To Hack, Or Not To Hack, That Is The Question.....

[Bob Razler]

" Whether 'tis nobler in the mind to suffer

The slings and arrows of outrageous cheap living,

Or to take cashflow against a Sea of debt,

And by opposing pay it off"

Hello:

So, what seems like a simple proposition/rule (Razler's First Theorem of Hacking):

If you buy a multiunit "plex" where the apartments rent for more than your current rent, it is better to rent them all out than to house hack and live in one?  (assume all your misc expenses remain the same - cable, elec, water, swedish fish).

Also, if you live there, I believe you lose a portion of the depreciation from the building as well as the ability to expense a portion of any CapEx that spans the entire home (roof, slab, etc.) due to a % of the building being your home.

Correct?

Bob

[Taylor Brugna]

Thanks for the mention @Allan Rosso! @Bob Razler Yes, when you live in one of the units, that unit is essentially treated like a primary residence would be for tax purposes, and the remaining is treated like a rental. You would only depreciate the rental portion and you would only capitalize the rental portion of CapEx (roof)

You get to utilize the section 121 exclusion on the portion you are living in (Up to 250K of capital gains). You get to deduct a portion of repairs and expenses on a "whole property level" that you otherwise wouldn't get to take if you had a stand alone residence. Any repairs directly made to rental units can be fully expensed. The biggest reason why people love house hacking is that the tenants essentially pay your mortgage if done right, and you live for free!! Although I think the pros outweigh the possible cons, one con might be that depreciation may not beneficial depending on your tax bracket. Depreciation needs to recaptured at a rate of 25% once the property is sold. However, a 1031 exchange on the rental portion can solve that problem :)

Hope this helps!!