Why house hacking is still amazing in expensive markets!

Question

-You can get in with very little money down with an FHA or 203K loan

-Rents in these markets are for the most part very high

-You can argue that most of these properties don't hit the 1% rule, but with small multi-families you end up coming pretty close to it especially if there's a basement with a separate entrance

-Properties with separate electric, gas or water meters can make it a lot easier to house hack even if the monthly rents don't hit the 1% rule

-Renting by the rooms could be a great way to make it so the rent from your tenants cover your entire mortgage payment or even cash flow a little

-Rent increases over time so your rent will eventually hit the 1% rule for your property

-There are 4 wealth generators when investing in Real Estate!  there's Cash flow, Debt reduction, Appreciation & all of the tax benefits.  it's important to note that house hacking in an expensive market means you'll get a lot more from Appreciation as a wealth generator.  Here's an example!

Let's compare a $100k Property with a $500k property.  Let's assume that they'll both appreciate approximately 3% per year.  In a 10 year period your $500k property would have appreciated in value by $171,958 making it a $671,958 property.  On the other hand the $100k property would have appreciated in value by $34,392 making it a $134,392 property.  All of this means that you'd have a significant amount more in net worth if you were able to house hack the $500k property.

-Even if the rents from the other units or the other rooms were not able to cover your mortgage payment in full and you had to come out of pocket a couple of hundred of dollars, you'd still be benefiting from having your tenants pay down your mortgage a substantial amount every month, you'd still be benefiting from all of the tax benefits, You'd benefit a whole lot from appreciation & you'd all in all be paying way less than what you'd be paying in rent.  Guys go ahead and house hack and build wealth!

Matthew Porcaro · Answer

Some people forget this, but I always tell househackers, you NOT having a rent/mortgage payment every month, is NET cash flow to your finances.

For example, if you were previously renting an apartment at $1500 a month, and you do a househack, where the tenants just about cover the mortgage and taxes, and you maybe have to kick in only an extra $100/mo...

You're still NETTING $1400 per month on your expenses.

Not to mention the huge payday you'll get in equity if and when you sell or refi in the future --- all which you never really contributed to!

Jane Nnaji · Answer

Hi @Raphael Abreu,

I just started house hacking my home in Los Angeles.  With the income from renting out 2 rooms, it pays my mortgage and more but i still have to come up with a couple hundred for other expenses like property tax but like you said it helps alot and my starting point into learning real estate. :)

Joe Prillaman · Answer

@Raphael Abreu, I absolutely love house hacking especially in hot, expensive markets. I’m here In Wilmington, NC and house hacking on Carolina Beach. This market has exploded over the last year and shows no signs of slowing down. Primary residence loan to off set your living expenses and once you move out it cash flows! So many investors want to skip this strategy because they aren’t comfortable being uncomfortable! Living beside or above your tenants is hard but the financial benefits far outweigh the temporary inconvenience. Guess that’s just my opinion I’m just the crazy guy who lives at the beach for free 😂.

Nick Riccio · Answer

@Raphael Abreu I couldn’t agree more. I talk about this a lot as well and have been house hacking in Boston since 2018.

My first house hack I bought for $630k and I broke even while living there, and now cash flows nicely!

My second house hack I make ~$700 while living there, and will cash flow very well when I leave!

On top of that - I would be spending around $2k in rent each month if I was renting.

It’s certainly “harder” to get started in expensive markets - but it’s life changing!

Will Barnard · Answer

Have you considered adding an ADU to the property? House hacking your main house and then getting additional rental income from a garage conversion ADU or new construction ADU will certainly add to your cash flow as you already own the dirt!

Peter Mckernan · Answer

A Huge come up adding an ADU in cashflow for properties, we just bought a rental hour east of LA and working on getting a full approval for the ADU conversion for the second garage on the property. That would give approximately $900.00 cashflow on the property. Also, not to mention utilizing the BRRRR strategy after the ADU and front house construction is complete.

Jon Ladas · Answer

Love this. I house hack and live for free + cash flow $800/moI'm also closing on an off market multi for one of my clients who will be house hacking and he will be living for free and cash flowing $600/mo. Rents are WAY below market on one of the units, I'm talking $600-$800 under. Plus that unit hasn't been updated since the 80s so he has some serious value add. As is, he can raise that rent by $600 and be cash flowing $1200/mo. Let's say he has no additional cash from his full time job (which shouldn't be the case because he's saving $1,100/mo on what he was spending on rent...he's now living for free remember?). Anyways, in two years he'll have $28,800 (assuming he saves every penny) but let's say that extra cash is burning a hole in his pocket so he spends $10k. He has an additional $18,800 in his account that can be used for another house hack OR he throws that $19k into the renovations of that out dated unit and gets some new renters in his luxury unit for another $600/mo. Now he's cash flowing $1,800/mo. 1 year = $21,600 (downpayment for another house hack)2 years = $43,200 (more than a lot of people's salaries and plenty for another 3.5% down house hack!)That compound income is the beauty of Real estateTHANK YOUUUUUUU

Will Barnard · Answer

Understood. Get your feet wet with the condo and then move on to an SFR or duplex. Once you do, you open the doors for the ADU advantage. Good luck to you.

Ola Dantis · Answer

I checked out the Boxabl site and the cost is from $49,500 and looks pretty cool. Now, this can be a game-changer for house hackers in some CA markets.

Will Barnard · Answer

I had not but just checked it out. Pretty interesting. Casita for $50k plus install fee and foundation. I could not figure out from the videos how you access the additional stackable bedrooms above. I saw no stair case. Anyways, guess time will tell if this works out.

Why house hacking is still amazing in expensive markets!

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