactic for 8 years and now it's starting to get more complicated with qualifying (DTI limits and restrictions) and trying to get more creative with progressing the portfolio. I would like to see what your take would be on what you would do in my situation or if what I'm doing is even a good idea. All of my investments are in the bay area with a mix of single family and multifamily looking to large scale house hack and I feel at times I'm getting in over my head as I am still learning new things every day and hoping that I don't have to learn too much if you catch my drift. I know you're probably busy, but I'm hoping my Bay Area investing journey would be interesting to you and maybe some listeners as I don't feel like my situation is too out of left field that other people can reasonably replicate. Let me know if we can link up!
What if I’m not in a position to live in one of the units (young kids/family and I’m investing out of state) if a multi-unit investment house? Is there any way I can still take advantage of the 5% down. What are the terms for “living in the residue se”? What if I just keep one of the units unoccupied for when I’m in town?
So you guys talk about doing this 20+ times but wouldn't you DTI cap out pretty quickly with this strategy? Seems like a great way to get the first 4 properties though.
The most important thing that should be on everyone's mind currently should be to invest in different sources of income that doesn't depend on the government. Especially with the current economic crisis around the word. This is still a good time to invest in various stocks, Gold, silver and digital currencies.
Usually we can use 75% of the rental income to offset that mortgage payment. When you get a little bit further along and DTI is really a problem that is where DSCR loans come in to save the day.
I’ve done a couple rentals this way and I Don’t like this video for a couple reasons. Leverage is high No mention of PMI It’s mortgage fraud if you lie to the lender about your intentions. Importance of heavy cash reserves, especially in todays market.
This appears to only really work in certain areas that are not HCOL areas. LA, Bay Area, NY and other areas are near impossible to even break even let alone be underwater using this are a major barrier to entry.
Good morning, I listened to your podcasts often and have learned a lot, thank you. I am interested in real estate investing and currently paying a 2.87 % interest rate for a 4/2 2300 Sq home that I would like to rent. My mortgage payment is 1,188 including insurance and pmi. I can potentially rent it for about 2300 or room to room for about 2800. I am currently looking in my area for a fixer upper that I can move into while I fix. I called 2 lenders so far and they are telling me I cannot purchase another primary residence with 5% down which is all I have at the moment. They are telling me to refinance to get the 25% downpayment. No way am I going to do that. Question, do I have to tell lenders that I would like to purchase a rental instead of a primary.( my issue is not having 20% downpayment) I would also use the projected rent to help with my DTI since I am only now making about 55k/ year. My price range is around 250k. I am in Ocala Fl, lived in current home for 6 years and have about 170,000 equity. Thanks in advance. (Sorry for such a long text)
his recommendation is to purchase something the lenders can verify is a multifamily. You cant buy a SF home with intent to rent out rooms and call it MF. It has to be a duplex or SF with a permitted ADU at the very least. But you can buy a SF home and build an ADU or basement apartment from it and sell it as a MF home for the next person.
@ivorine, I wouldn't refi that loan either, smart move! What I did to buy my 2nd home, was to find my next primary residence, with 5% down (as you're trying to do). You have a couple of options. The $170k in equity, you can get a HELOC (home equity line of credit) yet that has to be done only on a primary residence. Once you get approved for a HELOC, it's only on paper (electronic now) until you use it. It's very much like a credit card (cc), LOC = Line of Credit, just like a cc. I'd prob ask for $100k LOC to cover your down payment, and any rehab to both properties. So I'd get that HELOC in place with your bank or credit union. You only pay when you borrow the money. After that, you can look for the next home to move into so you can rent out your primary. At this point, your current primary becomes your rental and your new home becomes your primary. Reach out if I can help you understand any of this, I'm a new investor with my first investment property. Best of luck!
@@sreehill GM, thank you very much for taking time out to give such invaluable info. Really appreciated! Question, wouldn't the chances of getting a loan for second home with downpayment from HELOC work against me? Even though I only have my mortgage and a car payment where my daughter is also on the loan because I helped her to get financing. Payment $368. Since my employment income is only at 55000, wouldn't my DTI be too much with the HELOC. By the way, my daughter pays car payment , just graduated from UCF with Bachelors degree and has no debt and just establishing credit. She just turn 20 and is very responsible. ( Sorry for ranting, I'm just so proud of her!)
Awesome suggestions!! So a LLC isn't necessary in your eyes? I ask this because I've been told that you can only do this under your personal name. I also heard about moving properties to a LLC after purchase if the mortgage company allows it. Do you suggest this method?
Ok I can see this working but all I been able to find on conventional loans that give you 5% you have to keep it as your primary so how does that work for the next one, refinancing ?
Loved this. However, wouldn't you say with the high interest rates, it's kind of digging into that "low" entry down payment? I'd say over time it probably ends up being 10-15% or more with the astounding interest rates. But I still loved the video and hope to get real estate of some sort this year. Hopefully through creative financing.
So if I buy my first primary residence at a 5% down payment. I live in it for a year, possibly add another unit or two. I then simply find another house that I can see doing the same thing. 5% down again. But when I move out of first one after the year, I have no strings tied even though that is no longer my primary residence? The bank won’t come after me for more money as that’s how I leveraged the 5% down and not 20-25%? That’s the part I don’t get. Or after the year am I refinancing the first primary residence as in this example I rehabbed it and added units, adding value. I now get equity to move into another primary residence correct? The banks or whoever is fine with me just renting out that first residence even tho a year prior I said it’s my primary and how I only had to pay 5%? Sorry if I’m confusing or misunderstanding. It just sounds to easy to make that move to 2nd house so just want that clarified. Thanks!!
Yep as long as you lived in it for a year. If you have your closing docs go through them and if it's a conventional loan it will say you will move in within 60 days and intend to occupy the residence for at least a year. After the year you don't have to even notify your lender and it is completely legal. If you never live in the property that's a whole different story...
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I predict a housing crash due to people buying homes over asking price, lacking equity if prices decline further. Foreclosure becomes likely if they can't afford the house, and selling won't yield profits. With anticipated layoffs and rising living costs, many individuals may face this situation.
I suggest you offset your real estate and get into stocks, A recession as bad as it can be, provides good buying opportunities in the markets if you’re careful and it can also create volatility giving great short time buy and sell opportunities too.
You are right! I’ve diversified my portfolio across various market with the aid of an investment coach, I have been able to generate a little bit above $830k in net profit across high dividend yield stocks, ETF and bonds.
Do you mind sharing info of the adviser who assisted you?
Diana Casteel Lynch is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.
I just googled her and I'm really impressed with her credentials; I reached out to her since I need all the assistance I can get. I just scheduled a meeting.
I am on my 3rd sneaky rental. When I discovered this I could not believe it. I couldn't believe the bank would give me another mortgage and let me turn my old home into a rental. All I needed was a lease agreement to cover my DTI. I grew up doing carpentry work (home remodels) with my uncle. I started a few businesses instead of ever getting a real job. When my wife and I purchased homes we always have looked for something we could improve upon and have projects to work on. Something we could force equity into. I have grown my businesses to where I own them and they don't own me, allowing me more time with family and to renovate our current sneaky rental/home. It took about 8 years into our "real estate investment" journey to start realizing some decent cash flows. We're in year 9 now, and the snowball is starting to really roll. Exciting stuff. Glad you guys shared this.
Congrats...os there a way you can explain the 5% down using a lease agreement t from my other rental properties....I'm stuck in the middle of the process and not understanding what to tell my banker......also dontou find with mortgage insurance added because not puttingv20% down messes with your cash flow? Thanks in advance....and congrats again on your journey
@@madbarber1670 Just be super transparent. You own the home your in, you want to buy another for 5% down. If it is the DTI that is messing up the possibilities, a lot of lenders will cover the debt you have on your first home with a lease agreement. I've found honesty is the best policy paired with conservative cash management and you should be good.
You've managed to overcome perhaps the most difficult part of the sneaky rental strategy, which is to have a wife that shares your long-term financial goals and is willing to repeatedly move every 2 years and live in fixer upper properties and even share those family living arrangements with renters (strangers). This is a great strategy for single people, but I don't think most women would want their families to live like this. So you're way ahead of the game if your wife is on board with the plan.
With today's prices and interest rates, do you think it's feasible to repeat similar success for someone starting new? Genuinely curious
Preach!
I’ve been doing this since 2017. Bought a 4 unit with 4% down, two years later, sold it, bought a 12 unit, duplex, and invested in 5 cabins. Since then I’ve bought a single family home with an adu that’s on Airbnb. I wasn’t able to buy in good areas until the latest house. Ready to quit my day job in less than a year.
You still on road to quit your job? Still doing good
@@spurs5677 I am! Next summer
Nice!! Congratulations
I bought a duplex back in 2020 before Covid and now how can I get another property with the interest rates so high and the prices of the homes that are so high I do live on one side and rent out the other how can I do this to get another property, please help
@@switchkey2010 you'll have to widen your search to neighborhoods, or cities, or even states with lower prices. Ideally you find one in an area where short term rentals are allowed, in areas where people travel to. If your first place has less than 20% equity, I'd look into getting it appraised to see if you have enough equity now. When you buy your second, make sure you let the lender know you're buying it as a primary residence. Fortunately, interest rates will likely come down by the end of the year. Most lenders will auto refi within 2 years, if the rate comes down.
Love it! This is how I bought my first two sfh in Phoenix. I got in to the first one for 210k at 3.5% down fha. Did a cash out refi 2 years later, used that for a 5% down payment on a 400k house. Now the first one is a long term rental, and I’m currently saving up for another one to redo this same process. Very powerful strategy imo for new investors.
How much more did your 1st mortgage go up by?
@@MrBklynTrini that's what i wanna know too
Did you live in the 3.5% property?
Do you have to wait two years? Can do like idk 6 mos and buy another?
There is some nuance to what they’re indicating that does not make this 100% accurate..in the sense that if you vacate your property and still want to hold on to the previous home as a rental have to still qualify for the new loan that you are getting based on personal and/or rental income from old property. So the gentleman mentioning 25 homes in 25 years is assuming you could carry the note from a creditworthiness standpoint for that many homes, which is unlikely for most people. At some point you will need to sell off some assets Which is a smart strategy for liquidity but as far as the low barrier of entry to get into rental investing for 1-3 homes this advice is solid. I’m a Realtor that loves biggerpockets fyi
These discussions with David and Christian are my favorite.
If your income doesn’t go up significantly in this time your buying power is still limited. They add 75% of the rental income to your income but require 2-3x the mortgage payment on your income so each time you get a new property you have less buying power. Also, there are conventional loans that allow you to put 5% down on a property so you don’t necessarily need to do it this way unless you are using an FHA loan
This is exactly how we started investing!! We did this strategy 3 times already and it’s great!
How are you putting this in your name and not using a LLC? Aren't FHA and Conventional loans only in personal names and not LLC?
This really depends on where you live. There is still historically low inventory in the US. This also means there are historically fewer properties that qualify to be able to do this. Not all locales or neighborhoods allow adding ADUs to an existing multi or single-family home either. So please do the research before buying a property to execute this strategy.
What kind of legal obstacles are involved with converting a single unit into 2 or 3 units? Like permits, zoning, etc.
What about those who are already living in their primary residence?
I was going to do this but I found it very difficult to find a 3 or 4 unit building that would be even break even cashflow when I was putting down only 5%, even when including what I would have paid in rent. A lot of them would have been $4k out of pocket per month vs $2k if I was renting.
What area were you looking at? I've had a similar issue in nj
@@charm71297 LA area, I've looked in several neighbourhoods here but none of them really work unless you're OK with a really run down building in like Compton.
This is my exact concern. The high cost of housing coupled with the fact that you can only so much for rent make it hard to see how you can be cash flow positive
You could consider reaching out to David Greene and Christian (his lender in the video). They've got a great team, live and invest in your area! I'm going to use the David Greene Team when I'm ready to buy in CA, which is 2023. David (and team) specializes in finding value add properties.
Well your not renting to the right market then. Have you ever heard of insurance relocations.. they will get you to the price you need to cover the mortage or mid term professionals. In your market this can be smarter because rent won't cover
Excellent, you two! So helpful. However, I think Christian may have made a math error. When you do your third house/houshack, that single property wouldn’t likely be expected to DOUBLE the gains of the first two properties.
Using your example, you might go to bringing in $72K with two properties and then by adding another $36K with the third property, you’d be closer to $108K, and not closer to $150K.
Now, if you did TWO more properties at $36K each then, yes, you would be closer to the theoretical $144K/$150K.
Just don't understand how is the mortgage on 475k loan is 2000 a month when the rates are 6.5-7 percent? According do Zillow calculator the monthly mortgage including the property tax and PMI will be around 3900
Yeah i thought the rule of thumb was basically 1000 dollars for every 100 thousand...
I agree I don't know what area they are buying these properties. Plus wouldn't you have pmi on top of that mortgage.?
I Guess it also depends on the property taxes but I agree
@@ib1ray Wait, you're saying an $800k house will cost $8k a month?
Exactly. The mortgage with do little down would be so high. How does this work?
This doesn’t apply to out of state investors looking to purchase their 2nd, 3rd or 4th investment property without having to put down 25%. I wish they would do an episode specifically on purchasing out of state investments without putting 20% - 30% down. Not everyone can or wants to house hack
Agreed! Or some of us have kids and are W2s and changing our address even if down the block, cannot happen.
One thing they should address is the significantly higher mortgage payment when you put 5% down. If you have a high mortgage and still have to pay to renovate the house, it is very possible your expenses will exceed your income (if you are a moderate wage earner). Also, if you turn a single family into a multi-family you will pay more in property taxes. When you do end up renting it out, if the rent(s) don’t exceed the costs (mortgage, vacancy, cap ex, shared utilities etc) you may still be coming out of pocket after you move.
My point: this approach is conceptual, you must run the realistic numbers to see if it will make sense.
I have like $200k in equity in my house right now, after my tenants move out this coming April, any suggestions on the best way to invest? With the DSCR loan option or FHA or Conventional?
and are TurnKey rentals a good investment to get into? They are all set with tenants ready to go...idk any recommendations thanks!
What lender do you use for DSCR loans?
Adding a dwelling unit is not a ordinary thing to do.... zoning laws wont allow you to do that. He's talking about a unicorn.... that's not the common find. I agree with him on putting that $ into improving them.
Why in Florida if its a Multifamily you need 25% down? (It doesn't matter if tis a Primary Residence or an Investment). *I am not talking about commercial, I am talkin about residential multi.
This works great on the first home and maybe the second. However if you plan to get an agency loan each time you will end up having a DTI that is too high to qualify for the next purchase. Even with the rental income.
Move them under an LLC🎉
@@Mrzdavis11 no that will not work. You can move the ownership under the LLC, but the mortgage will still be in your name and on your credit report. So, when you go to buy the NEXT property and apply as if it is your primary residence, the lender will still see that other mortgage there and you will need to qualify with that mortgage being calculated in your DTI.
That might be in the US. Here in New Zealand you need 20% for a residential property and up to 50% for investment property.
The cheapest house in the country is 350k and salaries $60k a year.
I love this! I purchased my first home (w/ a granny flat) with 20% down. I then purchased all my other properties with 5% down with granny flats. I STILL regret putting 20% down on the first house, which is a lot bc I’m in San Diego! 😅
Love it!!
But wouldn’t your mortgage be any high….. at least now it is
Purchasing those multiple rental properties in San Diego must’ve been several years ago when the home prices and mortgage rates were significantly lower than today
@@kdvwusm I’ve purchased a house every 12-18 months since 2016 to 2022. But it always seemed expensive when I purchased. I was convinced I was purchasing at the the top of the market and each time
@@JCizzleSoCal Started in 2016 and continued through 2022. Each property cash flows, even the property purchased recently. It just needs to pencil at the end of the day
Isn't there a limit to 10 conventional loans with this strategy? Technically 4 in some cases depending on credit and your debt to income ratio? I'd like to see a video on how to manage getting to 25 properties if there is a hard cap on getting traditional loans in the scenario you're talking about there.
Portfolio lending or investor friendly lenders. I believe there are a few videos from BP on this topic and definitely a lot of info on their site. Always good to partner to local banks and build relationships with lenders.
Expand outside of conventional/traditional. Asking banks goes a long way.
@chadhamlet I own 13 properties. The 10 loans you are referring to are only in your personal name. You are able to secure a bunch of different loan products like a DSCR loan that looks at a property's revenue potential rather than just your personal income and existing debt. I took three properties I had in my personal name and refinanced with a portfolio loan to get them outta my name. Where there's a will there's a way!
I turned my condo into a rental. I purchased low, and now I rent it out. I would like to purchase a duplex, but if you get a primary property in another city. You have to be a 100 percent remote employee, or plan to.move there.
I think these are great talks and very educational, thanks for providing this info to the community. If I can make a suggestion, since we're talking numbers and how they evolve in the process, I think a written visual support (like a slide, or a whiteboard) will be tremendously helpful.
David, you’re the best honestly… your humble and practical, and we provide advice that benefits investors at all levels. Thank you!
If you purchase a property 5% down with a convention loan (Owner Occupied) and then live in it for 2.5 years. During that time, you make improvements to the residence then buy another owner-occupied residence does the first residence have to be refinanced into an investment mortgage? If so, wouldn't that property than require 20% down on the loan?
I want to do this but I don’t know how only putting 5% down is possible with these home prices and interest rates. In Canada, everything is insane.
@Megs, it's insane here in the US too! A home has to "pencil out", lots of creative thinking sometimes to get the numbers to work.
You know I'm doing this already on my primary residence. No one is talking about insurance! You have a regular HO-3 insurance policy so what if the insurance company does a search on the web of your property and finds out you are advertising your residence for rental? I know I know you can do what you want with your rooms in the house, but can the mortgage company call your loan? Can the insurance company cancel your policy if they find out you're renting the rooms out? Mine almost did when I inquired into it and I said I wasn't doing it just thinking about it. There is no liability if the roommates/renters or their guests get hurt on your property and the insurance may not pay out if you didn't tell them you were renting. It's a risk guys,.....but it's worth it.
Why does it matter if the property is turn key that you bought ? As long as it cashflows when you move out thats what matters. Buying one property and making two more units out of it sounds like alot of money and zoning issues with the town.
Can this be done if you already have a primary residence with a 30 year mortgage? How can it still be done?
No you cannot, if you have a property already, any next property it will be 20% +. This only works when you are first time buyer
Wrong
@@agustinaperez9145 that's it? what's your argument, I have experience on this
great strategy but concerned how does this play with a family (wife and kids). Not sure my wife wants to move from houses every year or live in a MFH unit. Can this be used for SFH?
My favorite podcast I've listened all recent ones so now I'm going backwards and glad to be able to listen to all the great people on the podcast they all seem to want to progress and grow it's awsome thank you David and all the hosts.
Hold up! Some of those mortgages require you to stay in the house for a period of time and if you move out that would be considered a violation of your mortgage agreement. If you don't tell them (read, sneaky) thats mortgage fraud and you may find yourself in a bad place.
Only thing is how would they know? I could say that's my primary residence and be living with my parents or gf off the books lol
Amen. On my 3rd looking to buy my 4th in December
How do people split utilities with ADUs?
Or if you are using a VA loan, then it is zero down (subject to limitations on reusing benefits, etc).
As veterans we have it made when it comes to RE investing. I wish more vets would take advantage of the VA loan. Those I have been able to help so far have been doing great things (I'm a lender).
How can I use my current home as rental and get new loan buy a house to live in?
Do you have any videos on how to properly convert 1 unit into 2 or 3 and or ADU additions?
Does the bank in the US allow you to use rent to cover your mortgage fully if the rent covers the monthly mortgage payment? the reason i ask this is because in canada, even if the rent covers the monthly mortgage payment, the bank will only give you about ~1/3 of the mortgage, the rest will need to be covered by your salary. so keep buying property and renting out become extreme difficult.
VERY GOOD CONTENT . SAVES YOU ALL RENT MONEY PLUS YOU OWEN HOME AND 5 YEARS LATER YOU OWN MORE PROPERTIES JUST BECAUSE YOU PURCHASE THIS ONE ONE TIME .
Hi i have heard so many podcast on pandora your podcast to be exact i love all the info thank you
How do you prove to the lender that it will be your primary residence if you don’t plan on selling your first home?
Yes, I'm confused about that also.
I would like to know the answer to this also.
The location has to make sense. Meaning it can’t be too far from your employer or next door to where you currently live.
A signed lease is the easiest way to show this.
This is a great strategy to get started, good talk. Not so feasible if you have a family. I’ve done two properties like this but my family grew quicker than my properties so I switched to brrrrrrrrr
Yes, I am in that boat. I will need to start with Brrr because I have a family.
Can you explain what having kids has anything to do with it? Are you guys saying you need more bedrooms for said children so you can’t find a smaller property to start with?
I am doing it with my small family right now. I have a full basement with 3 beds and 1 full bath. Renting it out to a young couple while my kids and I live upstairs.
@@heatherharmon2679 This is what I am looking for. Fingers crossed.
@@tavianstewart7960 when you have kids, you can do this until kids enter school. After that, you wouldn’t want to move every year or two, and have kids change schools that often. It’s practically unstable for kids.
My question is can you keep the mortgage on your first house hack as 30 year 5% down? Or do you have to then transfer that loan into a commercial loan, which would then force you to come out with money for the higher down payment.
In Pennsylvania you have to put down 15% on a duplex conventional loan even if it’s a primary residence. It’s 25% for three units or above even on primary residence. Where are you getting the 5% down number for multifamily primary residence?
In California they were going to let me do as low as 3.5% down but the loan is enormous and most people would not be able to qualify for that
I live in PA. You either use a FHA 3.5% down on a 2 to 4 unit or use David’s strategy of buying a single family with a 5% conventional and dividing it into ADUs.
@@kevincauto8080 thank you for clarifying! I appreciate it
There’s certain conventional products that allow 5% down on a multifam but you have to meet their income requirements. It’s usually capped up to a certain point. It’s more so for lower income households.
I was told, we need to pay taxes on rental income before mortgage payments. Might end up losing money here
Can't imagine how many people are going to try this and find out the harsh realities of zoning laws, permitting, etc. Not to mention getting blacklisted for trying to bail before FHA loan has seasoned.
Hi David, Been watching and listening for a long time. Can you do a detailed episode on 1031 exchanges. Pros, cons. and all the nitty gritty details and ins and outs. how you 1031 into a new build ie Lennar or DR horton build. what if you 1031 down instead of the usual up (as in 1031 to getting more units and bigger deals). it would be great with a lot of examples too. Thank you!
“ virtually”:( which means mostly not) guaranteed. As long as ( which means that your miles may be zero) right locations….. are locations defined ?
Hello all , does this work on new build 4 plex as well??
I have a family and want to get in RE investing but how do I get away with the requirement though. I live in my primary currently and want how to buy another one to move in and rent out the current property. Approved for conventional, they want my next house to be same or more size such as # of bedrooms, bath, and sf. This is a big obstacle that stop me from finding a match or bigger property with my price range. Thoughts?
Hello! Very valuable video but what does one do who has a huge family living together in their current house (kids and seniors) and cannot just pickup and move to one house to another easily
You would just move there 😉😉 as your primary residence and then move out shortly after.
Hi David! New listener, 8 yr investor. Been using this tactic for 8 years and now it's starting to get more complicated with qualifying (DTI limits and restrictions) and trying to get more creative with progressing the portfolio. I would like to see what your take would be on what you would do in my situation or if what I'm doing is even a good idea. All of my investments are in the bay area with a mix of single family and multifamily looking to large scale house hack and I feel at times I'm getting in over my head as I am still learning new things every day and hoping that I don't have to learn too much if you catch my drift. I know you're probably busy, but I'm hoping my Bay Area investing journey would be interesting to you and maybe some listeners as I don't feel like my situation is too out of left field that other people can reasonably replicate. Let me know if we can link up!
Are you literally living in these places for a year? Or "living" in them?
@@yrutryin2bme I actually did live in them
When you buy a single family and divide it into 3 dwelling units, do you run into municipality issues when you move out and get a rental license?
Following...
@@seanbrownsocietyhere for an answer too.
5% dp loans have income limit restrictions. Some ppl may make too much too qualify.
What if I’m not in a position to live in one of the units (young kids/family and I’m investing out of state) if a multi-unit investment house? Is there any way I can still take advantage of the 5% down. What are the terms for “living in the residue se”? What if I just keep one of the units unoccupied for when I’m in town?
So you guys talk about doing this 20+ times but wouldn't you DTI cap out pretty quickly with this strategy? Seems like a great way to get the first 4 properties though.
So the secret is every 2yrs you buy a new primary and rent out the old primary.
The most important thing that should be on everyone's mind currently should be to invest in different sources of income that doesn't depend on the government. Especially with the current economic crisis around the word. This is still a good time to invest in various stocks, Gold, silver and digital currencies.
You didn't put DTI into consideration here,there is so much you can buy before DTI stops you.
A portion of rents go towards your income.
Usually we can use 75% of the rental income to offset that mortgage payment. When you get a little bit further along and DTI is really a problem that is where DSCR loans come in to save the day.
This episode was very confusing compared to others.
I’ve done a couple rentals this way and I Don’t like this video for a couple reasons.
Leverage is high
No mention of PMI
It’s mortgage fraud if you lie to the lender about your intentions.
Importance of heavy cash reserves, especially in todays market.
This appears to only really work in certain areas that are not HCOL areas. LA, Bay Area, NY and other areas are near impossible to even break even let alone be underwater using this are a major barrier to entry.
I’m 18 wanting to buy a house as a rental but live in it for a few years any tips this would be my first time buying a house/rental
Only problem is if you’re forced to live in an area (baby mama) which is so incredibly overvalued that you can’t make anything cash flow 😅
How does the government or bank know whether you're living in it or not?
Also banks won’t lend money on home that needs a lot of work. How do we get passed that?
What’s best and cheapest out of pocket financing to buy land and build a house to either live or not in it with one or two ADU’s?
Yeah but the problem is what happens when you have no tenants to pay the rent?
I'm new to real estate investing, I'm looking to buy my first rental property, what is you opinion on hard money loans for investing?
I appreciate you! Thank you for sharing your knowledge on the subject.
I talked to a realtor and they told me you cant get a down payment under 15%? What am I missing?
Good morning, I listened to your podcasts often and have learned a lot, thank you. I am interested in real estate investing and currently paying a 2.87 % interest rate for a 4/2 2300 Sq home that I would like to rent. My mortgage payment is 1,188 including insurance and pmi. I can potentially rent it for about 2300 or room to room for about 2800. I am currently looking in my area for a fixer upper that I can move into while I fix. I called 2 lenders so far and they are telling me I cannot purchase another primary residence with 5% down which is all I have at the moment. They are telling me to refinance to get the 25% downpayment. No way am I going to do that. Question, do I have to tell lenders that I would like to purchase a rental instead of a primary.( my issue is not having 20% downpayment) I would also use the projected rent to help with my DTI since I am only now making about 55k/ year. My price range is around 250k. I am in Ocala Fl, lived in current home for 6 years and have about 170,000 equity. Thanks in advance. (Sorry for such a long text)
his recommendation is to purchase something the lenders can verify is a multifamily. You cant buy a SF home with intent to rent out rooms and call it MF. It has to be a duplex or SF with a permitted ADU at the very least. But you can buy a SF home and build an ADU or basement apartment from it and sell it as a MF home for the next person.
@ivorine, I wouldn't refi that loan either, smart move! What I did to buy my 2nd home, was to find my next primary residence, with 5% down (as you're trying to do). You have a couple of options. The $170k in equity, you can get a HELOC (home equity line of credit) yet that has to be done only on a primary residence. Once you get approved for a HELOC, it's only on paper (electronic now) until you use it. It's very much like a credit card (cc), LOC = Line of Credit, just like a cc. I'd prob ask for $100k LOC to cover your down payment, and any rehab to both properties. So I'd get that HELOC in place with your bank or credit union. You only pay when you borrow the money. After that, you can look for the next home to move into so you can rent out your primary. At this point, your current primary becomes your rental and your new home becomes your primary. Reach out if I can help you understand any of this, I'm a new investor with my first investment property. Best of luck!
@@sreehill GM, thank you very much for taking time out to give such invaluable info. Really appreciated!
Question, wouldn't the chances of getting a loan for second home with downpayment from HELOC work against me? Even though I only have my mortgage and a car payment where my daughter is also on the loan because I helped her to get financing. Payment $368. Since my employment income is only at 55000, wouldn't my DTI be too much with the HELOC. By the way, my daughter pays car payment , just graduated from UCF with Bachelors degree and has no debt and just establishing credit. She just turn 20 and is very responsible. ( Sorry for ranting, I'm just so proud of her!)
hi bud, wich banks they are willing to land you with 5% maybe you can give some tips , Thank You appreciated from Canada
What books have been written about it?
Hi Do you use people good credit score to apply loan for investment property. Or recommend me who does.
Where do I start? I am so tired of watching and reading..I am ready for action!
If you do save up 25k for your 2nd rental, don't for get you still need mun mun for the ADU or to rehab the basement into another room.
How can you get a mortgage for a primary residence when you already have one ? 🤔
Awesome suggestions!! So a LLC isn't necessary in your eyes? I ask this because I've been told that you can only do this under your personal name. I also heard about moving properties to a LLC after purchase if the mortgage company allows it. Do you suggest this method?
Incredible... Thank you.
I thought this was just called "house hacking"
What time does this show come on?
Great talk but you miss out on cash flow and your are stuck from the mortgage unless you house hack
I can't believe you quoted Dave Ramsey while talking about leveraging debt. 😬
How do we buy a second home with 5% down??
He literally tells you how to in the video
Ok I can see this working but all I been able to find on conventional loans that give you 5% you have to keep it as your primary so how does that work for the next one, refinancing ?
I’ve done this twice now. And while I’m honestly living in the unit, I house hack and rent the other bedroom(s). Going for my third next year.
This is my plan, each room is a unit.
How long do you have to stay in the first primary residence? One year?
@@CryptoUno yes at least one year.
Loved this. However, wouldn't you say with the high interest rates, it's kind of digging into that "low" entry down payment? I'd say over time it probably ends up being 10-15% or more with the astounding interest rates. But I still loved the video and hope to get real estate of some sort this year. Hopefully through creative financing.
What happens if you dont really move into it ?
Great episode!!! Thank you all again!!!
It’s l142k with closing including I’m n escrow right now with this a similar buy at 485k
Is this possible even with a 11 million dollar property ?
Love your info..
Thanks for the advices..
So if I buy my first primary residence at a 5% down payment. I live in it for a year, possibly add another unit or two. I then simply find another house that I can see doing the same thing. 5% down again. But when I move out of first one after the year, I have no strings tied even though that is no longer my primary residence? The bank won’t come after me for more money as that’s how I leveraged the 5% down and not 20-25%? That’s the part I don’t get. Or after the year am I refinancing the first primary residence as in this example I rehabbed it and added units, adding value. I now get equity to move into another primary residence correct? The banks or whoever is fine with me just renting out that first residence even tho a year prior I said it’s my primary and how I only had to pay 5%?
Sorry if I’m confusing or misunderstanding. It just sounds to easy to make that move to 2nd house so just want that clarified. Thanks!!
Yep as long as you lived in it for a year. If you have your closing docs go through them and if it's a conventional loan it will say you will move in within 60 days and intend to occupy the residence for at least a year. After the year you don't have to even notify your lender and it is completely legal. If you never live in the property that's a whole different story...
Just do the DSCR loan
Good talk - it is essentially virtual hacking and smart. Though you have to prove that you are moving every year?
You can prove it if ever needed by having your utility bills in your name.
Do you have to pay the house of in a year before you finance another 1?