How to analyze a house hack deal?

Question

Hi,

Is there any sort of calculator for a house hack deal? Rules of thumbs? Based of market analysis?

For example I’m going to look at a 2 family in Southern New Hampshire that I would plan to buy with a FHA loan. The house is listed for 419,000. The house has two 2 bedroom units and a detached garage. Lender is figuring around 7% interest. Disclosure shows one unit is currently rented for $1300 a month, seems low to me but I’m still checking comps. Seems as though I’d still be left paying a good part of the mortgage. Ideally I’d like have rent cover a good part of the mortgage but seems nearly impossible in the current market situations i my area with high property cost and high interest rates?

Brandon Rush · Answer

You can simply use the BP rental calculator. Make sure you do not fudge the numbers to work for you. Simply put all of your numbers in as if you were renting the property out. The only thing you need to change is the total rental income. Whatever the left over balance is, is what you will pay monthly. If you are not living for free, do not drive yourself crazy. Your initial goal should be ownership and lowering your living expenses. If you happen to live for free or even get paid, that's just a cherry on top. If you are paying less that what you would be paying in rent by house hacking and its in an area you want to live, I say pursue it. For most people, if you are renting, there is no better time to house hack that NOW!

Good luck on your journey!

Conner Olsen · Answer

Best way to analyze a house hack is to use Craig Curelops NWROI calculation. He wrote an in depth article on BP about it and went into detail in his house hacking book. You can just google it and find the article.

Sean Delisle · Answer

I've recently closed on two duplexes with buyers in a similar situation in Manchester NH.  Neither will be getting the entire mortgage covered, but keep in mind that when rates come down you will get a raise.  Your "Product" will dictate your rents.  So provide a nice product so you can charge a premium on rents.

One of those buyers just listed their 2 bedroom unit for $2,000 a month and had 31 applicants.  They wanted to list it at $1600 a month and I recommended they go higher and reduce if they don't get any applicants.  Clearly, there's demand.  They made some nice improvements and now will benefit from those right from the start.  They plan to fix the unit they live in and move out in a year.  Hopefully rates will be down, so they can refi and the improvements will dictate a strong rent, so the property actually cash flows.  Definitely not impossible to make things work.  You are thinking correctly for building wealth.  Good luck!

Khari F. · Answer

Check local laws if there are rent hike caps. Rent increase vs turnover costs

Nicole Heasley Beitenman · Answer

THIS! I didn't run the numbers as a pure rental before I purchased my house hack because I didn't know what I was doing. It was a great house hack, but it only cash-flowed $67 a month before PM once I moved out.

Bradley Dosch · Answer

I agree with @Conner Olsen about the NWROI calculation. Many important factors are forgotten when analyzing a house hack. Make sure to keep in mind your rent savings and loan pay down. The $1300 rent could very well be low - look into different rental strategies (medium or short term rental for example) to increase cash flow. Remember the goal of house hacking is to reduce your living expenses, build equity in a good location, and gain experience in REI. Living for free is usually what's focused on and there are so many other factors that are huge and become forgotten.

Ben V. · Answer

Hey Patrick,

What is the total mortgage payment? PITI?

That would help us help you deciding whether or not to purchase. I do like what Sean said "So provide a nice product so you can charge a premium on rents." The principle here is that you keep the home tip top shape, you can charge a higher rent. You can also always raise the rent to the market value. I would be very very careful in doing that as you don't want to lose good paying tenets.

Generally speaking right now if you purchase a duplex anywhere you'll be paying some or even a good portion of the mortgage being that rates, taxes and homes are higher. But rates hopefully wont always be in the 7s, so perhaps a refi is in your future.

Cheers!

Eliott Elias · Answer

Type in mortgage calculator in google and look at what your monthly payments would be after you plug in interest rate, down payment, taxes and insurance. If that number is equal or less than rents coming in from one side you're winning

How to analyze a house hack deal?

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