Time to talk about house-hacking in NYC (again) in 2021-2022....

[Nick Louie]

Hi BP community,

My name is Nick. I'm moving back to New York City for a job, and I'm intending on house-hacking by purchasing a 2-3 multifamily home. I'm a first time buyer. I listen to the BP podcast, and of course, I'm reading all of Brandon Tuner's books. I'm looking to house-hack in Brooklyn or Queens. Unfortunately, the Bronx would likely be out of the question (wife calls the shots).

So, over the last couple of weeks, I've been searching for property on Zillow and Realtor.com. I've been analyzing numbers using the BP calculator for Pro members. After running the numbers on dozens of properties, my conclusion is house-hacking in Brooklyn/Queens (or other expensive, major metropolitan cities), seems to be a very tall task.

Here are my thoughts on house-hacking in Brooklyn/Queens:

• - Price Range. The majority of 2-3 multi-families are $900k - $1.3m. In order to efficiently house-hack, it seems like a buyer would have to purchase a distressed property and rehab it with a FHA 203(k) to have a chance to land a $800k deal, which would produce acceptable cash flow and cash on cash return of interest numbers;
• - Mortgage Product. Typically, buyers who want to house hack use a FHA loan. But in NYC, FHA 3.5% down loans don't work well because the premium mortgage interest (PMI) is too high: e.g., $1,000,000 x 1.05% = $10,500 / 12 = $875 monthly + mortgage payment + all other expenses;
• - Down-Payment at least 20%. Therefore, if PMI ruins the cash flow, then that means a buyer would have to put 20%+ down. In other words, the buyer could just use a conventional loan instead of a FHA, so this FHA strategy doesn't work in NYC.
• - Home Type. It seems like only a 3 family + an additional dwelling unit (ADU) is the only possibility of cash flowing once you move out of the house hack. Otherwise, the numbers don't really work: the COC ROI is too low and the cash flow is negative.
• So, my conclusion is: I need to reconsider whether I want to pay 3.5% FHA or 20% conventional. Regardless of the mortgage product, to profitably house hack, I'd need to be prepared to purchase a semi-distressed 3 family + ADU property around the range of $800k - $850k. Then I would use a 203(k) to rehab it and get more equity in the property. I'll live in one unit and rent out the other 3 units, hopefully for $5,000/month+ rent for Year 1. Year 1 will definitely be negative cash flow/COC ROI numbers. I just gotta take that loss.
• In Year 2, I could refinance my property, get out of the FHA loan, then move onto investment property #2 with a new FHA loan. Once I move out of property #1, I can rent out all 4 units, and now I'll actually positively cash flow on the property. Then I repeat this process for property #2 and keep the ball rolling.
  
• Question to BP community: Is there anybody in the BP community that has successfully house-hacked in Brooklyn/Queens (or another major metropolitan city) that could share specific deal numbers?
• Please feel free to share your thoughts. Thanks.