2-4 Unit House Hacking. What’s best?

Question

Hi all,

Hope everyone is doing good. Only posted on BP a few times so apologies if this is in the wrong spot.

So my title somewhat says it all. In your opinion, is a 2, 3 or 4 unit property the best to house hack? I know it really comes down to the deal but just curious if anyone is able to throw their 2 cents in what a beginner should look more into?

My thoughts as of right now are to do a 2 unit as I do live in Southern California so the purchase price will be somewhat high for me at least. I have been very fortunate in this recent bull to be able to do about 15% on about a $500,000 property (in the Riverside area if anyone if familiar with the SoCal area). This will leave my mortgage payment around $2,000 a month which I can afford even without a renter. But I am wondering if it would be better to maybe purchase a 3-4 unit property for around $800,000 and put 10% down? This would obviously just leave me really tight if things went south and I had 100% vacancy.

Would super appreciate any advice people have! Again, I know much of real estate investing does come down to the deal and the numbers but just wanted to see if anyone had some advice they could give.

Thank you and I hope everyone is staying safe!

Randall Peterson · Answer

The friend @Scott Gaspar mentioned is me.  I will readily admit I was lucky to find my triplex and used a VA loan to purchase it 0% down and put in some sweat equity to make the 86 year old property rent ready.  It has been a blessing and even the problems and obstacles are lessons I am grateful to experience.

SoCal seems to have so many different types of areas and even within the IE area that require different strategies.  A duplex in the right area could cash flow smoothly while a Quad in the wrong area will crush your dreams.  Rent rates vary from area to area and it helps to know the realistic data in the area and that takes research.  Good research reduces the speculation side of investment otherwise you will suffer "Garbage in, Garbage out".

Answering your initial issue is difficult given the current market and particularly in our local market.  Sourcing potential duplexes within a 10-15 mile area of Riverside might be rough.  Just an initial MLS search for Riverside shows 26 of 878 listings as "Multifamily".  Thin pickings but if you comb through them there could be a hidden gem.  You just have to put in the work and run numbers over and over again.  Use the BP Insight feature, rentometer, apartment.com to figure out rent rates and crunch crunch crunch like PAC-MAN on data.  Unit number should just be a component of your "equation" while you crunch.

Your personal comfort level of risk is important as well as how hands on you are with tenant issues.  I use a property manager and love it.  Worth every dollar.

Scott Gaspar · Answer

@Elijah Householder

Hey Elijah, I’m also in SoCal and live in Ontario, so not too far from you. I have a buddy who is also on BP who started with a house had in Crestline. It’s a triplex which he purchased for around $225kish but that was a few years ago. He has since moved to another home and has all 3 units rented and is cash flowing about $1k from it. Depending on where you want to live I think you can get something under the $500k mark and be able to cashflow nicely. I wish I would have done this when I had the opportunity but with a wife and 2 daughters it’s out of the question for me. Good luck! I can’t put you in contact with him if it would help. I also don’t have any rentals, yet, but have been a lurker and researcher for a while and plan to pull the trigger on an out of state property in the next few months

Stephanie P. · Answer

@Elijah Householder

Financing is a major consideration when house hacking.  In reality, it's the basis for what you're doing (having a renter or renters pay the mortgage).

FHA is the customary vehicle used for multi family, but large loan amounts can exceed FHA loan limits and the property may not meet the self-sustainability requirement.

Conventional is a good way to go, but you're butting up against the conforming loan limits with a multi family out there in CA.

Not impossible by any means, but you need a good lender to marshall you through the process and explain your options in detail.

Stephanie

Jonathan Oh · Answer

@Elijah HouseholderIn general, the more units you have, the less your payments will be. But this is obviously assuming all units are rented out. Just make sure you do you DD on what rents and what doesn't. Another option you might want to consider are ADUs. It's pretty rare, but once in awhile you'll find a SFH with a adu built out in the garage.

Elijah Householder · Answer

@Randall Peterson

Hi Randall, Appreciate the response! Sounds like you’ve set that property up pretty nice! Love to hear it. I actually just went to look at some properties today. There were some nice Duplex’s but as you mentioned I just need to do the number crunching. Thank you again for the response!

Elijah Householder · Answer

@Andrew Schutsky

Hi Andrew, I appreciate the response! I do think having the option to have 75% occupancy could be a good option and allow for more room to add value.

Elijah Householder · Answer

@Tyler Hungerford

Hey Tyler, Appreciate the response! I do feel like having the option of adding an ADU down the road could be great. I will keep that in mind for sure!

Andrew Schutsky · Answer

If you can swing it, I'd lean toward the quadplex since as you mentioned it gives you a bigger "cushion" due to swings in occupancy.  Not to mention a little more economies of scale with repairs, construction/upgrades, etc. :)

Tyler Hungerford · Answer

Hey Elijah! Glad to hear you're moving towards purchasing a small multi family property. That's awesome. That is going to help you offset your overall costs by a ton. Consider getting a duplex or triplex with a detached garage. Then you can convert it into an Adu later down the road and make even more rental income. I've helped several clients do that and they're actually cashflowing in properties here in the IE. Would love to discuss further if you need some advice! Cheers

Elijah Householder · Answer

@Scott Gaspar

Hey Scott, Appreciate the response! I am only about 20 minutes from Ontario! Love that area.

It sounds like your buddy got a great deal. That is exactly what i’m hoping to do. Would love to speak with him and learn about his experience! Will send you a message now. And I wish you best of luck on your first property!

Best,

Elijah

2-4 Unit House Hacking. What’s best?

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