House Hacking in 2023! High rates/lower rents, etc...

[Ben Peterson]

Hi everyone! I'm 26 years old my wife is 29. We have been travel nursing for the last 2 years and have a pretty great cash pile to get started in RE. We were planning on traveling longer, BUT, just found out we're expecting!! Odds are we will need to reel in our wander lust and settle back down where it all started in Akron, OH. 

My main goal for us is to find a 2-4 unit (preferably turnkey) and live in one side for a year or so before refinancing and scaling. An issue I am running into in my market though is high listing prices and lower rents not meeting the 1% rule. Those that do meet the 1% rule are value adds that will need more work than I can put in right now. 

Looking for input though on a duplex I found in a great area. It is listed for $285,000 and one side is already renting for $1,100 until 2024. Newly renovated; turnkey. If we live on one side we will still be paying $835/mo plus utilities! This seems like a lot for house hacking? Is the asking price outrageous, is the rent too low, or are these situations the new normal?? 

Thanks!

Cliffs:

-Travel nurses; lots of cash

-Found out we're pregnant! Gotta settle down

-Househacking seems like the best move. Place to live + offset mortgage. 

-Having trouble finding properties near me that cash flow/offset mortgage. i.e. still paying 1/2 PITI

-Am I finding bad deals or am I being too picky?

[Lawrence Potts]

The goal of house hacking is not to necessarily cash flow but significantly reduce your living expense. Ideally, you would run your numbers as if you were not living there: obviously, cashflow is important. If you're looking to build cashflow, then run it as if you were not living there. How much cash flow would you get and how much do you need?

If you are only paying $835/month + utilities, that's a HUGE win compared to renting, even if interest rates are at around 6%. Rent is 100% interest if you really think about it....but you also need to consider all the benefits outside of rental income in your pocket:

- You can use the rental income toward your DTI when you go to buy the next house hack.

- Each month you pay down the principal balance of your mortgage and increase your equity. Your rental income is paying for that!

- You can calculate your CoC and that may help you feel better about the $835/month payment (assuming you're going FHA 3.5% down). But you are buying a peforming asset for a very minimal amount.

- Any sqft that is used as a rental can be depreciated from your taxable income (talk to your CPA!).

- If you live in the property for 2 of the most recent 5 years, you defer on the capital gains when you go to sell (again, talk to your CPA because this may change since you are also depreciating half of the asset). But chances are, you'll move in about a year or two and rent both units out and if you decide to sell, you will do a 1031 exchange and defer the taxes owed on to the next property.

- You are growing your equity so you can eventually tap into it using a HELOC or refinancing and you'll be able to deploy that into the market to buy another asset.

- You'll learn how to be an effective and professional landlord.

The 1% rule is a generalized rule that can't really apply to a house hack. It sounds like you'll be cashflowing though if you decide to move out and have both units rented (gross rent $2200, net $265?).

Give us some more details and we'd be more than glad to help you out more! and Congratulations on expecting! What a fun and exciting time. Best of luck to you both and your growing family.