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Updated over 2 years ago on . Most recent reply

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Evan Rumble
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Calculating cashflow for a house hack

Evan Rumble
Posted

Obviously, house hacking is going to have a negative effect on cash flow, as opposed to renting out all of the units to tenants; but.... 

When using the 1 & 2 percent rules to predict cashflow for a house hack; should I add in the rent I would "pay myself" into the equation, or should I only consider the rent of  tenants? The former would mean I am considering the rent I pay, as contributing to cash flow. Is that a good, or bad practice? If a deal only has positive cashflow because I am paying myself, is it really cashflow? I am really looking for decent cashflow, as a necessity for the investment property I want; so I want to know if I am looking at this all wrong. 

Thanks!

 

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Jonathan R McLaughlin
  • Rental Property Investor
  • Boston, Massachusetts (MA)
2,244
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Jonathan R McLaughlin
  • Rental Property Investor
  • Boston, Massachusetts (MA)
Replied

@Evan Rumble your framing of the question might not be the most useful way to think about it. Calculate it with full rental expenses and the actual amount of rent being paid.

The (presumably) negative balance that remains is your own housing Expense. So let’s say without renting the unit you live in you are -200

Each month. You are then paying 200/month to live there, disregarding loan paydown and other factors. I’d say that would be awesome, yes? YMMV

Then calculate at full rental value for all units including your own and see if it cash flows positively. That's when you can properly evaluate COC. So in the situation above if you rented out your unit once you moved out at 1K you would be at 800/mo positive.

  • Jonathan R McLaughlin
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