How to Buy a Multifamily Property with 3.5% Down Using FHA House Hacking

Kat Miller (00:00)

But then I also have a lot of you know younger buyers younger investors who really want to get their feet wet and really want to invest and Don’t necessarily have the capital

So if that is your issue, then my favorite thing to do, I literally had this conversation today, I probably have it almost every day to be honest with you, is to do, we call it a house hack, right? So you buy your first house, four family, because you’re get the most doors, and you put down 3.5 % FHA, you live in one unit, you have to live in one unit because you’re claiming it as your primary residence, which is why you’re able to only get 3.5 % down.

Cody Crabb (02:12)

Hello and welcome back to the Real Estate Pros podcast by Investor Fuel. I’m your host, Cody Crabb. And today I’ve got Kat Miller with the Mortgage Exchange. She runs her own mortgage branch, works heavily with buy and hold investors. And today we’re talking about how newer investors can use smarter financing, including FHA and low down payment multifamily strategies to start building a portfolio without needing that 20 to 25 % down. Thank you so much for joining us today. This is certainly something that a lot of people…

want to know more about and get into. So this is going to be very useful. Thanks again for Hopnunt.

Kat Miller (02:44)

Awesome, thanks for having me, Cody.

Cody Crabb (02:46)

Yeah, so I’d love to hear a little bit about your story. How did you get into the industry? How did you get interested in the financial side as well?

Kat Miller (02:59)

Yeah, so I actually kind of just fell into it, to be honest. I graduated from college in 2008, and if anyone is familiar with the real estate market in 08, it was tanking at the time. But…

Cody Crabb (03:11)

real estate in college and stuff?

Kat Miller (03:13)

No, so I graduated college and nobody was hiring because of the recession. So like all the job interviews I had were like really sketchy weird places that were like, sell Cincinnati Reds tickets door to door or stand outside Walmart and collect money for nonprofits. And I’m like, what are these? And my friend, because I knew somebody, he was like, hey, why don’t you check out this mortgage company? I’ve been an intern there helping the owner with some marketing stuff. They need a receptionist. And I was like, I just need something.

Cody Crabb (03:17)

Sure, yeah.

selling knives, yeah.

Kat Miller (03:42)

So I went to the interview and I was like, hey, I’ll be a receptionist. And they were like, we don’t think you should be a receptionist. We think you should be a loan officer. And I was like, OK. I don’t know what a loan officer is. I don’t really even know what a mortgage is. I’m 22 at this time. And so I was like, all right, let’s try it. And so I did it, and I did really well. My first year, I was top rookie. And then ever since then, I was top in the company of anywhere I was working at. So it’s been a long time.

Cody Crabb (03:42)

Sure. Yeah.

Wow.

Yeah, wow. And it sounds like you just kind of had a knack for it right off the bat. So that’s awesome. So tell me a little bit about, let’s fast forward to where you are now. Tell me about what you do and about your branch.

Kat Miller (05:09)

Yeah, so I am with the mortgage exchange currently. So I’ve been in lending for 18 years. And right now I have a team. We have several loan officers. We’re licensed across 21 states. And we specialize in all types of financing. So we can do some non-QM loans. So like for our long-term investors who have experience and have the cash flow, we do a lot of DSCR loans, which is a debt service coverage ratio loan.

And that allows you to get in without using your tax returns So if you are an investor and you have a lot of write-offs or you’re self-employed and have a lot of write-offs and you can’t show the income This is a great option where as long as your rent is covering your mortgage It’s you know, pretty cut and dry

But then I also have a lot of you know younger buyers younger investors who really want to get their feet wet and really want to invest and Don’t necessarily have the capital

So if that is your issue, then my favorite thing to do, I literally had this conversation today, I probably have it almost every day to be honest with you, is to do, we call it a house hack, right? So you buy your first house, four family, because you’re get the most doors, and you put down 3.5 % FHA, you live in one unit, you have to live in one unit because you’re claiming it as your primary residence, which is why you’re able to only get 3.5 % down.

and you live in it for one year and then after that you go and you buy another property and the second one we’re gonna do conventional with 5 % down. Another four family, you can do a two family, three, whatever, but I always say four is gonna give you the most doors. And then on the next one you do the 5 % down, you live in it for a year, and then you do it again. And you can literally do this as many times as you’re able to have, most of the time you can have nine or 10 mortgages depending on the loan product and.

Cody Crabb (06:54)

Hmm.

Kat Miller (07:02)

then you’re getting into some caveats, but that’s 10 years later, so we have some time.

Cody Crabb (07:06)

Well, not only that, but that’s

after you’ve started, mean, that’s once you’ve kind of gotten a little more established. You’ll have lots more options at that point. So even if you do run out of like, uh-oh, I’ve hit my limit of loans or something, you’re gonna be probably past that anyway. You’re gonna have some other opportunities that you wanna dive into. So I think that’s, yeah, that’s, like everyone kind of hears about the house hack. I do think that something that people don’t often talk about is that you could technically make it a multifamily house hack. Like a lot of people say like, yeah, you can,

Kat Miller (07:18)

Yeah.

Yeah, for sure.

Cody Crabb (07:35)

live in a duplex or something, but like you could be like multifamily, multifamily is for the maximum. I’d actually, I’m not sure about that. gotcha.

Kat Miller (07:41)

Yes, so anything under

four units is residential. If you go above five units, you’re getting into commercial territory, so it’s a different type of lending with different guidelines. But, and the reason why, this is gonna get kinda confusing, but the reason I always do FHA first is because when you are leaving a property, you’re departing a property, and say you live in a single family, just to make it easy, and you’re like, oh, you know what, I wanna go buy my second home.

and I’m gonna rent out my current home now, so can I use that rent to pay help with my debt ratio, right? We call that departure income, I’m using air quotes here. So on FHA, you cannot use departure income. So if you buy with conventional first, and you move out of that one unit, the extra unit that you have, you can’t use that rent to help offset the payment.

So in order to be strategic, you want to do FHA first because conventional allows you to use that departure income. it’s just something that, and sometimes, you know, if you’re getting a multifamily and you’re trying to get into a sweet spot price point, it can be difficult to use an FHA loan. But, you know, we can use conventional if we have to in that instance, but on conventional for four units, it’s going to be 5 % down instead of three and a half.

Cody Crabb (08:58)

I’d be curious to know. know, when you it kind of sounded like you, like I said, you entered kind of the industry by accident a little bit. So just just a quick question on that. So people that are kind of thinking, I like the idea of being in real estate. I like the idea of being in the finance on the financial side. At what point did you go? This isn’t maybe just like a job until I figure something else out.

Like at what point were you like, this is actually my thing. Like I, I’m good at this. Cause I think a lot of people think of when they think of working in real estate, they think of being an investor or being a realtor. And that’s probably all that you come that kind of crosses your mind on the younger side. So I’d be curious what you, what you think.

Kat Miller (09:34)

That’s a great question. So my first year, I did really well. So I started in October of 08. I did zero loans. November, zero loans. December, zero loans. January, yeah. Yeah.

Cody Crabb (09:47)

I mean, again, we’re talking about 2008 here, so like, fair enough.

Kat Miller (10:26)

But the guidelines were crazy. So like we could go to 580 credit score 95 % cash out. They were crazy. But that’s when they started to get tighter, right? So like, but also keep in mind when I started, I think the first rate I gave was like a six and a quarter and then like a five and a half and then like a 5.1 and then they just dropped and went crazy low. So yes, it was easier because the rates were extremely low. But my first year, you know, January, I was on my own. was

training closed one loan Second second month close to loans third month close three loans and I just took off and I did work for a company that had very good training That is the one thing I recommend if you don’t have training or a mentor or a team or a coach It’s very hard. It can be very difficult But if you have the right mentor and the right like I always say you should start off as a loan assistant That’s the best way to do it start as a LOA loan officer assistant

Learn what how to pre-approve somebody what documents you need because the marketing side of this is like Networking just like real estate right you know with realtors. I know with investors I do the same thing realtors do but I can also go to realtors to get business so But if somebody comes to me and they say they want to get into the business I usually recommend being a loan officer assistant for me. I

Cody Crabb (11:32)

Yeah.

Yeah.

Kat Miller (11:46)

I knew it wasn’t a side gig when I, my first year I made like $77,000 and I was 22 years old right out of college and I was like, well, well, this is negative.

Cody Crabb (11:55)

Hang on, this might be better than just the, I’m glad they mentioned that

I maybe should try something besides being the receptionist because it seems like this is actually working out. Yeah, yeah. So that’s pretty neat. just as a, another thing too here is you mentioned that you work across lots of markets within your, don’t know what you call it, the network or the branch or, yeah, within your group there.

Kat Miller (12:03)

Yeah, me too.

I’m licensed in

multiple states.

Cody Crabb (12:24)

There

you go, yeah, you’re all licensed in multiple states. So I’d be curious, are you seeing certain markets where things are working better for investors right now? mean, the market in general has this perception of just not being good in general. It’s just not a good market. But I know that obviously it’s not the same everywhere. So I’d be curious, what are you seeing with you and your colleagues?

Kat Miller (12:49)

Yeah, so I see a lot of my California investors are investing in the Midwest because sometimes people can’t buy in California. Not everybody has $350,000 for a top payment, right? So if you take your money.

Cody Crabb (12:59)

I would say most times, yeah.

Kat Miller (13:05)

to Ohio, to Tennessee, to Indiana, any of those states, one, you’re gonna have lower property taxes compared to other states around those states. And also, you might be able to get into an investment property for $50,000. Now, $50,000 is a lot of money to a first-time homebuyer in Ohio who’s putting a down payment. But if you’re gonna live there in Ohio, you only need 3.5 % down.

But if you’re an out of state investor and you have $100,000 that you made this year and now you need to find somewhere to put it so you don’t have to pay taxes on it, take that money to Cleveland, Ohio, to Cincinnati, Ohio, to Dayton, Ohio, and now, okay, like I just got somebody, they did a 1031 exchange in California. I think they sold out here and had like $600,000 that they needed to put somewhere or else they, you know, they’re gonna have to pay capital gains on it.

went to Ohio, bought a property for 650 and are cash flowing like four grand a month. So because it was a cash sale, they don’t have a mortgage, you know? So for someone like that, that’s a great idea for them, you know what I mean? Obviously I didn’t do financing on it because it was cash, but it was my team of realtors that we worked with. But yeah.

Cody Crabb (14:12)

Yeah.

But that’s a good example.

I think some people, especially like they don’t think of the tax benefits. I mean, obviously people think of that, but you know what I’m saying. Maybe it’s maybe not the first line of, like, I don’t want to be a real estate investor. then I hear from doctors and stuff that are like, if you have the income that you do, your tax bill is going to be off the rails. And so unless you are thinking about that, and real estate is a big

Kat Miller (14:47)

Yeah.

Cody Crabb (14:51)

purchase that can take a lot of that away. So I know what you mean. Like it’s a, it’s certainly something to think about, especially like you said in the Midwest. I think I’ve, I’ve also heard that, anywhere in particular, have you seen, that you said like a couple of States, but is there like one spot that you’ve seen extra that I heard Boise recently, which I was kind of blown away by, but

Kat Miller (15:10)

I would be too because I’m not licensed there myself, so I don’t know that market as well But the ones out of all my states the most I have would be Ohio Indiana and Tennessee Those are the three places where I probably have the most investors I actually got my Tennessee license because of my investors to be honest with you. I had one investor He’s like I’m looking to buy several properties in Tennessee. Are you licensed there? And I was like

Cody Crabb (15:14)

Yeah, sure.

really?

Kat Miller (16:16)

give me a week and I will be. So I took what I had to do and I got my license there. I’ve been licensed there for a couple years now.

Cody Crabb (16:17)

Yeah, I’ll be right back.

Wow, okay. So what would you recommend? mean, the house hack is a good situation for someone that’s kind of starting out. What are some other things that you would recommend for people that think they maybe don’t have enough cash to get started? Or maybe they just feel like they are not, I don’t know, maybe not knowledgeable enough? Like where would you start if you were trying to get someone to help them get started?

Kat Miller (16:50)

Yeah, I mean the first stop is a loan officer and it’s somebody who knows what they’re talking about who can help guide you because people are gonna invest but I don’t know what to do. I’m like, well, you gotta talk to me first. Like I need to pull your credit. I need to look at your income. I need to look at your assets. Okay, well you don’t have any money for a down payment. Well, let’s look what state you’re in. Are there any down payment assistance options that we could look at? Are there any grants that we could look at to help you in the door?

Like the state of Ohio just today has been insane for me because the state of Ohio just dropped their down payment assistance interest rate to like 5 % and with no down payment assistance you can get a 3.75.

Cody Crabb (17:30)

Wow.

Whoa, that’s cool.

Kat Miller (17:33)

and for first time

homebuyers in the state of Ohio. Now this is a subsidy, it’s going to go away soon. We don’t know when, they just said hey we don’t know when it’s going to go away so utilize it while you can. ⁓ But every state has different programs. Are they that low of an interest rate? Typically no.

Cody Crabb (17:44)

Yeah.

Kat Miller (17:50)

Usually when you have down payment assistance, you’re going to have a little bit higher of an interest rate because nothing is free unfortunately. But if you don’t have any of your own money, that’s a great option to get in the door to get financing. But yeah, if you’re wanting to be, if you want to be an investor, the best thing is to buy your first property and live in it yourself.

Cody Crabb (18:01)

Mm-hmm.

So let’s say our listeners are like, okay, she’s cool. I want to work with her. I want to go and ask her some questions. How can people get in touch with you? you know, can you kind of say again where where your license so people can kind of have an idea of if you live here, you want to invest here. This is what you need to do.

Kat Miller (18:22)

Yeah, yeah.

Yeah, so my team is in 21 states. So if I can’t do the state someone on my team likely can But me personally, I am Ohio, Kentucky, Indiana North Carolina, Tennessee, Georgia Florida and California so If you’re looking, you know to invest in any of those states or you live in that state and you’re wanting to buy something and and do a little house hacking That those are the states and you can find me on Instagram. I’m Kat loan

K a T loans K a T L o a n s and that’s like the best way to find me I’m always posting educational content I try to make sure that I explain things like how normal people want things to be explained to them because a lot of these people use all these terms like my debt ratio my You know if I’m like, yeah, you know DSCR loan debt service coverage ratio You’re like, what the heck is she talking about, you know, so

Cody Crabb (19:17)

Yeah, well, thanks for spelling it out. I still have no idea what you’re talking about. Yeah, I know what you mean. When

you’re deep in an industry, especially like this one, it’s so easy to just think that everybody knows what you’re talking about. so that’s much appreciated in this world where someone can just kind of be like, if you’re a regular person, maybe I haven’t read many real estate books. I just want to know, I have some cash. What do I do with it? That’s the kind of stuff they need to know. So that’s great. ⁓

Kat Miller (19:29)

Yeah.

Yeah. Yeah. Yeah.

Cody Crabb (19:45)

Well, thank you so much for joining us. One last question for you. let’s say, ⁓ you know, you were going to you’ve kind of offline. You mentioned, you know, you’ve got some some investments of your own and things like that. I would love to know, you know, let’s say you’re at a conference where people are all kind of getting ready to make their first investment, right? This brand new group of people, maybe they’re like in college or something. ⁓ And you get the mic for just like one.

You get to tell them one thing that really would help them move the needle the very most. What is the thing that you would tell them?

Kat Miller (20:19)

If I’m at a real estate conference, if they’re first time home buyers, always. So if you’re a first time home buyer and you want to get into investing, the number one thing I would tell you to do is to house hack buying that multifamily four unit property, live in it for one year, then rent out that one unit and rinse and repeat. That is my number one favorite thing. I’m trying to get my brother to do

Cody Crabb (20:22)

yeah, and you’ve got the mic.

Kat Miller (20:48)

And he’s like, I don’t want a multifamily. I’m like, you’ll thank me later. But I wish somebody would have taught me that.

Cody Crabb (20:49)

You

Yeah, everyone that I hear talk about

this is like, I don’t want to be a landlord. I mean, there’s a lot of different options there too. mean, yeah, like you said, I wish someone had told you this earlier. Yeah, everyone does. Yeah. Well, thank you so much for your time today. This has been great. And make sure to make sure to follow her on Instagram, make sure to check out her loans and services and things.

Kat Miller (21:04)

Yeah. Yeah.

Cody Crabb (21:17)

Thanks so much for our audience for giving us some time as well. If you liked what you heard today, go ahead and give us a like, subscribe, comment, all the things, and don’t forget to follow us so you don’t miss more great conversations like this one. Kat, it’s been a pleasure. Thank you so much for hopping on today. We’ll see you later. You too,

Kat Miller (21:30)

Yeah. Nice meeting you. Thanks so much for having me. See