How Realistic Is House Hacking in 2022?

Question

First time poster, hopefully this is the right place to ask this sort of general question.

I have been looking at buying a home and house hacking for a little over a year. Been saving for a down payment and watching the local listings carefully.

I've also been reading up on house hacking and have come to the realization that much of what I have read on the subject does not match up even remotely with what I am seeing in the real world. I'm not sure if this is because the information is based on an earlier era when this was a realistic strategy, because my area is just not suited to it, or because I am looking in the wrong places for properties.

Basically, many of the claims that I see about what to buy (the 1% rule, getting paid to live there or at least living for free) are entirely unrealistic. I have done a lot of back of envelope calculations on houses in my area (we have essentially no multi-family units, and I could not afford them anyway) and none of them are going to be close to meeting the 1% rule renting them out, or even close to break even in a house hack scenario.

What I am seeing is even with 20% down payment, mortgage+taxes+insurance runs ~$2500 monthly with rent on comparable properties being about the same, this being for a 3 bed/2 bath home. So I could rent a bedroom, perhaps for as much as $1000/mo, but that leaves me at $1500/mo to pay myself, which is more than renting (for now) and no where near break even.

Thus far I have mainly been watching Zillow, and I admit I have not done very detailed calculations, so it is possible I am missing something. But my impression is that in this market the house hacking concept is really not viable, and is definitely not close to the claims that have been made about what it can do.

Am I missing something?

Jeff Copeland · Answer

One glaring thing you might be missing is Where do you live now and how much are you paying? If you are renting, then you are just building equity for your landlord, and that money could be put to better use as part of your own mortgage. If you are living somewhere for free, then keep doing that! As far as the 1% rule, etc, I just read an article that addresses that head on (and backs it up with solid numbers) at https://www.biggerpockets.com/... In it, @Dave Meyer states: For many years a lot of investors subscribed to something known as the 1% rule. It basically stated that any deal you pursue should have an RTP above 1%. Furthermore, some people only want to invest in markets where the average RTP is 1%. Personally, I don’t subscribe to this rule for a few reasons. It was developed over a decade ago during the cashflow outlier period I mentioned above. It was realistic back then to find plenty of deals with an RTP over 1%. Now, it’s no longer a useful rule of thumb. You need to adjust to current-day market conditions, and religiously following the 1% rule is going to prevent you from getting in on deals that are very strong by today’s standards. Some of my best deals, even my highest cash-flowing deals, didn’t meet the 1% rule at the time of purchase.I feel compelled to reiterate his point in bold above. I've been telling people for years that the 1% rule is not usually going to be relevant on the day you close on a deal. The real question is what do those numbers look like in year 2, 3, 4, 5, etc? What he refers to as RTP is not static - With capital improvements, better management, rent growth, etc, they should only improve over time. And that doesn't even factor in debt paydown and tax savings.

Marcus Auerbach · Answer

@Charles Clark - multi family will work much better than SF, both for you and for your tenants. We have a lot of duplexes in Milwaukee (66,000 - more than any other city) and are one of the better markets in terms of RTP. But even here living totally for free is not possible, because you only rent out 50%. Once you buy your second duplex (after 12 months) and have 3 out of 4 units rented, you should break even, possibly have even a bit of cash flow (plus you live for free). You can by a 4plex, that should work from the get go.Keep this in mind: the worst house hack in town still beats not doing it at all.

Scott Allen · Answer

@Charles ClarkYou can find 1% rules in Columbus, OH. If you're looking to house hack an A to B Class neighborhood then you need to account for what current rents are, market rents, and what rents will go up to within 2-3 years of purchasing the property.

Bud Gaffney · Answer

@Charles Clark house hack !

Charles Clark · Answer

I have looked at some properties with more bedrooms but all the ones I have done calculations on seemed to hit the same issue where going to 4 bed / 3 bath increased purchase price significantly and resulted in minimal cashflow improvement. I have seen a couple that were 4 bed /2 bath that were possibly competitive however, so perhaps I should evaluate if 2 bedrooms sharing a bathroom is more rent than 1 bedroom with a dedicated bathroom. One reason I have been looking at 1-2 roommates only is concern about how HOA and local governments will view this type of house hacking in good neighborhood.

Neil Ginty · Answer

@Charles ClarkThere's pretty much always some way to make it work. We are in the Bay Area which is a notoriously ridiculous market, but are making it work with mid-term rentals.

Bruce Lynn · Answer

I think what you want to buy is 4-5 bedrooms, not 3....numbers start to work better with 4 and even better with 5 bedrooms if you can find one at the right price.Then be willing to sleep on the couch, in the garage, in a tent, in a trailer parked in the drive if you get lucky with roommate #5.Not easy....but doable.You are right on the multifamily side though...very tough from what I see to make any kind of #s work on 2-3-4.I'm guessing in most cases you won't live for free, but heavily subsidize your rent.

Charles Clark · Answer

Northern Suburbs of Dallas

Paul De Luca · Answer

@Charles ClarkHouse hacking is possible pretty much everywhere but you want to make sure your expectations are realistic for your local market. To gauge that the best thing you could do would be to talk to a few investor friendly agents in your market and talk with other investors. Investors should mostly ignore the 1% rule since it's just an indicator that a property could be a good deal and it's not attainable everywhere.

Jake Soper · Answer

Where are you located, and where would you buy?