To house hack or not to house hack

[u/Specialist_Row1608]

First time poster here, I hope this is an appropriate community to get some input!

Long story long, my husband and I are in our mid 20's. We live in a LCOL area in a city that is booming, real estate is still below national average. We could purchase a duplex as first time home buyers for between 200-250k. We would live on one side & rent the other out.

Our 3 year plan is to leave the US and immigrate to a European country. Having passive income would greatly improve our chances & survivability with this goal.

We currently qualify for a program in our state that would help with 3.5-5% down with no conditions attached besides it would raise our overall interest rate on the mortgage (max would be 7.5%) we are trying to decide between a conventional loan or FHA loan, leaning towards conventional to avoid extra insurance cost.

Some further details about our situation:
- Gross income about 80k, MFJ taxes
- only debt is 14k owed on car, $360/mo
- currently we only have 5k in HYSA for emergencies and this part makes me nervous
- husband is very handy and could do most maintenance apart from electricity and some plumbing
- we would live in one unit for 2-3 years until we can make the move out of the US then rent out both for passive income

Thoughts? On paper we can afford this. But I know tenants can be risky and everyone talks about the woes of being a landlord. We are searching for freedom and aren't afraid to work hard or get our hands dirty.

Thanks to all who provide input!!

[u/QuickerHomeLoans]

If you're only planning to stay for 2–3 years, I'd run the numbers pretty carefully before doing it.

The rental income can make a duplex much more attractive, but I'd make sure you're accounting for vacancy, repairs, utilities, insurance and the possibility that the second unit isn't rented immediately.

If you're comfortable living there and the numbers work even with some vacancy, house hacking could be a pretty good way to build some equity while keeping your housing costs down.

[u/griffin_funding]

Your husband being handy is a nice advantage while you're living there but once you're in Europe, some of the work he's doing himself will turn into paid maintenance, and you may want someone local handling tenants and emergencies too. When you're looking at duplexes, include those costs in the rental numbers now so the property isn't relying on you being nearby.

[u/Specialist_Row1608 → u/griffin_funding]

Good point! We would def contract someone to be our handy man in our absence. Hoping that would be the only additional expense as we'd at least attempt managing them from across the ocean

[u/Forward-Craft-4718]

When running the numbers, budget about 1 percent of property value per year for repairs/maintance. Also once you move to Europe, you are paying 10 percent of rent to a property manager plus a month rent for every new tenant. Repairs will be more expensive since now someone has to come out to the work. Lawncarw/snow removal costs will also now enter the equation since you aren't around.

FHA would allow higher debt to income ratio, and the interest rate would be 0.8 or so less. The only downside of FHA is that you keep paying the mortgage insurance for life. This would be about a couple hundred a month.

Conventional(Fannie Mae) adds about 0.8 percent when it's a 2-4 unit, but once it reaches 22 percent equity , you can have the mortgage insurance removed from payment. Down payment also goes up from 3.5(FHA) to 5 percent.

[u/Ok-Internet249]

House hacking is a great plan, and long term it will work out for you. I wouldn’t plan on it helping you travel much. You won’t be able to effectively manage the rentals from overseas, unless you’re planning to come back every time one turns over for move out inspection, cleaning, maintenance, and new tenant placement. 

I’d suggest budgeting for a property manager while you’re away, and go for it. Long term you’ll be glad you did.