How Realistic Is House Hacking in 2022?

[Charles Clark]

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]

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.

1. 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.