Rental calculator for house hacking?

Question

Hey guys I need some guidance on the calculators. The path I’m trying to focus on is house hacking in the Northwest Arkansas market but I have a wife and one child with another one the way. So basically single family hack is out of the question for me. Looking into multi family hacking 2-4 units. When I’m calculating, do I need to be adding the value as if I’m paying “rent” in the unit my family would be living in or just account for my unit being $0? Also any other tips on calculating on this strategy is greatly appreciated!

Trevor Carlson · Answer

I would run the analysis as $0 for the unit you are in. When analyzing the deal it may give something like -$400 cash flow. This would mean that the tenants would pay all but $400 of your rent. If it came out as $0 cash flow then they would be paying all of your rent.

I would then run it again as if you rented the property at the going rate. This would give you an idea of how much the unit would cash flow for once you moved into another place and kept it as a rental. This would also give you an estimate of what your cash on cash ROI is.

Michael Wegner · Answer

@Zane Biggs

I second everything @Trevor Carlson said as far as how you should run your numbers.

I would think you could find a deal in your market (especially if going with a 4plex and especially in the next 12-18 months) that will cover all of your monthly expenses and probably pay you a few hundred dollars to live in it.

That being said house hacking is still an incredible tool and just because you don’t cover the full 100% / can’t quite cash flow positive you are still mitigating the vast majority of your families biggest expense while getting into an awesome business, building equity, having a shot at appreciation etc!

Run the numbers both ways and remember good deals are likely coming, good luck to you and your family. Keep us updated!

Mathias Simmons · Answer

@Zane Biggs Congrats! My wife and I and 2 little boys are doing the same thing and currently have a duplex in KC under contract. I concur with everything that's been said so far about running the numbers both ways. My only addition is that when you run the numbers with no rent from the unit you'll live in, make sure that you take your rent savings into account somewhere. I think when your cashflow comes out zero or positive, this isn't such a big issue because you realize that you would be living for free or getting paid to live there. But I think sometimes it's hard to remember (at least it was for me when we first started looking) that even if you're estimating -$400 for cashflow, you're still making a decision that probably improves your overall financial position by hundreds of dollars per month compared to your current living situation. And it could even be thousands depending on how much you're currently living it up.

Hope that's helpful!

Trevor Carlson · Answer

@Zane Biggs I don’t know your market but I know in my market I wouldn’t expect to be able to break even, even with a four plex. What I think you should consider is how much of a discount you would be getting (‘expected rent plus negative cash flow) and cash on cash ROI calculated on the value if you paid rent for your unit. Remember the stock market gets about 7%, so a good deal should get you more than this.

And also look at lots of deals. Eventually you will find something that makes sense.  Good luck 😀

Zane Biggs · Answer

Thanks @Michael Wegner, good to hear that verification from a couple of you that the cash flow may be a little in the negative when considering my rent as zero but doesn’t necessarily make it a bad deal. Also, congrats on your recent deal!

Alice Lai · Answer

@Zane Biggs

You might want to check out the website,  Khan Academy, under the subject of "Renting vs. buying", the buyrent.xls file can be downloaded from the "questions" section.

I find it useful because the format is simple to review, easy to modify and the calculator considers 1) property annual appreciation 2)rental inflation 3)bank deposit int rate  4)general inflation 5) individual marginal income tax rate etc.  The logic behind the calculation was explained in the subject video.

Alice

Seattle, WA

Alex Olson · Answer

The key is to ensure that you have calculated some vacancy loss. Also make sure you can rent out the vacant rooms if you need to for the ultimate house hack!

Zane Biggs · Answer

@Trevor Carlson sounds good, thank you for the feedback. Good luck to you as well.

Zane Biggs · Answer

@Trevor Carlson thanks for the feedback and different perspective. That helps to clear things up a bit. Is it pretty typical to be a little in the negative when considering my unit as $0?

Zane Biggs · Answer

@Jacob Fitzgerald thanks! Looking to make all the connections I can in the area.

@Corey White thank you, we've got big hopes for what real estate can do for our family. Good luck to you and your wife as well!

Rental calculator for house hacking?

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