As with any real estate investing strategy, it is important to have a solid team in place to help you execute purchasing your real estate properties. The type of investing you are embarking on will dictate who you need on your team. For this section, we will obviously be talking about assembling a team to help you purchase a house hacking property.
This module covers:
- Key people needed for house hacking team
- Real estate agent
- What to look for in an agent
- What to look for in a lender
- Home inspector
- Insurance broker
- Pre-approval letter
- Order the book on Amazon or grab a copy from us
- Listen to episode "#212: UHHG - #9 Building Your House Hacking Team" on the Denver Real Estate Investing Podcast
- Watch the YouTube video (at the bottom.)
- Read this blog post, which is from the book.
Key People Needed for House Hacking Team:
- Real Estate Agent
- Insurance broker
Real Estate Agent
Every house hack property we have helped our clients acquire—except for one—has been through the Multiple Listing Service (MLS). It’s safe to say that if 99% of house hacking deals are found on the MLS, it’s a good idea to have a real estate agent working for you. Why? The agent you choose has a fiduciary responsibility to act on your behalf. They have a duty to go to bat for you, have your best interest at heart, make sure you are making wise decisions, protect you, and ultimately, know the ins and outs of the transaction.
Think of your agent as your real estate coach. If you are playing an important game, don’t you want a coach in your corner assisting you to a win instead of a referee who’s just there to explain the rules, facts and process? You’ll be sure to have a better outcome if you have someone “coaching” you through.
As the buyer, you typically will not get a discount by working with the listing agent directly. At most, the selling agent will be a transaction coordinator for you, which means they are not obligated to negotiate and put your best interests first. They are only required to tell you the facts and advise you of your options to move forward. Most selling agents prefer to work with a buyer who is represented with a buyer’s agent. If a buyer is unrepresented, it can be a much bumpier road and, ultimately, more work for the listing agent because the buyer most likely doesn’t know what they are doing. Another thing to keep in mind is that the commission for the buyer’s agent when purchasing a property is usually paid for by the seller.
What to Look for in an Agent
An agent who has experience with investment properties. Even though buying a house hack is buying a primary residence, the analysis is very different when thinking about how the house will perform as a rental property instead of a home that you will live in for several years. Your agent needs to understand the rental and investment worlds as well as have a good understanding of the numbers to make sure it's a good fit for you and your overall investing strategy.
You’ll want to make sure that your agent is helping remind you to look at the property through a “rental set of glasses.” They need to help you take the emotion out of the transaction and weigh more of how it will perform as a rental.
You’ll want to ask how many of the transactions your agent has closed have been on investment properties and, specifically, house hacks. Currently, all of our agents have closed on investment and house hacking transactions, and most are currently house hacking themselves, so we are very familiar with the process and what to look for.
Does your agent have market knowledge, and are they current with local real estate trends? It’s important that your agent has knowledge of the areas that are transitioning and what areas can bring good values and appreciation. These areas are usually not the same as the highly sought-after neighborhoods where many people choose to live long-term.
Your agent should know which areas have a good price-to-rent ratio and areas that would be most ideal for good living now but also great rental potential later. An example of this would be the Lakewood pockets that are transitioning.
Another example is the Fitzsimons Medical Plaza where they are developing and putting in lots of shops, restaurants and housing that we expect to have greater appreciation in the coming years. You’ll want to look for areas known for houses with great layouts for house hacks. There are parts of town where the builders created layouts which are easily turned into mother-in-law suites or have a private entrance.
Knowing where to look to find the right fit is key to making sure you are successful at house hacking and finding renters.
Does your agent talk to you and educate you on your specific Investor strategy? Do they have a process to walk you through your investing options and make sure you understand the investing process or your end goal?
The more you can have your strategy dialed in, the easier it will be once you start looking for properties and minimize buyer’s remorse.
Is your agent a full-time Realtor, or do they only do real estate part-time? Generally speaking, any person who works a job full-time, no matter the profession, is better at that job than a person who only works part-time. A full-time agent has more experience. Experience goes a long way in our current seller’s market. More experience will help write more competitive offers and win more properties.
Can your agent share recent deal analyses on an investment transaction they have completed recently? What were those numbers like? Knowing the breakdown of transactions your agent closes will help you determine how familiar they are with investing and house hack transactions. If there are no rental properties or house hack deals, that might be a red flag.
What percentage of your agent’s offers for their clients get accepted and go under contract? On average, how many offers does it take to get an offer under contract? While we don’t have official Denver market data, we often hear horror stories of 40 properties toured and 8 offers submitted with nothing under contract. That becomes extremely frustrating and tiresome for anyone looking to invest. We’ve never had a scenario anywhere close to that.
Our offers get accepted 95% of the time on the first try. Our clients are usually under contract between 1-3 offers. Part of the reason for this is the 16-point checklist we use when writing offers.
Of the offers that your agent gets accepted, how many of those same deals get to the closing table? Several deals that go under contract never get to the closing table. They fall out for several reasons, such as lending terms, inspection items or appraisal issues. The average number of transactions in the Denver market that actually make it to the closing table is 78%. Our average is 92%.
What is the industry reputation of your agent? We’ve learned that reputation truly helps you close deals, especially in a seller’s market. It’s important for the selling side to know that your agent will work hard to get the deal done and represents a qualified buyer.
Throughout the year, we frequently find ourselves in situations like the example below:
We put an offer in on a condo but lost out to a higher priced offer. That deal fell out of contract because the buyer couldn’t perform. Seller took another higher offer than ours, which again fell out because the buyer couldn’t perform. Selling agent called and said, “We know you have an interested buyer, and we know you will be able to get this deal done and to the closing table. Is your buyer still interested, and can we work with you?” You know you’re doing something right when agents call you up to work with you and your qualified clients.
Does your agent work independently or as part of a team? The majority of agents are a one man/woman show. Like anyone, we each have our strengths and weaknesses. There are a lot of moving parts of the entire transaction process. Our team focuses on each member’s individual strengths and works together to be more efficient and give better service to our clients. Most importantly, our team approach helps us win deals. Period.
Recently, on a Friday morning, we had an investment strategy meeting scheduled with a new client. Preston, Katie and Chris were going to be there. The night before, a closing scheduled for that afternoon got rescheduled for the exact same time. Earlier that morning, one of our clients texted us that they wanted to see a property that morning…at the same time as the rescheduled closing and our new client meeting.
How can an individual agent handle all of that? In reality, they cannot. Since we’re a team and everyone is familiar with the process, we were able to divide and conquer.
Preston went to the closing; Katie showed the property, and Chris met with the new client. Not only were we able to get everything accomplished, but it was critical that the property got shown to the client that morning as they are on a very tight timeline with their job relocation that is bringing them to Denver.
The property Katie and the client viewed was a house hack and a great fit for them . Quite a few other buyers thought so too! We knew we had to act fast. Jessica, our transaction coordinator, started drafting up the contract; we reviewed it and then submitted the offer. We knew there were multiple offers on this property.
We recommended our client work with Joe on lending since he has the ability to close in as little as 8 days. Part of the reason we beat out the other offers was because we offered a 12-day close, which is very fast for buying a property with a loan. Since we work as a team and have our processes in place, we were able to execute and get it done.
Speed matters in our current market! There was no way that an individual agent could have handled all of it. This example is fairly common. No matter how well we plan and schedule things out, it’s real estate, so curveballs get thrown at us. Our team is structured to handle those curveballs.
In all the transactions we have done, we have yet to work with a house hacking client who has gone out and bought a property in all cash. The reason is because it really defeats the purpose of house hacking and using leverage. If you have $400k in cash, you’re better off going out and buying a small apartment building than buying a house hack. What makes house hacking so attractive is that you can get the property with as little as 0%-5% down. If you put down very little money, you will need a lender to help with the remaining amount owed.
It’s really best to start talking to a lender as soon as possible. A lender’s job is to tell you the amount of money that you are truly qualified for, as well as if there are any issues with your credit or something that might make it hard for you to have your loan accepted. The sooner a lender can look at your situation and identify if there will be any issues, the more time you will have to correct any of those issues. For example, what if there is a problem with your credit? Wouldn’t you like to know that a few months out so you can correct the issue and get the absolute best rate possible to lend? Or, would you rather be panicked that you only have three weeks to “figure something out” because you waited to talk with a lender until one month before you found a place you wanted to purchase? The buying process is already stressful enough, so do yourself a favor and know where you stand before you start looking.
Ideally, you will want to find a lender who is an investor themselves, or one who at least understands the house hacking strategy. Lending options when house hacking is a bit of a chess game, and the lender needs to make sure this purchase won’t hurt your strategy now or in the future.
What to Look for in a Lender
Does your lender have experience with investing and house hacking? Remember, it’s a chess game! Make sure your lender is able to look at your future goals and help you make the best decisions based on your investment strategy and long-term goals.
You also want to make sure your lender is talking to you about all your options for down payment and interest rates. If your lender is requiring a 20% down payment on a house hack property, you need to shop around.
The lenders we work with are known for sitting down with clients after they go under contract and give the buyer two to four options on how they can structure their loan. They go over, in detail, how putting more or less money down can change your monthly payment. The same goes for how your interest rate affects your monthly payment and if it would be beneficial to buy your interest rate down.
Are they a direct lender or a broker lender? Broker lenders work with several financial institutions, so they will hopefully have several options for you to choose from. The downside could be that each institution might have to pull your credit, which can lead to small credit drops. They may also have additional costs as there are more hands in the pot. A broker might also have access to a lender who offers rare and specialized programs to help buyers get into properties such as first-time buyers programs or income restrictive loans.
Direct lenders cut out all the middlemen and go directly to entities who are lending the money (Freddie Mac, Fannie Mae, Ginnie Mae).
How does your lender underwrite their pre-approvals? Joe with Castle & Cooke Mortgage does a full underwriting, which means, if you are pre-approved, all the lender needs are a purchase contract, appraisal and title commitment.
If you are only pre-qualified, you haven’t completed the entire process. Pre-approvals are much stronger in the competitive Denver market and more attractive to sellers. In our current market, it’s not realistic to submit an offer unless the buyer has been pre-approved.
You should also look for a lender that can help your agent when you put an offer in to assure that listing agent you are qualified to get this deal done and are serious. This reassures the seller that you can get the contract to the closing table and they won’t risk falling out of contract over a financing issue.
Does your lender have in-house underwriting? Some lenders send files out to a third party to do the underwriting. Some have staff who underwrite in-house, which can lead to being more flexible for certain situations. Lenders who do in-house underwriting usually have better relationships with the people reviewing the files and can get answers quicker than some third parties.
Does your lender provide updated and clear communication? No matter how many properties you have bought, the process is always stressful. Joe and Castle & Cooke Mortgage give weekly updates from the time you go under contract, until the day you close.
This helps keep you in the loop and gives you clear expectations for what’s coming up. Your lender should also be communicating with your agent to make sure they have all the up-to-date information and can help if the lender is missing something.
It’s always a good idea to ask what the “all-in” costs are when you talk to your lender. If they are upfront and straightforward in the beginning, you should expect them to be the same way through the entire process.
Does your lender have a disaster recovery plan? Can your lender work remotely so that there’s no delay on transactions? The COVID-19 pandemic is a great example. Many lenders couldn’t get their clients to the closing table. The lenders we work with, including Joe, were all able to complete the loans and get our clients into homes during an uncertain time.
What’s your lender’s track record? Does your lender fund the loan or drop the ball? The industry average for people who get pre-approved and actually are able to close on their loan is only 78%. That means 22% of people who get pre-approved get turned down by their lender after going under contract. Joe’s closing rate is 100%. You can be sure that if Joe says you’re pre-approved, there’s a 100% chance your loan will close.
An inspector is someone you hire once you have a property under contract. The inspector is going to evaluate the property on your behalf. This is someone who is an expert in their field and their full-time job is inspecting homes. The inspector helps you determine if there are any major issues with the house, foundation, roof, appliances, HVAC systems, sewer line, etc. Don’t worry about finding an inspector on your own. Your agent should have several referrals that they can offer you once you are under contract. We have three go-to inspectors that we use on a regular basis for clients and our own investments.
No matter how handy you are, it’s always good to get a second pair of eyes and opinion on a multi-hundred-thousand-dollar purchase. This person needs to be someone you trust and has good experience. If you don’t have someone you trust, a good resource will be your real estate agent. They usually have a few go-to inspectors they have worked with on past transactions.
It’s essential that you have a good relationship with an insurance agent because homeowner’s insurance is a requirement by lenders in Colorado. If a lender is going to lend you 95% or even 100% of the money for a house, they want to be sure it is insured in case the house burns down the day after you buy it. The insurance company will pay the money to rebuild it as the lender knows you most likely won’t have the money to do so.
If you don’t already have a relationship with an insurance agent, again, reach out to your real estate agent or lender as they will have some good resources for you.
Overall, your team will be an essential part of your journey, so you need to make sure you have the right people on the bus! Having an experienced agent and lender to start is key to making sure things go smoothly and you get to the finish line. Having a qualified inspector and knowledgeable insurance agent will help prepare you for long-term planning. As always, it’s up to you who you hire to be a part of your team, but the due diligence you put in up front will make for an easier transaction and solid investment.
Below is an example of a pre-approval letter.
You have provided Lender Name with your documents regarding income sources and assets available to qualify for a residential mortgage loan. Based upon the written information you provided, Lender Name has completed our initial underwriting and has determined that you are eligible for such financing and are approved to meet the financial requirements of the loan.
Please note that a pre-approval notice is not to be construed as a final loan commitment. It is based solely upon the documents you have provided, and your final approval is subject to your appraisal, title commitment and homeowner’s insurance. Prior to final approval, Lender Name will complete its final verification of credit, property valuation and stability of assets and income.
Program and funds availability are not guaranteed and are subject to change or termination at any time without advance notice, as determined by investor guidelines, mortgage insurance availability and other factors in the marketplace.
Thank you for choosing Lender Name for your home purchase. I look forward to serving you through this buying experience.
The following terms were discussed with you:
Sales Price: $400,000
Base Loan Amount: $380,000
Loan Program: Conventional 30-Year Fixed
Property Type: Single Family Home, Condo or Townhouse
Loan Term: 360 months
Lender Contact Info
We understand that financing a home is one of the most important decisions a person will make in their lifetime. Loan Officer Name would like to make your experience working with Lender Name as delightful and smooth as possible. Please feel free to call us at: 555-555-5555 if you have any questions on the terms and conditions of this preapproval.