House Hacking vs Rent Hacking

[Account Closed]

Hello,

I'm starting out in real estate and have been considering doing a house hack in a multi-family unit. However, the more I learn about real estate the worse this idea seems. My understanding is that the golden standard for a real estate deal is to "brrrr" a property, but at least where I live this is very hard to do with a house hack. 

An alternative that appears to be way more attractive is to "Rent Hack" - rent a house bigger than you need and sublet the rooms out. This way, you can still reap the benefits of living for free, and use the money you have saved to "brrrr" a non-owner occupied property. 

The pros and cons of each strategy as I see it.

House-hacking:

Pros: Get experience as a landlord, 5% downpayment with owner-occupied financing, Live for free (or very cheap), Rent paid to you builds equity in the property, ability to sell after two years for tax-free gains, can live in a different unit from roommates with a multi-family building. 

Cons: Difficult to "brrrr" a property this way (at least where I live), limited in terms of where you can invest due to needing to be close to work, etc...

Rent-hacking:

Pros: Live for free (or very cheap), Frees up capital to invest in a non-owner occupied property, Ability to invest in a market with better returns than the one you live in, possibly more flexibility in where you can live depending on the availability of rental units in your area. 

Cons: May be difficult to find a landlord who allows this (I've found at least one so far), Need to put at least 25% down on a non-owner occupied rental property, have to live in the same unit as roommates (some may see this as a pro - I don't...).

What do you think? Have you chosen to pursue a particular strategy and why? 

[Cassi Justiz]

You are missing a huge component of the house hacking strategy. Depending on your lender you can get in for as low as 3-3.5% down. Also, with certain loans your sellers can legally pay almost all of your closing costs (depending on market and local regulations). When you are an owner occupant, you get MUCH better interest rates and longer loan terms. (under 4% interest rate on a 30 year mortgage vs a 6-8% interest rate on a 15 year mortgage.) Again, this all depends on the loan product and lender though.

So the strategy is to get into these house hacking properties for as little as you possibly can, live for free (or make money while living there!) while your tenants/roommates are paying down your loan for you. THEN when you move out, you get to keep your super low loan rates and have even more instant cashflow. Also, it's easier to save your money to BRRR when you are living for free. If you can make it work, there is no reason to not house hack first. You will be building your own wealth instead of someone else's. My advice is to rent hack your house hack while saving for a BRRR.

*Edit: don't discount single family houses or townhouses for house hacking. It's not as desirable of a house hack as a multi-family, but it is still a viable option. Especially if it's hard to find cash flowing multi-family properties in your area. That's how I started out (3/2/2 SFH with a roommate or 2 at times) and now my former primary residence is my best cash-flowing rental.