Advice on House Hacking in NYC ?

Question

Main Questions: What does it mean to "breakeven" when renting out a room in your property? Is it worth it to invest in your own property in an expensive city like NYC? Or do you think one should focus on "real investing"? Is investing out of state a wise decision for someone only making 50K (before taxes) in an expensive city ?

Is it possible to actually have your roommate paying most of your mortgage in an expensive city like NYC, via house hacking?

Background:

I'm in the process of saving up so that I could possibly get some property in NYC in about 2 years. I've heard a lot of people talking about House Hacking. This seems like a win-win to securing property in NYC, given costs of rent are likely to increase and there's some sense of security. (Although, condos and coops often have maintenance fees). I've also considered investing in property outside of NYC, but it's more intimidating and I'm not even sure I should be one doing that, as I'm relatively young (28), not wealthy at all, not married, and am just beginning to build up my savings.  The downside is that I give up the freedom to live in whatever neighborhood I want to - I could only afford a handful of neighborhoods further out in the boroughs. I dont mind the longer commute and I suppose I could always rent both rooms in the property out and start renting again.

Sorry for all the thoughts/questions. I'm trying to work through what my plan will be. Thanks!

Jonathan Twombly · Answer

I have not house-hacked, so take this with a grain of salt, but I am thinking about it from the financial perspective, and it's analogous to owning a two- or three-family house, where you live in one of the units and rent out the others.  The idea is that the rents on the other units cover the cost of the whole property.

The way this would work is that you need an apartment with three or four bedrooms.  You rent the apartment and then look for roommates for the other three bedrooms.  You rent them out at a cost that overall pays for the entire apartment, or even makes a profit for you.

In New York, the opportunity and the problem are the same.  Rents are super-high, so the chance to rent a private room for less than what your tenant would pay for their own studio or 1BR apartment would be attractive to potential tenants.

However, you must figure out a way to qualify to rent the apartment yourself.  In New York, you typically need to show an annual income of 80 times the monthly rent to qualify for an apartment.  This may be prohibitive for an apartment big enough to make money with house-hacking here, unless you go to the way-outer boros.  (Just be sure you are near public transportation or this will be very tough to pull off.)

The thing to be careful about in New York is that the law here is very, very pro-tenant.  If you are subletting the apartment to others, then you become their landlord.  And this means that, if they don't pay the rent, you will have to sue them for eviction, and this is very difficult to achieve in New York.  Courts are extremely friendly to tenants, give them numerous extensions, and bend over backwards to help them, so it's not uncommon to hear stories of tenants living for 6-12 months in an apartment without paying rent.   You would still have to come up with the rent to pay your landlord.

So, if you were to do this here, you would need to be very strategic.  You would need to find an apartment in an area attractive to young people, where the combined rent for 2 bedrooms individually could cover the rent for an entire 3 BR apartment.  You would also have to be very strict about who you rent to, and make sure that they have sufficient income or resources to pay the rent, so you don't get stuck with a bad tenant situation.

Account Closed · Answer

The only reason anyone would want to live in NYC and pay the astronomical accommodation prices there is because you're making a ton of money there.  But 50k is not a ton of money so this doesn't make sense.  I'm guessing you live there for other reasons.  You should travel and then you'll see how awful it is.  Can you work online?  Can you work elsewhere and make a similar amount of money but pay a fraction of NYC prices?  Condo fees are substantial and are usually 1-3% asset value which hugely hurts your money picture.  Sure you don't have to do maintenance but maintenance is simply not that much in a house, hence their popularity.  Condos are for old people that are dying and don't want the maintenance worries.  House hacking is simple: You need to rent out the vast majority of your space and occupy only a small percentage.  You'll never get good advice from real estate professionals who think aggressive house hacking is renting out one side of a duplex.  Wow, how creative.  I can't believe the comments on here.  Look at my other posts to see how far you can go with this concept of maximizing rental  income.  You have to convert all space that could be rented to rentals. So you won't have a living room, dining room, etc.  They'll be rentals.  So most of your space is rented.  A lot of people live free this way as long as rental demand is high in their area so they can fill a vacancy in a few days instead of a few weeks or months.  You can do the same with commercial space.  Buy the biggest lot you can find.Build the biggest footprint you are allowed.  Forget parking.  Parking is not your friend and just announces to the neighborhood every person coming and going.  Try to rent to people without vehicles.  Build the most square footage you can in that footprint (deepest and tallest).  Forget having a yard.  Build small rooms because they pay more.  Soundproof them well to give renters privacy and freedom when on the phone.And do this without contravening any zoning laws.  A mortgage payoff in 5 years at these interest rates is indeed possible.  Do it again after refinancing that property and buying a few others and you'll have about 20k/month at today's money pouring in.  Retire in splendor.  10 years of sacrifice of space is all it takes.  If young people understood these concepts it would revolutionize rentals because a lot more units would come on the market offering way more selection (yes at a reduced price after a while but it wouldn't be much because people are lazy and stubborn and wouldn't embrace this much) and they could be financially free, really free, in just a decade.  All they need is a small down payment to get started.  Personally I feel it makes more sense to build because houses are just not designed for this very well.  Parents want to know everything about their children so they don't want soundproofing. They love open concept but we hate it because it wastes so much space.  Rooms need to be a set size for rentals; smaller rooms always rent for more money per sq ft (99% of the time with moderate rentals).  No space can be wasted.  Better to build from scratch or buy a wreck that is cheap and rebuild it the way you want.  Realize that a lot of this hinges on the basement.  You just have to have a basement.  Fortunately many houses come with an unfinished basement as an afterthought and the sellers are clueless as to the value lying there.  Often you can put in 6 units in a basement.  That is huge!  All you need is a 7' or higher ceiling.  Unfortunately underpinning or lowering the basement floor is one major operation and very expensive.  Just buy a house with a compatible basement.  Of course if you're building....you get things right from the start.  I think the payoff would be worth it.  Plus then it's new and lasts trouble free for decades.  That's satisfying just on it's own.  So many houses are maintained with the lowest imaginable standards then renovated to hide the lousy work.  One challenge when building small units is bringing in natural light as they tend to be long and narrow.  For managing space the loft bed/desk is crucial.  Otherwise the bed just takes up way too much space.  Most are designed for children but this page shows a lot of different designs. duckduckgo.com/?t=ffab&q=loft+bed+desk&iax=images&ia=images  Keep in mind most of these are displayed in rooms with ceilings way higher than 8'.  You can make this work with an 8' ceiling; you just won't be using a thick mattress.  Being able to put the bed on a pulley system to raise it to the ceiling during the day would be possible of course.

Steve Kontos · Answer

@Angelica Rose

Realistically I do not know how attainable it is to go that route here in NY.  As a fellow New Yorker myself I can tell you that prices will not make house-hacking easy or even worth the time and money your going to burn through.

I highly recommend attending various networking events and deciding what kind of investing you want to ultimately do (I'm assuming this house hack method was designed to help you achieve something long term).  If you have specific questions feel free to let me know.

Tim Puffer · Answer

@Angelica Rose - you can definitely break even or better househacking. On my current duplex I’m house hacking I was actually getting $100 more than PITI until insurance renewal and a tax increase. I’m now breaking even.

I have something for you to think about though - could you get a job doing what you’re doing in another state making the same amount of $$ or more where the cost of entry into real estate would be lower for you?

Yasin Yazdan Ahmed · Answer

In NYC area is it possible make sure you buy near the subway trains and make sure the tenants have enough money or income to pay the rent sometimes the tenant can bother you and stay rent free for 6 months to 1 year in your property until you get them evicted ,so you need to be careful while house hacking in NYC area the other advantage is you can split the basement into 2 parts with 2 entrances then you can collect more rent making it easier to pay  the mortgage

Michael Baker · Answer

Consider an HDFC with multiple bedrooms or Jersey City. The Greenville section is appreciating and you can use a smaller downpayment.  Coops in NYC will require 2 years maintenance and mortgage payments to be available post-closing.  That is on top of the 20% down payment requirement.

Jonathan Twombly · Answer

You should be able to use a guarantor.

Brandon Reed · Answer

It's absolutely possible to break-even with your mortgage while renting out a part of the property. My advice would be to look at Multi-Family properties, since you can obviously rent whole units out for more than a spare room. However, just like the rest of REI that is going to depend largely on the are you are looking to purchase in.

But if you do the numbers right, in most areas, it's absolutely a realistic goal to find a property cheap enough to have the supplemental rental income cover most, if not all, your mortgage costs.

Hope that's helpful!

Advice on House Hacking in NYC ?

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