House hacking strategy (NYC)

[Marie Steward]

Hi BP,

After a few years of searching for a single family home (and being priced out of our target neighborhood) my husband and I decided to instead purchase a 2-3 unit multi-family home in the Bronx, NY. We're considering using a low cost financing option like FHA to get into the property. Multi-family properties in our area are ranging from 500k-800k. We would only like to stay in the property for one year, then cash out refi and rent all units. I have two concerns with this strategy. First, unless we buy a fixer and renovate, I'm not sure we'll have enough equity in the property to cash out after one year, especially if the housing market takes a down turn. Second, as we are already in an expensive market, paying closing cost twice (once to get into the property and again to cash out after one year) seems insane. Am I missing something here? Anyone aware of how to best make this work? or is this too risky a strategy to engage in? Again we're newbies and appreciate any advice.

[Brian G.]

Originally posted by @Marie Steward:

Hi BP,

After a few years of searching for a single family home (and being priced out of our target neighborhood) my husband and I decided to instead purchase a 2-3 unit multi-family home in the Bronx, NY. We're considering using a low cost financing option like FHA to get into the property. Multi-family properties in our area are ranging from 500k-800k. We would only like to stay in the property for one year, then cash out refi and rent all units. I have two concerns with this strategy. First, unless we buy a fixer and renovate, I'm not sure we'll have enough equity in the property to cash out after one year, especially if the housing market takes a down turn. Second, as we are already in an expensive market, paying closing cost twice (once to get into the property and again to cash out after one year) seems insane. Am I missing something here? Anyone aware of how to best make this work? or is this too risky a strategy to engage in? Again we're newbies and appreciate any advice.

Hi Marie, most people who house hack use a low down payment (ie FHA; 3.5% down) and therefore do not attempt a cash-out refi until many years down the road once equity builds up. After all, why try to get your money back out if you just have a small down payment in the property? I suppose it's possible to pull off if you were to find a light cosmetic value add property where you could say take a property with extra square footage and add a bedroom or take a property with a bad layout and make it more functional over time, etc.