We’ve talked before about the benefits of house-hacking and how to get an FHA loan. If you’ve read those, you know of the secret way to get started real estate investing in multifamily with very little cash. This way helps you invest without having to take other people’s money. Not that using OPM is a bad thing, but it can be a headache and whenever you can do it without OPM, it’s easier. Enter the FHA loan.
As a recap, the FHA loan allows you to buy up to a 4-plex, while living in one unit, and renting out the rest. Why a 4-plex? These are much less likely to be purchased by retail buyers compared to the duplex and triplex. As such, the competition for 4-plexes is smaller, and the ridiculously inflated prices in the retail market are blunted. True, 4-plexes, or quads, are harder to find. There just aren’t as many of them. The ones which you do find are likely to have better value.
There’s one big catch. A huge one, really. If you have a significant-other, you will have to convince them to live in essentially an apartment building next to three other tenants. That can be a tough sell depending on how mentally invested your partner is in real estate. That hurdle is the highest one and the first one you need to get past. This revisit is all about that.
How to Convince Your Partner to House-Hack
The first step is to educate your partner about the long-term benefits of investing. You’ve got to show them previous deals which have done well, if you have them. And, starting out, you probably don’t. Start networking and find other people’s success stories you can tell.
Does your partner complain about their job? That’s a great jumping off point to REI (that’s Real Estate Investing). Maybe they are comfortable now, but if their dissatisfaction grows in the future, wouldn’t it be nice to fall back on something?
What about retirement? Lots of people are having to work into their 70s now because their 401(k)s are not cutting it anymore. You need to have another source of income in retirement. In fact, with enough of them, you and your partner can retire early, living off the benefits of the investments.
Are they worried about how much it will cost? Getting the FHA loan means putting only 3% down. With that, you can buy a much bigger place than you could have before. Show them the projected rental income. Three paying tenants should be able to easily pay the mortgage, buying you the place over time. What a great deal! Compare that to a mortgage on your traditional home, which you have to pay with your W2 income. It’s a no-brainer.
But, dealing with tenants is too hard! That’s another argument I hear. Then your partner won’t be expected to deal with them. You’ll do all that work. Or, you’ll get a property manager to do it. You and your partner will just blend in as another couple tenants in the property. You’ll live there and be able to keep a close eye on the place.
What if your partner thinks being a landlord is inherently distasteful? Well, that’s a problem, and will make it more difficult to expand in the future. You’ll need to address that pretty quickly. For the purposes of this purchase, remind them that the other tenants will never know you are the owners. You don’t even have to act like a landlord if that seems distasteful to you or your partner. You will just pretend to be one of the tenants.
And if that doesn’t work, then you need to get back to the drawing board about whether REI is right for you and your partner. Maybe now is not the right time. If not, then negotiate some plan to save ‘play’ money for you to invest in some other type of real estate strategy. For instance, take 10% of every paycheck from your W2 and put it into an investment account only earmarked for that. Then keep learning and talking about REI and wait for the next opportunity.
If any of those strategies to convince them resonate, then buy that quad and supercharge your investing now!
