Househacking?

Question

Iv listened to the podcast and read some forums so i guess im missing something somewhere. How does the house Hacking work? I have a specific place in mind. I know we calculate for PITI, Repairs, Vacancy. even Property Management (even if im doing it myself.) So doing the numbers it only makes sense if im renting out all three units. If i live there myself, ill more than likely still be paying for a fair share of expenses? Is that part of house hacking? Its for 325k (triplex) and the rents are 700 1bd  x2, 800-2bd. Also im trying for 0% down. (I have capital for closing costs or other small expenses). Thanks for the replies.

Joshua Springer · Answer

The basic ideal is that you control real estate at a cheap rate and use others to make your costs CHEAPER(not always free) then other alternatives.

EX:

Area rent $1,000.

Triplex total costs 1500.  $700 x 2 Rent collected = 1400.

You'd be paying $100 in "rent" compared to the $1,000 you'd be paying somewhere else.

The upside is you have the advantage of owner occupied lending programs/rate, have appreciation, rent increases, and when you move out $700 x 3 = $2100 so instead of owing $100 in rent you're now collecting $600/month in cash flow.

If you can find a good enough deal where you make money while living there that's great but not always going to be possible.

Chris Simmons · Answer

House hacking can be a variety of things but involves you living in the property to take advantage of consumer loans with lower, owner occupied down payments like the 3.5% currently required for FHA. It could be you living in a single family property for 1 year while rehabbing it before moving out into your next owner occupied property. It could be you occupying 1 unit of your duplex, or quadplex. Maybe you buy something turnkey and pay more for it. maybe you buy something and need work. The main point is you buy something that works for you.

Just FYI, based on what I am used to in my current market. that triplex you mentioned would be an instant no thanks. But that is where you need to know your market. I know there are investors in other markets that would not touch deals that I think are good.

Just FYI, based on what I am used to in my current market. that triplex you mentioned would be an instant no thanks.  But that is where you need to know your market.  I know there are investors in other markets that would not touch deals that I think are good.

Nicole Jones · Answer

@Landon Doleful

Just wondering the outcome on this? I am in the process of looking into the same thing in the extremely difficult market of Long Beach, Ca.

@Joshua Springer I like that you say "CHEAPER (not always free)" for house hacking. This is the truth. Any form of cheaper mortgage as opposed to a comparable or even higher rent is a win in my book.

Landon Dolezal · Answer

The only reason why i said 0% down was because i wanted to use my capital for capital expenditures. The rents dont seem to be high enough for the mortgage that it is. I believe i will probably have to look into a duplex thats a lot more affordable, but thanks for the thread, ill check it out!

Scott Trench · Answer

@Landon Dolezal

First, I think that you should read through Brandon Turner's epic House Hacking Post here:

http://www.biggerpockets.com/renewsblog/2013/11/02...

I'm using this strategy myself and think that it offers new investors one of the best ways to dip their toes in Real Estate while giving you the ultimate in exit strategies - you can just live in the place a little longer than planned if things work out sub-optimally!

A couple of notes on your specific points:

0% Down may be very difficult without getting super creative.  The advantage to house hacking is that you can use owner-occupier financing like an FHA loan.  For single families, that can be as low as 3.5%.  For a small multifamily (2-4 plex), you will likely need to put down at least 5% or a little over $16,000 in your case for the $325K triplex.

You'll also be paying ALL of the expenses.  Tenants pay nothing for that in most cases.  You are a landlord after all.  The good news is that between the two other sides' rent, you should be able to cover all or most of your mortgage, making your house hack a huge cashflow win over renting or buying a single family.

Jesse T. · Answer

Unless you like that place as a long-term personal residence, it really doesn't look like a promising rental investment with no money down.  The analysis may look ok with you occupying a unit and comparing it to a condo or apartment.

However when you move out you have $2300 in rental income.  If you apply the 50% rule, you would have 1150 to apply towards financing.  That covers basically your interest, but no principal pay-down or profit at all.

Ryan Dossey · Answer

Triplex comps like a regular SFR. Find out what the going rate is in your area and if it makes sense or not.

Ryan Dossey · Answer

The goal with house hacking is to have little to 0.00 expenses for a mortgage. I don't think you'll be able to do 0% down. You may want to look for a four family or a cheaper triplex.

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