House-Hacking your way to multi-unit rentals

House-hacking refers to buying a multifamily property on an owner-occupied mortgage, living in one unit and renting the others. If you’re thinking about becoming a rental mogul, starting early is an advantage. Not only will you have longer to accumulate a larger portfolio, but you can also increase the leverage on the first owner-occupied acquisitions.

Leverage is the use of other people’s money to finance an investment. The higher the loan-to-value, the greater the leverage which can increase the yield. The lower down payment gives the investor more leverage which can increase the return on their investment.

FHA, VA, Fannie Mae, and Freddie Mac each have programs for buying owner-occupied two-to four-unit properties with the same minimal down payment required for a single-family home. The advantage is that non-occupant investors must have a 20-25% down payment where the owner occupant is much less.

A qualified veteran could get into the first property with no down payment. FHA only requires a 3.5% down payment. And owner-occupants seeking to buy a multi-unit property with a conventional loan would need 5-10% down payment.

As an example, let’s say there is a 2-unit property selling for $500,000. A non-owner-occupant investor would need to make a minimum down payment of $100,000. Whereas an equally qualified investor who was going to live in one of the units, would only be required to make a $17,500 down payment on an FHA loan or $25,000 to $50,000 on a conventional owner-occupied loan.

The difficulty is that there are not a lot of two-to-four-unit properties. In some cases, they may be older properties in older neighborhoods. With some searching, you might be able to find lots with the right zoning and get a builder involved.

It is certainly worth investigating to find out what is available in your area and surroundings.

Rental properties offer the investor an opportunity to borrow large loan-to-value mortgages at fixed interest rates for up to 30 years on appreciating assets with tax advantages and reasonable control that many other investments don’t enjoy.

Some people consider rental properties the IDEAL investment with each letter in the acronym standing for a benefit it provides. It provides income from the rent which many investments do not have. Depreciation is a non-cash deduction from income that increases cash flow. Equity buildup occurs as each payment is made by reducing the principal owed. Appreciation happens over time as the value of the property increases. L stands for leverage that was explained earlier in this article.

The key to making this work is to be an owner-occupant in one of the units. After a reasonable period of time, you may be able to buy another four-unit as an owner-occupant before you need to start using a normal investor’s down payment.

In the meantime, you could have eight units that are increasing in value while the mortgage balance is decreasing with every payment made. If there is sufficient equity in the properties by the time you’re ready to buy more units, you may be able to take cash out of the existing ones to use for the down payments.

This can be a great way to turbocharge your net worth by becoming an owner and a real estate investor at the same time. To learn more about rental properties, download the Rental Income Properties guide and/or contact me at to schedule an appointment to meet to answer your questions and discuss the possibilities.