House Hacking Research #2- Ask/Answer any House Hacking Question!

[Craig Curelop]

Hello everyone, 

This is part 2 of my research project for house hacking. Please let me know any questions you have surrounding house hacking. If you have the answer to any question  you see, feel free to answer. 

Thank you!

[James Middleton]

@Craig Curelop Living in Northern NJ just outside NYC is very expensive. A Two family in a decent town can go for 400K with 12K yearly taxes. Househacking and still paying $1400/mo. mortgage makes no sense to me.....any suggestions?

[James Wise]

Originally posted by @Nicholas Munford:

Is there a bigger benefit in paying cash vs finance when you house hack?

No. Definitely not. Don't pay cash. You living in the property is what gets you that super low down payment. That's how you can get in with that 3.5% down FHA loan. Being able to save your cash for a property you won't be living in is the number 1 reason you should house hack.

[James Wise]

Originally posted by @Charlie Granados:

@Craig Curelop Hey guys what type of property do you think is best for house hacking ? I’m 22 at the moment I want to have a house by 25 (3-4 years) I’ll most lIkey take out a commercial loan, I live in Long Island New York Nassau county “ suburbs”. The goal of course is to buy early use my time as an advantage and love and rent out the rest and advice . Thanks family

You want to get a residential loan. A nice 30 year fixed interest loan. FHA would probably be the best. Only 3.5% down & you can buy a 1-4 unit property.

[Scott P.]

@Laura Hines, I did my own taxes until the year I started living in one side of a duplex and wanted to be sure I was depreciating correctly.  (I may have gotten a K1 from a SubS Corp for the first time that year too but my memory is that the "house hack," as they now call it, was the impetus to find a CPA.)  

My memory is that we stopped depreciating the side we lived in while we lived there.

I'm still with that CPA as are a couple of friends/relatives I referred to the firm and even a now grown-up child who we brought home to that duplex as a baby many years ago....

As your real estate interests grow, you'll probably want to  look for a tax professional as will @Craig Curelop's future book readers :-).

Good luck!

[Scott P.]

@Andrew Wright I've been on the landlord and tenant (actually parent of tenant) side of that issue.  I charge more and have a 9 month lease if the tenants wants that. I explain that I charge more to recover the cost of cleaning, painting, etc. over a shorter time period.

My favorite plan is an option to the tenants to lease for the other 3 months at a reduced rate if they keep the utilities in their name.  In return, they can store their items there for the summer as part of returning to rent again the following year.  I've had rental companies do this twice for my college age children.  As part of the deal the students were not allowed to use the apartment over the summer as they went off for internships or back to home towns in home States.  I'm not sure how that is enforced but I could probably find out if it would help you.

[Chris Butler]

looking for my first deal. I’m going to house hack. I have a pretty good outline as to what I am looking for. But what gets in the way is since I want to live in a unit I see myself looking at more of a rural area because of my taste, and considering i will stay at my first property as i continue my journey. But my Criteria is metropolitan if I wasn’t living there. Is this a good way to go about it so long as I buy right or no?

[Jantsen Locke]

I am in the process of owning my first property. It is a duplex that I am planning to house hack with the current renters staying on one side and a friend of mine staying on the other side with me.

I believe there are some potential tax write offs with being a landlord. What kind of receipts do I need to keep? Or what kind of advice can anyone give me about the book keeping side of it.

Thank you

[Shelby Ek]

@Jantsen Locke I was in the same situation with a tenant and a roommate. I used quickbooks to track everything a set up classes to track everything by unit.

All income or expenses were tracked and associated with a class.

So I would have the following classes set up and to make it simple lets say each apartment is the same size and you are sharing your apartment 50/50 with your roommate.  Your percentages may be different, but this will keep my example simple.

Apt 1 rental - 100% of expenses are a write off

Apt 2 owner occupied- 50% of these expenses are a write off, because half is a "rental/roommate"

Whole House- 75% of these expenses are a write off because you are only owner occupying 25% (so things like repair to common area, landlord electric meter, etc.)

At tax time I print a P&L by class and give that to my accountant.

I'm not an accountant and not giving any professional tax advice, but this system while a little work upfront, keeps things really easy and is a system thats worked for me.

[Jantsen Locke]

@Shelby Ek

Thank you that makes sense

[Joe Sadusky]

@Lamar Jean after you have been house hacking for about a year- hopefully you have had the opportunity to save some money for your next deal. Do you have equity in your property? If so, I highly suggest taking advantage of the BRRR (buy, rent, refinance, repeat) strategy. I have used the BRRR strategy as leverage for my financing of additional properties by doing a refinance and using that money to purchase another property.

Best of luck! 

[Joe Sadusky]

@Nicholas Munford paying cash over financing is definitely a personal preference.

I personally would much rather use whatever cash savings I have as down payments on multiple properties and using financing to secure mortgages on the remainder.  If you are getting properties below market value, you can pull equity out of the property through a refinance.  I believe that using the leverage of your equity is the best way to achieve larger returns. 

[Lisa Irimata]

Originally posted by @Minh Nguyen:

Hi Craig,

So glad this thread was started!

Is it worth it to go for a multifamily unit and carry more risk? My goal was to buy a townhouse/condo with three bedrooms to rent out the other two. In the process of researching RE, I discovered BP and realized that you guys have the term "house-hacking" for this and there's a lot of emphasis on multifamily properties. So I started looking into multifamily properties in my S Florida area (admittedly only on MLS sites like Zillow/realtor.com) and there are slim pickings with massive price tags. While I can put a 20% down on a condo, I'd only be able to put 5% down on a multifamily so I'd be in a highly leveraged, risker position.

The numbers at a glance (1%, 50%, and 70% rules) seem to work out better for me with a condo than with a multifamily, but I think I'm struggling with multifamily FOMO lol. 

Can't wait to hear any input on this.

P.S. I just listened to your episode on the podcast yesterday, and I'm a big fan of your way of life. Looking into Turo since I've taken to using public transit lately.

Hi Minh,

I am house hacking by renting out 2 bedrooms from my 3B2B townhouse just like you are considering and I LOVE it! I agree about the multifamily FOMO but I'd say go with what makes sense for numbers. For my market it's difficult to achieve the 1% rule since there aren't a lot of small multifamily properties available to purchase/they're in C/D class neighborhoods. If a condo or townhouse works for you I'd also recommend that you check out how the numbers work out solely as a rental property if you plan on keeping the property in the future (this is something I wish I had done more research on before buying my current place). In terms of risk I think you also need to consider other factors like your job stability, income, etc to determine what property is best for you. Just from my own experience I put down 10% on a townhouse but would easily be able to cover the mortgage on my own if needed so I don't really see it as riskier than putting 20+% down.

Another thing to consider that I think is the biggest difference between renting out rooms vs renting out another unit is that you will be living with your renters rather than just managing their property. For me, I found 2 friends that rent from me so I actually really enjoy living with them but I don't necessarily think I'd be comfortable living with random tenants.

Bottom line: in my opinion go with the numbers that make sense and don't let FOMO get the best of you! Hopefully this is helpful and good luck!

-Lisa

[Andrew Wright]

@Scott P. So you let the students rent for 9 months at a higher price, but give them an option to get the other 3 months at a reduced rate?  How much of a reduced rate do you give since they are not allowed actually allowed to use the property?  Also, what do you exactly mean by keeping the utilities in their names? (like how exactly does that work)

  Thank you.

[Aristone Louxz]

@Wesley Whitehead I would personally go with option A. Getting a smaller multifamily you would have your own separate unit. More expensive doesnt always mean better in my opinion. If option be would mean shared rooms within a single family home I would definitely shoot for option A. 

[Minh Nguyen]

Originally posted by @Lisa Irimata:

 For me, I found 2 friends that rent from me so I actually really enjoy living with them but I don't necessarily think I'd be comfortable living with random tenants.

Bottom line: in my opinion go with the numbers that make sense and don't let FOMO get the best of you! Hopefully this is helpful and good luck!

-Lisa

 Hi Lisa,

Thanks for this response! Funny enough, I was also planning on doing the same thing by starting with 2 of my friends to rent the other rooms in a 3x2 place. It just seems like the path of least resistance to getting started with house hacking, and ultimately RE investing. I'm glad to hear that things worked out so well for you!

[Nathan Le]

I started listening to BP for a couple months now. I am struggling to find a good deal on multifamily in Lancaster, Pa. How long would you recommend to stay before you moving to another project and renting out? 

[Lisa Irimata]

@Minh Nguyen

Glad it’s helpful! Don’t forget that the main point of house hacking is to basically live for free while building equity and maximizing your savings rate, so as long as you are achieving this then you’re doing good. Good luck and keep us updated how it goes!

[Scott P.]

@Andrew Wright I actually rent from with this arrangement, not rent to.  (Yes I know...why not buy a rental in the town where your child goes to college and rent "to" instead of rent "from."  Long story...)    Let me see if i can get the exact numbers to you this weekend...I think if i put your name in post you'll get an alert and see the answer.

[Sachin Bhat]

@Mario Garcia I don't believe there is 1% rule for house hacking because you live there. I would just look at if the rent coming in covers 90% of the expenses including your mortgage. So you can live rent free or close to rent free. If you make money on top of that that's an icing on the cake. 

[Jeremy Kolasa]

Hi,

I was wondering if any house hacker has ever used a property manager while living there? If so could you give advice on how you did it?

[Wesley Whitehead]

@Aristone Louxz thanks for the info

[James F.]

HI Craig & Others, 

I am currently owner occupying a triplex that I bought with an FHA 3.5% loan at the end of September 2018. I'm trying to move into another multi-family property and keep the triplex I'm living in now as a rental property. I have talked with a few bankers, and they said that I would not be able to get another FHA loan and that a conventional mortgage on a multi-family property would start at 15% down for a duplex and go up from there for every additional unit up to four. I was wondering if there is a way to move into the next property with a smaller down payment ideal under or around 5%.

Thank you! 

[Ryan Valenciano]

Hi Minh, 

it might not be necessary for you to carry more risk, have you looked at the market for bedroom rentals in your area?, a condo or townhouse might be just as good as a multi family depending on how much you can charge per room. 
Originally posted by @Minh Nguyen:

Hi Craig,

So glad this thread was started!

Is it worth it to go for a multifamily unit and carry more risk? My goal was to buy a townhouse/condo with three bedrooms to rent out the other two. In the process of researching RE, I discovered BP and realized that you guys have the term "house-hacking" for this and there's a lot of emphasis on multifamily properties. So I started looking into multifamily properties in my S Florida area (admittedly only on MLS sites like Zillow/realtor.com) and there are slim pickings with massive price tags. While I can put a 20% down on a condo, I'd only be able to put 5% down on a multifamily so I'd be in a highly leveraged, risker position.

The numbers at a glance (1%, 50%, and 70% rules) seem to work out better for me with a condo than with a multifamily, but I think I'm struggling with multifamily FOMO lol. 

Can't wait to hear any input on this.

P.S. I just listened to your episode on the podcast yesterday, and I'm a big fan of your way of life. Looking into Turo since I've taken to using public transit lately.

[Ryan Valenciano]

Hi Edward, 

i had one bank tell me they would include 60% of the rent from the other unit as income. As far as I know lenders don’t really look at cash flow from the other units unless you are doing commercial. Hope that helped 

Originally posted by @Edward Krause:

@Craig Curelop any tips for how to FIND duplexes etc? Orlando, FL here and would love to start researching/pricing out a duplex/triplex house hack to save myself money (rent is outrageous $1200+utlities for my 1 bedroom thats actually really nice). I try to look on zillow, loopnet, realtor.com, and it seems there are very few and far between options that I could find... when you go into a house hack with multiple units, do lenders typically see the income potential for the other half and allow you to borrow more than youd be approved for on any traditional house? Very new and just learning, but hope to get started asap.

[Tereal Wilsonn]

Greetings 

Thank you for making this post, ill try my best to communicate thoroughly.

Ill start off with explaining my situation, in 2015 November i closed on a 2%er Duplex  for 85k in Metro Detroit .At the time of sale i acquired a tenant paying 775, they moved on in Oct  2017 i Lost 3500 with a contractor that ran out on me while updating the unit, then i got another contractor to come  in and finish for 8k lesson learned since then Ive gotten better tenants and raised the rents to 925 monthly.My debt service at the time  mortgage, taxes and insurance totaled 697 

June 2018 i close on a 4plex and i move my mother in my side of the duplex and i move out while she lives rent free . were working on her credit so she we can find her a duplex of her own.

In August of 2018 my lender for the duplex sold my loan which caused my debt service to change from 697 monthly to 878 monthly.

My insurer tells me my insurance increased because of cost to rebuild so they had to raise them.

• Since Ive moved out should i look for an landlord Insurance Policy?

My new Mortgage Company tells me my property taxes have increased, but i called the city and they said they were lowered

• How do i contest my property taxes with my lender to prove they are overcharging me monthly?

• Should i place my propety in an LLC?

• lastly will i lose out on tax write offs for repais since i dont have my property in an LLC?