First Time House-Hacking Main Goal?

Question

Hello BiggerPockets community! I am writing this post today as a 20 year-old college student with a best friend and partner who is the same age looking to make our first house-hacking, multi-family home purchase by summer of this year. As we are deeply invested in this tremendous market of opportunity and our goal of financial freedom as early as possible I wanted to ask you talented, and experienced investors how to best look at this first property.

I know there are plenty of strategies to choose from whether it be BRRRR, house-hacking while trailer living, etc. but the key "issue" (if you can even call it that haha!) is whether to look at this first property from the cash-flow side of things or more so the equity-building side. I've heard that it is mostly about "getting your foot in the door" for this first property/start of process but cash flow is of course important in assessing the returns we get overtime. Any help regarding whether to be most concerned with equity-building or chasing a bit of cash flow would be greatly appreciated!

Thank you for your time.

Kathy Henley · Answer

@Carter Mezzio Welcome! It depends on your access to funding. I used a loan and bought an undermanaged 4-plex. I lived in one unit at a time. As a unit became vacant, I moved into it and painted it to make it ready to rent, moving a few times! This brought up the rental income. In time, three occupied units pay the bills, with a little left over for repairs and maintenance. I found this book helpful:  Investing in Duplexes, Triplexes and Quads, by L. Loftis. The author shows that single family homes can also be starter rentals. Chose one that isn't fancy (don't pay too much) and in a school district that would attract a future family.

Joshua Noth · Answer

@Carter Mezzio I think there are a bunch of great points made in these other comments - I would echo one in particular, where @Mackenzie Grate mentioned "don't over think it".  Obviously don't go in blind and with no game plan, but if your numbers/gameplan is realistic and achievable, sometimes its just getting your feet in the door is what matters most.

That being said, cash flow and appreciation don't have to be mutually exclusive.  Any property can cash flow with a high enough downpayment.  Assuming a lower downpayment (since its owner-occupied), that reduces that chance.  However, if you have 4 units, you could look to make 1 or 2 of them short term or medium term rentals.  This would boost your likelihood of hitting stronger cashflow.  On the flip side, like @Kathy Henley mentioned, you could make small improvements to a cash-flowing property that will force equity into the property.  At the end of the day, it depends what you and your partner's goals are.

Mackenzie Grate · Answer

If I could go back in time, to when I first started out, I would do what you are doing. I commend you on that. I would also try to get both, but make cash flow a higher priority for the first one because that is what is then going to propel you into your second property. No matter what, the property should pay for itself and put a little bit in your pocket should you decide to live there. I love a good live in flip, where you move into the worst unit or room and put in the nights and weekend projects to make it nice, then you move to the next worse one and do the same. Bottom line is, there is no wrong answer. Don't over think it. If it pays for itself and there is potential to force appreciation either through sweat equity or other means, do it. It's not your forever home and it doesn't have to be in your portfolio forever. If it's cash flowing though, that will help you to expand to the next property quicker. Wish I knew that when I started, lol. Good luck! You got this! I'm rooting for you!

Jaron Walling · Answer

In respect to market conditions and location the #1 goal for house hacking is saving money. Get your expenses to NEAR ZERO. The markets will go up and down and obviously it's sky high but don't let that stop you from learning, walking properties, doing market research, and taking this endeavor seriously.

Getting your foot in the door is great but only if you, your friend, and partner are financially ready to take the leap. Instead of renting, moving, partying, and calling a landlord to fix stuff, you get to do everything. Real estate ownership is not as easy as social media and television make it out to be. Just keep that in mind.

Joshua Janus · Answer

Here is one strategy. Find a property to house hack that has a value add potential and build a strategy to buy into equity. This is key if you want to house hack a new property year after year, as you'll need to refinance and have the required LTV for a conventional loan versus the FHA 3.5% down.

Steven Lopez · Answer

Congratulations on your first property. I did the same thing just a year ago and am looking for my next. It has grown my wealth incredibly fast. I now rent by the room and earn 3150/mo. on a 1040 mortgage (WOOHOO)

There is no right answer as to the cash flow or equity focus for me. Find the deals that work for you in your area, and make sure the numbers work. Don't do anything that's negative cash flow (speculative on appreciation) because that will stop you from saving for your next. Keep trying to learn and network with others in your area.

Jon Kelly · Answer

@Carter Mezzio It sounds like you have two different questions in the post:

1) What's the best strategy? 2) Should you focus on cash flow or building equity?

1) You already answered this question. You indicated you wanted to house-hack a multi-family property with your partner. I think a lot of people would say that's a great place to start.

2) I don't think this question applies to you. You would typically ask this question if you're interested in learning what market(s) to invest in or discussing financing strategies. Your situation is a lot simpler. You already know your market (access to school or your jobs). You already know you will be sacrificing cashflow because you are house-hacking. You and/or your partner are living in one of the units or bedrooms and will not be receiving rental income for those.

I would focus your attention on defining your goals of what constitutes a good deal. Most people look at COC return, IRR, monthly cashflow per unit, etc. Make sure you underwrite the deals as if you will be paying rent. This will tell you if it's a good deal when you move out and tenants take your place.

First Time House-Hacking Main Goal?

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