Why would anyone rent over house hacking?

Question

Renting on a home can cost upwards of 1500 a month for a lower end home, and you get absolutely nothing out of it, except having a place to live, but having somewhere to live won’t make you money, it’s not an asset in my eyes

On the other hand house hacking is relatively easy, correct me if I’m wrong here (I’m a real estate newbie), but you can just find a duplex that needs little to no work and you can get a down payment on it for a 3-3.5% mortgage, then you pay closing costs, and in some cases you won’t even need to pay closing costs, fix it if it needs fixing, find a tenant and rent it out, once you have that done you are either living for free or for extremely low rates like 300$ or less because the tenant is covering all of the expenses, if it’s a really good deal you could even be making money off of it, but it’s certainly less than the cost to rent would be, not to mention that you are putting equity into the property, whatever money you are paying you’re paying to yourself, which will save/make you even more money in the long term which you can then use to invest in more houses and build your real estate empire

So my question is pretty simple, what reason would anyone have to rent over house hacking?

Blaine Alger · Answer

You definitely have the right idea. Most people will rent over buy for 2 main reasons:1). They lack the knowledge of the benefits of house hacking and how to execute it2). They are unable to get a loanYou also have to take into consideration that even though an FHA loan will allow you to put down a 3.5% dwn pmt, that could still end up being 10k-20k ( could be more depending market) plus minor repairs and closing costs. So it still takes a little bit of cash to get into the deal and there are a lot of people out there who can't even afford that. And then there are others who are just scared to make the jump and decide to do what everyone else is doing instead of overcoming their fears and figuring it out.

Jay Hinrichs · Answer

why cash don't have any, credit not good enough , not planning on living there long, don't want to have liability of owning and maintaining.. This is really pronounced in the mid west deep south or inner cities .. where mortgage payments on current homes would be about 1/2 of rent or sometimes less.

Pieter T Van Zyl · Answer

@Elliott Wood I totally agree it really doesn't make sense long term, however in short term situations I think it can make sense. For example I purchased a single family home in 2019 as a life in flip/house hack. It went very successfully and I was able to sell it recently for a significant return on my money (mostly due to market upswing not my own ability I promise) and I moved in with my significant other in an apartment. While I am not getting anything out of renting an apartment like you mentioned, all the houses I have looked at are way overpriced and finding meat left on the bone in Charlotte is quite difficult for the same reason I was able to sell the house high! So I am currently hoarding cash waiting for what I believe is a coming downturn.

Charles Carillo · Answer

@Elliott WoodI house hacked my first property in 2006 and it made perfect sense since I was there for 6 years. If someone is not planning on staying in that area for years or does not want to live next door to their renters, it might not make sense. It also takes time and money to find a good multifamily deal, close on it, prepare it for living/rental etc. It is much easier and a lot less hassle to rent a property; especially for a short time period.

Aubrey Tatarowicz · Answer

3-3.5% down payment can be prohibitively high amount to have on handqualifying for the loan can be hard / not possibleA lot of high cost of living areas (e.g. NYC) with low cap rates, the numbers to house hack don't make sense and you're looking at what is left of the mortgage payment after your renters' paying being higher than renting a similar apartment. in fact, many properties in NYC are hard to be cash flow positive even when financing with 20% down and not living there (because people bank on appreciation)there is a lot of freedom to renting. a house hack is a commitment to continue to own and manage the property for quite some time regardless of whether you want to stay living there after the minimum time.

Robi Schreckhise · Answer

I agree with @Jay Hinrichs and would add one more. Proof of income! If you are a 1099 contractor aka self employed/entrepreneur without 2 years(sometimes 3 years) of past tax returns for your current business; in my experience, it is very difficult to get approved for a home loan.