Duplex House Hacking
Is it a good deal to get a duplex (for the purpose of house hacking) if you paying small amount from your pocket every month to cover all the costs?
Just another upvote for "do it". I did it in a duplex and was paying $145 a month out of pocket, after we moved out we rented it the unit out and cash flowed real nicely after all expenses, including PMI and PITI, cap ex etc etc. Well worth it. And as Steve said, it will make your personal savings and life so much easier and worth while.
Just another example to share. Our kids headed off to college this year and we decided to HH on a construction of a new duplex IN OUR BUSINESS NAME. Hence 100% tax deductible. Our numbers:
$480,000 construction cost.
$80,000 down payment by selling off another investment.
Rent: for other 1/2 is $1400 + $500 for our half (bc we do Yardcare, scoop snow in driveway, and general mtce to discount rent from $1400 down to $500)” for our half) = $1,900 income per month.
PITI+Mtce=$2,300
Negative cash flow of -$400 to my business but I also get to fully depreciate and expense 100% against any other expenses.
I was paying over $2,000 per month to live in a $280,000 house two years ago that was 30 years old but now I pay $500 a month and everything is new.
@Hardeep Singh Yes, it is a very good deal in my opinion to come a small amount of out pocket every month while you house hack a duplex.
What usually happens when people start looking for a duplex to house hack is they want the nice neighborhood and to live for free. Then the reality sets in once they start getting from behind their computer and actually getting into the markets and they realize some small sacrifices will have to be made.
In my market here in CT if you want to buy a duplex in a nicer neighborhood you are probably going to be sacrificing a little bit of cash flow. What you gain though is ease of management with a higher tenant class which allows you focus on your next move. There is a lot of value in that in my opinion.
Obviously if you are willing to live in a triplex or quad plex your chances of living for free increase, but some people do not want to buy that size of building to start and/or their budget will not allow them to.
The best advice I can give to house hackers, is the same advice I give to my clients, is to choose the neighborhoods/towns/cities you would be willing to live in around the area you are targeting. Do that by actually driving the neighborhoods if you do not already know them. Then from there see if what that area offers in terms of duplex's realistically matches what your budget is and work it from there.
Use your agent as a resource to help guide you through this process and be ready to jump on a property that checks all the boxes for you. Because you know what? You aren't the only person in your area looking to buy the duplex in the nice neighborhood.
It can be a good start. My first place was a 2 family house hack 10 years ago. We bought it in 2007 and lived in the bigger unit and rented the smaller one. We had to pay around $300 each month but we would have had to pay $900-$1000 /m to rent a place that size. A few years later we were able get a bigger place to house hack that paid us $500 each month.
Hey @Hardeep Singh depending on the area you are trying to purchase in will determine if you are getting a deal or not. With the duplex you mentioned, if you only have to pay a small portion then it kinda sounds like a good deal because if you decided to move out and rent out your current space, in theory you would cash flow but these are assumptions from my end because i dont know the numbers. Good luck!!!!
I was looking to HH a duplex here in AZ as they are quite popular in my city. I ended up buying a 3/3 SFR, more options for me, and am HH it by renting out 2 rooms. It is a different set of sacrifices with roommates vs tenants next door. All of us in the house work a lot so we rarely see each other. PITI is 1248 and I get 525 and 575 for the rooms plus utilities are split in 1/3s. I am now saving/buying stocks aggressively, reading books, and preparing myself to buy a 2-4 unit property in the next 1.5 years to HH again. Find a deal that you are comfortable with and do it. I was afraid to buy but extremely happy now that I got started. I have learned 10x more than what I could have from reading books on the sidelines. Take action and MAKE IT HAPPEN!
I would say yes, if all the #'s work out and your living in the other half and your only paying a little each month. Then yes, because then once you move out all your bills will be paid and hopefully then you will be in the green. Is there anything you can do to add value to the other half to increase rents, or to decrease your operating costs?
I owner occupy one of my duplexes, and rent out the other side of this duplex, the rental income pay for the PITI, can't be happier.
Yes 4plex works better for investment purpose, but it's hard for someone with kid since 4plex is usually not at a good area.
Great advice everyone. Thank you.
@Michael Noto Great Advice.
At this point, I am not worried too much about living in a great neighborhood. As long as it is a safe neighborhood it will work for me. Definitely a great deal is my first priority. Because my next plan is to buy another property after this once I get comfortable.
@Ronny Tiburcio Make sense. Thank you
@Nathan Patterson Still looking for which neighborhood I will invest in.
Find a value add duplex, get going, and don't wait!
Originally posted by @Hardeep Singh:
Yes, that definitely make sense. I would rather get a 4plex as you will get more exposure to the REI, however, 4plex are way higher in price in my area. So I might have to move out an hour or 2.
Or I mean at the end of the day if you get financing it does not matter much if the 4plex is expensive because someone else is paying for it assuming you get a great deal.
The way I thought about it when I was buying my FHA house hack was that I only get one at a time. I might as well buy the most expensive one the bank will let me get as long as it cash flows when I move out. For me that meant getting a triplex because 4-plex put me into the jumbo loan category.
PMI is Mortgage Insurance. It is added $ paid each month. Some mortgages the PMI goes away when you get to 80% of the loan to value, but some do not. So pay attention to that. Of course you want the payments lower right?
Yes Chris and FHA is an advantage at this moment. May be 2plex or 3plex will work the best in an expensive area in terms of house hacking.
Great tip. Thank you. Yeah lower payment is ideal.
Have you thought about adding a roommate to your house hacking? So the other side of the duplex brings in 1,000 and then a roommate would pay $4-500 depending on where you're at.
Also, have you thought about doing short term rentals (Airbnb, VRBO, etc) on the other side of the duplex instead of a long term tenant? Would be more work but also have better returns.
I am also looking for a multi-family for a house hack for my first deal. How far are you guys in the process? I currently have looked at about a dozen properties, and am looking to close by the end of the year.
What I am doing to analyze my properties is to run one for when I am living in it and one for when I move out, to make sure that I can cash flow when I am not living there. (I plan to finance with FHA, and then move to another property, maybe another house hack).
After reading Scott Trench's book, I know this is a great way to go. Ideally, I'd like to find a property in a great location that has one unit to fix up, so that I can buy at a discount, and make some upgrades while I live in it and still bring in some income from the other unit (hopefully rented out).
-Brandon
Depends on what a small amount is. I've house hacked two duplexs and both of them allow me rent to be completely free. When it comes to bills like power, gas, and trash I may spend somewhere between $50-200/mo but generally no more than that.
You want to make sure that with your other unit and other rooms you can cover the mortgage especially if you're income is not very high because having a vacancy from a roommate or tenant leaving can start to put a dent in your wallet pretty quickly.
But as far as getting into a rental property affordably and reaping the benefits there is no better way than house hacking. My first one has provided a 500% return on my initial up front investment and now cashflows $600/mo and has appreciated 100k in the past 2 years since I bought it.
The key to continuous house hacking is refiing your FHA loan to conventional ASAP to free up the ability to provide a low down payment and capture fast equity in your property setting you up for the next opportunity.