House hacking analyzing ?

Question

Hey BP Family.

I am in going to be purchasing my first investment property by the end of the year and I plan on house hacking it. I am wanting to get some feedback/guidance  from other house hackers/investors on when it came to analyzing a property, how is it that you were analyzing those properties? Since you were planning on living in one of the units and renting out the other, rather than immediately renting out both, how did you come to the conclusion that the property made sense? I will add I am ultimately trying to achieve on lowering my cost of living, and I understand that I will not be cash flowing immediately as I am in Portland, OR and I plan on purchasing in the Portland Metro Area.

Any kind of guidance on how to go abuts to analyze correctly for that would be truly appreciated.

Once again, thanks again !

Brad Hammond · Answer

Hey @Alex Mora.  I tend to run my numbers as a regular investment and that will tell me how much you would pay as a house hacker.  I try not to overcomplicate things when running the numbers.  This is one of the harder parts to wrap your head around so it is best to keep it simple.

I created a great analyzing spreadsheet and would be happy to share it with you.  Let me know if you are interested.

Will Fraser · Answer

@Alex Mora I focus on two numbers with house hacking:  what is my Cost of Living savings while I live there and what is the cashflow when I move out.  If either of these is not up to where it needs to be then I know it’s a non-starter.

Alex Mora · Answer

@Brad Hammond my man ! Yes if you could send me it over I would very much appreciate it. I am getting into the habit of analyzing random properties to get the hang of it and really understand it all. So any help would be appreciated!

Alex Mora · Answer

& @Ryan Howell I completely agree with you there. From what I’ve heard or been told from other investors is ultimately any money saved is earned money.

Will Fraser · Answer

It's my pleasure, Alex!

Aaron Montague · Answer

@Alex Mora The others covered the basic concepts nicely so I'll throw in a different strategy along the same lines.

@Will Fraser is exactly on point with the "a reduction in your living expenses is a successful house hack." The next key is to think of your ROI on the house hack.

If you were paying $2000/month in rent and utilities, then bought a house that required a total of $45,000 out of pocket, your ROI is going to depend on how much you end up saving vs. the $2000.

Savings:    ROI:$200         5.3%$500         13.3%$1000       26.7%

The other possibility is saving very little on your housing expenses but playing the appreciation game.  If you are fairly sure your property is going to be worth substantially more 25+ months down the road this can be another possibility for a successful house hack. The primary downside is all of your benefit needs to wait until the end of the sale.  The key here is to make sure you live in the house for 24 months and you won't have to pay capital gains tax on the first $250k of profit on the sale.  This can be forced appreciation as well as market appreciation.

Best of luck with everything no matter what you choose to do!

Alex Mora · Answer

@Will Fraser I see what you mean! This was my initial though process, I just wanted to see if my mind aligned with other minds when it came at looking at house hacks.  Thanks again for sharing !

Will Fraser · Answer

Precisely!  Before I sold my house in the burbs and bought a house-hack I was spending $1,241 per month plus another $240 in monthly utility expenses..  With the house-hack I was spending $300 per month all-in, leading me to a $1,181/month cost of living reduction. that allowed me to save, give, or spend an additional $14,000 per year that I lived in the house-hack.  Once I moved out and leased out my unit for $1,000 per month then my $300 out (including utilities) became a $740 per month "in", or $8,880 per year in cashflow.

So, boon to my cost of living while I live there, and a cashflow machine at a clip of $185/door while I don't.    That's a double double in my book :)

Alex Mora · Answer

@Will Fraser when you say what is your Cost of Living savings while living there, do you mean what the price difference is from what you are currently paying to live and what the difference will be when you move into the property ? For example, (if I am understanding what you are saying) if I currently pay a total of $2k to live in my current home, but once I get my next property, & now it’s costing me $1500 to live in it, my savings a year is $6k. That $6k “number” is what you look at ?

Ryan Howell · Answer

I agree with @Will Fraser, but it also depends on your goals.  You may not be able to buy in your area where you can cash flow after moving out.  I wouldn't let that stop you from house hacking because reducing your expenses significantly is still better than not house hacking.

House hacking analyzing ?

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