House hacking has become common place with the ever rising cost of housing. One of the best ways to do this in my opinion, is the purchase of what is called a 2 on 1 property. As the name suggests, this is 1 single lot with 2 homes on it. This allows you to rent out one of the homes to partially or even sometimes completely cover the costs of the property!
Additionally, the lender will consider up to 75% of the rental income towards your home purchase, raising your purchasing power. You can also purchase a multi-unit property up to 4 units with Conventional, FHA and VA financing options! Do keep in mind, you have to live in one of the units for a minimum of 12 months and they must be true separate dwellings not things like garage conversions. After that 12 months the rental income can also be used in consideration for purchasing another property.
One of the biggest factors to decide is: Do you want to be a landlord? For some people this is just not the right fit, that is totally ok. This is one of many options on your path towards homeownership. This does help build wealth over time and creates extra passive cashflow over time.
Some tips if this seems like something to explore:
You want to make sure you never over leverage yourself. These are tools to help build wealth over time, but you need to have the savings to sustain during rough times such as between tenants or if a major renovation needs to be made. A good rule of thumb is to plan to keep 33% of your monthly rental income set aside for ongoing maintenance, emergency maintenance, pest control and vacancies. You should factor in what other cash on hand and if you have and the ability to manage a crisis financially. Remember - what you may tolerate living in could be something a tenant should never be asked to live in and may not even be legal to expect.
A DIY approach to maintenance if you are handy can save money. However, you always want to put yourself into the tenants shoes, it needs to be fixed and fixed correctly, preferably the first time. Having the money set aside for this is likely the best route.
Also, you always want to properly background check all tenants. There are an over-abundance of stories where a person came with a sob story and a sordid past that may have been over looked, the stories very often end up heartbreakingly bad for all parties involved. Make sure to connect with a reputable property manager and either allow them to place tenants for you, or at least explain what you should be looking for and what pitfalls to avoid. Never hand over they keys if the deposit and first months rent have not been paid in full and they must be paid via Cashier’s Check. If you are starting out short, remember that this is likely the best it will ever be, it is all downhill from there.
If you are interested in exploring this option more and learning more about investing reach out today! I would be happy to set up a time to answer all your questions and show you all the available options San Diego has to not just become a homeowner, but also a real estate investor!
Make it an epic day!