Newbie Questions: Househacking analysis and "The Rules"

[Blake Cormier]

Hi Everyone,

I'm a more-or-less total newbie when it comes to real estate. I'm looking to chart a course for the next year or so that involves buying a duplex or triplex and occupying one of the units while renting out the other(s) ("househacking" as the kids are calling it these days), and I want to go into it with correct assumptions, expectations, and of course numbers.

Having spent many weeks reading the BP forums and blogs, I've realized there's no shortage of numbers to analyze -- and analysis is the best way to make sure you're not getting hosed on a bad deal. So I'm trying to absorb as much as I can from you RE veterans about the 50% rule and the 2% rule and cap rate and cash flow and etc. etc., but I'd like to see if I can find some clarification on some of these things specifically as they relate to owner-occupied multi-family properties.

According to my simple brain, as long as:

Rental income - Rental expenses >= Mortgage + Insurance + Taxes

then the scales balance, househacking makes sense, and we're living for free on our way to fantastic riches and early retirement.

Of course having browsed BP for a few weeks, I now know that the "Rental Expenses" variable is a big one -- vacancy, turnover, repairs, capex, (heaven forbid) an eviction, etc, can put a big dent in rental profits quickly. Despite the cutesy name, househacking means that I'm a landlord and likely part-time property manager, so that work has to be factored in as well.

So my questions basically revolve around figuring out whether househacking is a good investment for me, as well as how to figure out if a specific property is a good deal or not. I'm hoping that you kind BPers can answer them or point me in the direction of a resource that can clarify things for me.

1. What kinds of modifications to traditional rental property analysis should be done to account for occupying one of the units? Does that kind of analysis even work in this situation, or should I look at it a different way?

2. What kinds of calculations could I use to determine if househacking is the "right" thing to do? For me this would be calculating risk/reward vs. something like leaving my cash in stocks/bonds/reits and continuing to rent forever.

3. Any other resources that would convince me that this is a bad idea and I should leave REI to the pros?

4. Any resources to convince me that this is a genius idea and will lead to untold riches and happiness?

Thanks!