A 34-year-old landlord describes the tactic that helped her get lock in a 3.75% interest rate on her rental property with only 3.5% down

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  • Keallah Smith didn’t buy her first home with the intention of renting it out, but eventually did.
  • This helped her get a much lower interest rate and down payment than she would have as an investor.
  • This is sometimes referred to as “house hacking” and helps people with less cash become landlords.

Keallah Smith did not originally set out to be a landlord. Her parents had owned a rental property when she was growing up, but she and her husband had both graduated with a combined $100,000 of student loan debt and they had three young sons to care for. 

Smith told Insider that she had bought a $135,000 house just outside of Atlanta in 2019, and after living in it for some time, she realized that she could relocate her family back to her parents’ home in Covington, GA and rent this home out, which she ended up doing. 

Since then, she’s acquired two more properties in central Florida — an Airbnb just outside of Disney World, and a recently-acquired beach house in Daytona Beach that she plans to use as a long-term rental.

When asked how she was able to scale up so quickly despite her debts, Smith said: “lf you’re looking for a low cost way to get in, I would say buy a home as a primary mortgage.”

What is house hacking? 

“This is a concept that a lot of early investors or new investors are doing — house hacking,” Smith said. “When you buy a house as a homeowner, you get a lower interest rate and more favorable terms.”

“House hacking” is sometimes defined a little differently, and can also include homebuyers who rent out a room in the house that they live in so they can pay the mortgage off on the property more quickly.

Some critics of this practice argue that “house hacking” is exploitative, but proponents of the practice say that it’s simply a more accessible way to build wealth for those who don’t already have a lot of assets.

For Smith, buying the Atlanta suburb home as a primary homeowner meant that she only needed to put 3.5% down and was able to lock in a 3.75% interest rate for her mortgage. If she bought the house as an investor, she likely would have been required to make a much bigger down payment, and would have had a higher interest rate. 

“If you come into the game as an investor, they’re gonna ask for 20% down, which can be a barrier for a lot of people — I know it is for me,” Smith said.

That said, entering into a real estate transaction with less than 20% of the total purchase price  down, even as a primary homeowner, means that the buyer will have a higher monthly payment as less cash was put down up front. Additionally, those taking on a non-conventional mortgage will likely need to shell out extra cash each month for private mortgage insurance

The second property that Smith bought, the Airbnb home near Disney World, was bought as an investment property. Due to the fact that she was buying it at the beginning of the COVID-19 pandemic, she got a really great deal on it and only had to put down 10% and got a 2.75% interest rate. 

“Today, I’m sure I would have needed 20%,” Smith said.

She used the house-hacking tactic a second time to buy her third property, the beach house in Daytona. Smith said that once again, she only had to put down 3.5% and locked in a 3.875% interest rate on the property.

She suggested that this tactic also works really well for investors that buy multi-family units and live in one unit while renting out the other. That said, she also added that: “those are kind of hard to find now, because investors are snatching them up. Multi-family homes are very, very valuable.”

Starting out with less cash sometimes means more work, however

When she first became a landlord along with her husband, Smith said that they were “really new to it.”

“I created my own lease online, and we took our own staging photos to list the property completely by ourselves,” Smith said, adding that they also elected to manage their own properties instead of hiring a property manager. 

“When we ran the numbers, it was so expensive to have a property manager, we really weren’t going to make any money,” Smith said. “So we decided to take that on.”

This route saves her money, but the flipside means that it requires her to expend more time and energy on her rental properties than some other landlords do. 

“When the toilet stops up, we get the phone call,” Smith said.