House Hacking: What is considered a decent Cash Flow?

Question

I am new to BiggerPockets and real estate. I live near Detroit, MI. I am planning on house hacking a 2 bed/2 bath condo by renting out both the bedrooms as seperate units and sleeping on the couch. If that gets too inconvenient, I might sleep in my car or at another property my family owns which is 20 min away. I told my family about this plan and they asked if it's worth it to go through this for year or two just for a $200 cashflow?

Since I know many people in this community who are familiar with house hacking, I decided that maybe you guys can guide me. Can someone tell me what is considered a decent cash flow on the very first house hack or rentals? And possibly any insights on how I can increase my cashflow?

Joe Splitrock · Answer

First thing to remember when house hacking and calculating cash flow is that YOUR rent needs to be included in cash flow. I am not sure what the going rate for sleeping on a couch in Detroit would be, but let's say that space rents for $400. That is additional cash flow that comes to you in the form of rent expense avoidance.

As far as sleeping in your car or at another families property, that would be considered mortgage fraud if you were claiming owner occupancy. Owner occupied loans usually have occupancy requirements for a period of time.

I do find it odd that you would rent both rooms in a property located in Detroit and only get $200 cash flow. For that market, it seems you should be able to do better. Of course, I have not seen the numbers and have no property details. Maybe there is a situation where this is reasonable.

House hacking is a great strategy to get ahead and your willingness to sacrifice comfort for financial gain will pay off big time over the long run. I encourage you to pursue this, but make sure you have found the right property.

Taylor L. · Answer

I wouldn't do it just due to the quality of life sacrifice. Living below your means is all well and good, but buying a place to sleep on the couch would be too much for me. Look at renting out one bedroom and use the other. The one tenant is still helping pay down the mortgage. Compare that to the cost of just renting and see if you come out ahead. You don't need to live in your car or sleep on a couch to make money in real estate.

Aditya Praveen · Answer

@Joe Splitrock Thats a good point about mortgage fraud. I plan to sleep on the couch only. I dont intend to live in my car or a friend’s house forever - i said it to emphasize that I will find one way or another to make this work for me. I wouldn’t want to get into legal troubles over a mere 200 dollars a month profit, haha!

But again, can I get in legal trouble for renting out both the bedrooms? How could they possibly know? Any insights would help a lot.

Joe Splitrock · Answer

It is  easier to prove you live someplace if you have a bedroom, but sleeping on the couch is fine. The key is sleeping there. Personal residence will also have your clothing and other personal belongings stored there. Your personal residence is where you get mail, your drivers license address and your tax address. All I meant was sleeping in your car or at a friends house would be considered occupancy fraud.

As far as "how could they possibly know", everyone who has ever committed a crime used that logic. Nobody ever thinks they will get caught. Mortgage companies do send people out to verify occupancy, sometimes random and other times if they suspect fraud. Follow the rules and you will not get in trouble.

Travis Biziorek · Answer

@Aditya Praveen this is silly. $200/mo to sleep on a couch or potentially in your car? Near Detroit?

Idiocy aside, I can tell you this is a terrible investment property. If you’re looking at a 2/2 and can’t cash flow more than $200/mo on it in this area, KEEP LOOKING.

Trevor Praetsch · Answer

@Aditya Praveen, Its about more than just the cash flow with house hacking... you are really cashflowing the 200, but saving your cost of living. whatever amount you aren't paying for the mortgage you are keeping, and able to put toward your next investment. Id say it's worth it.

Maybe consider a STR for one of the rooms?

Aditya Praveen · Answer

@Taylor L. I did think about it, but I would like to make the most out of my property coz I spend most of my time at work or at friend’s place. I am only home at nights to sleep between 12-6. I just don’t think I am losing much by sleeping on couch - considering the room could further help me make money. I should have made this clear. Thank you for the advice!!

Travis Biziorek · Answer

I have a duplex in Detroit. Mortgage is $255/mo, taxes are $100/mo, insurance $65/mo.

Rent is $850/unit for $1,700

That’s pretty damn good.

Austen Mueller · Answer

Cash flow depends on what market your in. Different markets tend to have different cash flows due to things like rents and taxes. I would talk to a local real estate agent to answer that. But keep in mind it’s not JUST about your monthly cash flow. You have a home that is paying for itself. Things to consider is the ARV and the appreciation in the area. As far as maximizing rents goes renting out by the room is probably your best bet, but this usually means managing it yourself. Not to say you can’t find a management company to do that for you. Just harder. I hope that helps.

Austen Mueller · Answer

@aditya Praveen try and speak to a property management company. They should have a data base of rents in there given region and may be more familiar with your situation given they could manage something similar to what you are trying to do

House Hacking: What is considered a decent Cash Flow?

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