Best way to analyze a house hack?

Question

Hi guys,

Wife and I have found a potential duplex house hack. Just trying to decide the best way to quantify a “good deal.”

On a pure rental the metrics are pretty easy. To me it gets a little fuzzier on a house hack where I’m living in part of it. Is it good if the rent covers your mortgage? Or is it only good if there’s free cash flow after the mortgage payment? Thoughts?

I guess my initial thought was I’m not planning to stay there forever. So maybe just analyze it as if both units were rented out and if it’s a good deal it’s probably a good deal with me living in one side.

Amy thoughts/guidance appreciated!

John Leavelle · Answer

Howdy @Cody Swainston

You are on the right track for analyzing a House Hack deal.  Analyze it as if you are not living there using the loan information from the House Hack (assuming FHA loan).  If it meets your Cash Flow criteria then it’s a good deal.  If not... keep looking.

Once you find the deal then you can adjust the rental income and expenses to account for you living there.  You will most likely have negative Cash Flow.  That is why it is best to find a Triplex or 4plex to House Hack if possible.  You have a good chance of breaking even or having positive Cash Flow.

Omar Khan · Answer

@Cody Swainston Although @John Leavelle answer is on point, you will still have to consider your personal situation when assessing what is the best way to analyze the house hack.

E.g. if this is in a quickly gentrifying neighborhood and your personal financial situation allows it, you could take a risk and underwrite it at a level where you are just-about breaking even with your mortgage +  operating expenses.

If you have liquidity and/or other issues, you would want to have a margin of safety built in.

Cody Swainston · Answer

@John Leavelle Thanks for the response! Appreciate it!