House Hack Financing 101 with guest, Christian Bachelder of The One Brokerage

The following episode is an excerpt transcribed from The Accidental Landlord podcast. You can access the full episode, here. 

Peter: Today we have Christian Bachelder with us on the show. Christian is the partner in the One Brokerage. So Christian, welcome to the show.

Christian: Absolutely! I appreciate you guys having me.

Peter: Our pleasure. I've been excited about this conversation. Why don't you take a minute or two to just introduce yourselves to our listeners.

Christian: First and foremost, obviously, I'm the broker and co owner of the one brokerage. I started it with David Green of bigger pockets fame. He's the host of the main bigger pockets podcast. I've been on that podcast a number of times, you know, done a lot of seminars and kind of teaching things with David. Obviously, everything that comes with David's world, right house hacking, burrs, short term rentals. But ultimately, I am the finance arm of David's world, right?

I'm the broker of record for our lending company. We've developed products to not only help first time home buyers, but to help short term rental investors, to help seasoned multifamily investors, everything in between. We are a full service brokerage. So like I said, everybody from your first house to your 50th house, we're kind of uniquely positioned to scale with someone scaling their portfolio. Whereas you go to a local bank and they can help you out on your first four loans and then they get to show you the door.

So we've really tried to own that middle ground of not having to leave the borrower at the doorstep once they grow, right? Don't punish growth. And we've tried to set establishments and practices in place that allow us to do that. And our product offerings are at the forefront of that, for sure.

Peter: I think that's valuable for sure, because most people get timed out after so many mortgages and whatnot. But I want to talk about house hacking for one. And clearly your affiliation with David Green, you probably have had this conversation with many people. But when I say we, we own a property management company. We're trying to roll out a program where we're going to help people manage, acquire and manage a house hack.

Specifically the rent by the room model. And a big piece of it is how to finance it and what's unique about it, all the things surrounding that. So I definitely wanna talk about that. And then obviously we're promoting, not just doing one, but moving on to another one and another one. And I know there's some interesting nuance there when it comes to getting loans on multiple house hacks. So we will jump into that as well. 

I think most of our listeners know what a house hack is, but just for, if this is somebody's first time, it's essentially you're going to buy a house, the owner, the model we're promoting, which is the rent by the room. And obviously there's a lot of different house hack strategies. So I want to make sure that's thrown out there, but we're promoting the rent by the room. The buyer buys the house, lives in one of the room and then rents out all the other rooms and or creates more rooms through construction projects. And then offsets living expenses with the rental income. Now we're in a really high dollar market. It's rare that you can cashflow one of these or essentially live for free, but depending on the deal, maybe you can get kind of close. But what, from your perspective, are the biggest hurdles for somebody who wants to finance? And typically, from our experience, these are people who are just getting started in their journey and they're using house hacking as a way to get into a property.

in our area in a really expensive area where they can't put down 20% down and do a traditional long-term rental. So, I'll hand it back over to you.

Christian (03:37.991)

Yeah, a hundred percent. I mean, the hurdle just in the industry right now is qualifying, right? I mean, rates are high, prices are high, right? So obviously, house hacking is a good, you know, buffer for that, right? Because you're able to lower your living expenses, you're able to get in for a low down payment, for instance, right. But absolutely, that hurdle is the majority of people doing house acts for the first time are qualifying conventionally. You know, FHA is a great product, you put three and a half percent down that lowers your barrier to entry in terms of cash. But it still comes with full doc qualifying, right and full doc just means tax returns, pay stubs, you actually have to show your debt to income, right. The tricky part about house hacks specifically, especially on the rent by the room model is that in comparison to when you just buy a true investment property is that you don't get credit for the rents you're going to be receiving, right? We call that border income border income is like the old school house hack word, right?

Where that just means you have people living as roommates with you, right? When you go buy a rental property, let's say you put 20% down, you know, your mortgage is going to be three grand a month, but it rents out for $2,800. We can actually use that $2,800 to help lower your debt to income, even though you're not receiving it yet, right? It's the only situation in lending where you can use income that you don't have yet, right, to help you qualify. That's real estate is powerful that way. With house hacking, you can't do that.

They don't assume you're gonna rent out your primary. Unfortunately, Fannie Mae, Freddie Mac, FHA guidelines, they weren't written for bigger pockets followers for followers of this podcast, right? They're not written for more creative investors. But there are a couple exceptions. One is if you buy a multifamily. All right, so if you buy a two, three or four unit, you can use that income. That's still kind of house hacking. It's not rent by the room, but it's adjacent. You can also use ADU income. So garage conversions, mother-in-law suites in the backyard, stuff like that.

We can't actually get credit with that income on certain loan products now. But historically speaking, getting credit for that income to help you offset your mortgage is definitely the biggest barrier, specifically regarding house hacking for a first-time buyer.

Peter: Do you see that changing as, are there programs that are in the works where people are gonna give you credit for the income?

Christian: I've gotten this question a lot. Fannie Mae and Freddie Mac are starting to become more open. I'm hearing rumblings at least now. I don't want this to say it's changing in the next six months, right? I don't want somebody to pin this, you know, to me and hold me to it. But for instance, I think of it very similarly to ADU income. Historically, ADU income was never used, right? You could never qualify with anything. You could only qualify if it was like a standard and true like duplex, triplex or fourplex. But they've come around to ADU. So

In a similar fashion, I would like to believe that they'll come around to house hacking as well, especially with the cost of living getting so high. This is what people have to do, right? You got a house hack to get into your first home in a lot of situations, especially like you said, in high cost of living markets. So could I see a scenario in the next 612 months? I absolutely could.

The following episode is an excerpt transcribed from The Accidental Landlord podcast. You can access the full episode, here.