Do you analyze househacks the same as other properties?

Question

If you plan on house-hacking, especially in a duplex, you effectively cut your potential rent in half. And if your total rent is halved, the numbers you run on your analysis are not going to be accurate. With that said, should I base the calculations off the single unit that brings in income, or do the math as if I didn't live in it? Thoughts?

Matt K. · Answer

You in theory could reduce your expenses to have a higher cash flow....... with the assumption being you have that 20% you'd of used as your reserve. Only word of caution though is you're entering a house w/ no equity (unless you add it yourself) so that could effect future plans.

Matt K. · Answer

That's not true at all, the point of the househack is to reduce your housing costs. Not to mention if you move and turn it into a investment you've got minimal money down so of course it won't cash-flow. It's not fair to evaluate a duplex w/ 20% down to a duplex with 3.5% down...But.... you could also do the value add (through rehab, rent increase whatever) and sell it off for a profit. Key here being since it was your primary you're exempted 250k and 500k if married.... so you don't need to 1031!

Colleen F. · Answer

You analyze it both ways. if it does not cash flow to your goals for profit margin with both units rented don't pursue it. These are the numbers people usually talk about. However, if it does not meet your budget for housing with one unit rented also don't pursue it. The later will differ by person. Some people are fine to wind up out of pocket each month for a while knowing they would put that out in rent and some are looking for zero out of pocket. With one unit rented I would want to pay less out of pocket then what rent would be normally but how much less would depend on whether it is a high vs lost cost area. 0 would be nice but that isnt necessarily going to happen.

Yuriy Skripnichenko · Answer

@Jared TaylorI'd do calculation base on one unit rented. You need to see the actual cashflow/loss and see if you be able to cover your expenses or if you need to put money out of pocket every month. I haven't done house hack myself. However id I did, I'd look for a deal where I don't have to pay out of pocket.

Dave Foster · Answer

@Jared Taylor, For most folks house hacking is a result of an opportunity cost analysis. If you have enough scratch to buy a residence or an investment property or a hybrid like a house hacked small multi how would you decide.1. Which scenario affects your balance sheet the most (appreciation)2. Which scenario affects your statement of cash flows the most (NOI)3. Which scenario affects your P&L the most (ROI)4. Which scenario is most appealing to your from personal point of view.If you're trying to decide what direction to go with the ability to only choose one then you've got to run both present and future proformas and they've got to be comprehensive and include the personal side of your life as well since house hacking is designed to affect both.One of the most appealing benefits of house hacking is the ability to take part of the profit tax free when welling combined with the ability to defer the rest of the tax in a 1031 exchange.

Jordan B. · Answer

@Matt K. I've been evaluating SFR and duplex house hack opportunities with VA loan financing (0% Down). The cash flow numbers have been sub $100 with conservative expenses, which is uncomfortable.You grounded my skewed mindset. While its imperative to buy right, $0 down on any cash flowing, equity-building house hack is infinitely better than renting.Thanks!

Daniel Ortiz · Answer

Colleen F. Well put Colleen, couldn’t agree more.

Carson P. · Answer

I would agree with Daniel. I am currently looking to house hack with a duplex as well. When I look at possible purchases, I first look at it rented with both units, then look at the possibility of only having rental income from one side. IMO if your purchase doesn't cash flow with both units fully rented then it will be no use to you after you move out. I like the advise of breaking even as well. It will take the right situation to have positive cash flow on a duplex house hack. I'm starting to consider a triplex as my first house hack in a bid to have more cash flow while house hacking.

Daniel Ortiz · Answer

Jared Taylor - Great question, I am wondering the same thing as you. My guess is you would analyze it assuming only income from the rented unit. This would be part a of your investment decision. Part b would be to run the analysis assuming both units are rented to see how the investment fares once you move out. Ideally (at least for me), I would want to at the very least break even when house hacking, knowing it will cash flow once I move out.