Is this house hack worth it?

Question

Would doing a house hack where only 2/3 of the monthly mortgage payment is covered be worth it? Mortgage payment being $1500 and it rents for $1000.

I always hear of people getting their mortgage fully covered and living for free, but is it still worth it to still pay $500/month out of pocket to still get the appreciation, equity, tax benefits, and possibility to use it as a long term 2 unit rental?

Just want to make sure I’m not missing something! Thinking of doing new construction of a duplex in a nice area versus a house hack in a more “sketchy” area to say the least. I understand cash flow can be higher rehabbing an existing place. The problem I’m running into is duplexes for sale in my town are in worse locations. Unfortunately, those look like my only 2 options at this point.

Corey Stevens · Answer

@Trent Stone thanks for the reply! It’s tough figuring out the numbers because I have no idea what building one would cost.

Has anyone built a duplex in Ohio or Indiana before?

Trent Stone · Answer

Grant Cardon's rule is "When the crane is in the air, beware". You have to take into account the amount of new inventory being built and how it is going to impact the demand for your product. I little town in Utah is scheduled for 35,000 new dwellings over a 5 year period. You couldn't pay me enough to invest there. It might look like a decent investment now, but those developers are going to get caught with their pants down in the near future and I want to be far away from it. Also, as it stands, those units are renting for below a 5 cap. So sure, if you are sitting on massive amounts of wealth and you are just looking for long-term appreciation, then go for it. Otherwise I think you would be FAR better off buying something in an established neighborhood with a relative fixed supply. That also keeps you from speculated what the market will do with the changes in supply v. demand, you will have a ton of historical data to support your investment. Much safer IMO.

Craig Curelop · Answer

@Corey Stevens - The way I look at it is... if you are paying the same or less than you would in rent, it is worth it. If you are paying more than you did with rent, then it's not.

If your goal is early financial independence, this property sounds like one small step towards the goal. If you want to take a big step, I would recommend finding a place that will allow you to live for free or maybe even get paid to live there. To do this, often times you need to live farther away from a desirable location or find a house that needs some love.

By house hacking, you will drastically improve your net worth and your overall financial position. Not to mention all of the learning you do in the process.

In the end, it's really up to you. Are you willing to sacrifice a little bit of comfort for more profit? If so, how much sacrifice are you willing to make?

Ondrej Brown · Answer

I'm getting ready to get my first rental property and I will be house hacking it. Using a FHA loan putting down a 3.5% down payment.  Sometimes its the start up you have to look at Corey; you have something under your rental profolio while possibly living rent free or close to nothing. If you do the number right you can get a decent cash flow or  some extra cash in your pockets. I myself is facing the same problem with all the duplex being in some rough areas in Cleveland,OH ! But that's the beauty of the house hacking method and grinding out to get your second property while living rent free. I would just get security cameras set up around the house in etc.

Abe McLaurin · Answer

@Corey Stevens I personally haven’t, but I’ve seen some good rehab opportunities in Columbus.

Account Closed · Answer

Could you add an ADU or JDU or convert a garage on a SFR property?  Maybe you could create your duplex/triplex that way, if the costs work out and it's allowed.  You could start out by house hacking, then work on converting the garage or getting a prefab ADU, etc., put on the property.  Then, move into one of those units, or just rent them all out.

Dan H. · Answer

So let’s go with rent covers the mortgage (principle and interest only).   What does this really mean to the owner?   It does not mean, as many people state, that they are living for free.

Let’s use a triplex where each unit would rent fit $1k.   2 units are rented for a total of $2k.  This covers the mortgage.  However, what about the other expenses?   The 50% rule would indicate that the other expenses on these 2 units would be $1 or if use 40% due to self management $800.   However, the unit the owner is in would have most expense other than vacancy.  If vacancy was forecast at 10%, this unit has eSpenser of $700.  So in this example, the home owner who is living in a $1k unit has costs of $1500 ($800 + $700).  So his costs ($1500) is more than what he could rent the unit for ($1k).   So his cash flow when allocating for all expenses is negative.  However, he also benefits from the tenants paying for equity pay down.  He also would benefit from any appreciation (both rent and property).

In your case, your rent does not cover the mortgage.   This implies your cash flow will likely be more negative than my example.  For it to be a good investment, you will need to rely on appreciation.  How confident are you of good appreciation?

I suspect, the house hack is not worth it.

Good luck

Trent Stone · Answer

It really just depends on the purpose of you buying the property and the area. Are you buying it strictly as an investment, then you might be able to do better, and you would probably want to look at buying a 3-4 plex, in which case your mortgage better be covered. Run the numbers as if you were renting out both units and see if it makes a good investment. What is the cap rate, cashflow, roi, etc. If it doesn't make sense purely as an investment, then you could be better as a personal residence. If you just absolutely love the place and you aren't a hardcore investor, then sure, you get a nice break on your mortgage, it's still house hacking. Just depends on your goals. :)

Is this house hack worth it?

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