What numbers make a good multifamily house hack in LA?

Question

I am still looking a multifamily unit to house hack here in LA (Long Beach, San Pedro) and was wondering what some of you determine to be a "good" house hack in an appreciation market like this. For me, one criteria I am trying to enforce is that I want to at lease break even (including all expenses) when I move out. Meaning, I want the fully rented property to cover my mortgage, utilities, property management, etc. The second is, the effective mortgage while I am house hacking the property should be less than or equal to rent for an equivalent unit.

Jen Day · Answer

Hi Devon, I did a house hack exactly like you described where I purchased a 4 plex to be my primary residence and then rented out all the units when I moved out. I put an interesting twist on mine because at the time I was a single woman with no kids and only had one roommate that wanted to live with me. So, instead of taking over the "one bedroom unit" I took one bedroom in the front house, which is a 3 bed/2 bth house. Then I rented out each room separately so I was able to make more on rental income than I would if I were to just rent out the entire house as one unit, and I still had the other three units bringing in rental income. This is not an easy task, as most renters want to have their own place for long term leases. However, I discovered this wonderful site called FurnishedFinder.com where renters are looking for 2-6 month leases in a furnished place, and they are open to "room for rent" arrangements. Most are traveling nurses or traveling professionals who get hired for a few month contract. Because my house was furnished (because it was my primary residence initially) this type of rental system has been working great for me. I will say to do your numbers with enough of a cushion when you're looking to "cover expenses" because often times the Landlord is responsible for paying some utilities such as water, trash, & gardener for the entire property. Many multifamily properties in LA area don't have separate water meters, and tenants can use a lot of water, especially when they aren't the ones paying the bill. To give you an idea, my water bill for 4 units and 12 people is around $300/month. Trash is about $100/month and the gardener is $120/month. Also, if the water heaters are not brand new, expect that you will have to replace them within a few years at $1000 each, can't have tenants without hot water. Just a couple things to keep in mind when doing your numbers. That's my favorite part actually, analyzing the deal. Let me know if you'd like some help running the numbers on a specific property, I'm happy to give you my quick analysis coming from experience in LA multifamily. Best of luck to you!

Rick Albert · Answer

On both of my house hacks, I wanted to at least break even on my hard costs after I moved out. I put 10% down for the first one and 3.5% down on the second one (technically $0 down since I used the HELOC of the first one). However, both properties were fixers, which gave me that wiggle room on the rents. Keep in mind if the numbers work going 3.5% down, why wouldn't someone putting 20% buy it? We have to be realistic in this market.There are a few other ways to look at it and what I tell my clients:1. You have to have a place to live regardless, so how does it compare to what you are paying now in rent? For example, you might be paying $1,500 out of pocket, but you would be paying $1,500 in rent where you don't get the tax write offs, equity gains, etc.2. Could this be a potential live in flip? Having multiple exit strategies puts you at an advantage.3. Could this be a vessel for future investments? For example, I just got a HELOC on my current house hack and will be buying out of state. I don't have to move and I'm leveraging the property. Both are good locations. If you are going towards MFU, I would consider Long Beach to avoid LA rent control. Just my two cents.

Robert Reynolds · Answer

Hi @Devon Yates,Those two criteria are definitely doable in Long Beach and San Pedro. One thing people often overlook, is that rents will increase while your house payment will stay the same. If you can break even now by renting out both units or all the rooms, or even negatively cashflow a little bit, you should be cashflowing well by year 3 and 5. Your property will also more than likely appreciate a great deal in that time and you can also then refi or look in to getting a heloc and then purchase your next property.

Devon Yates · Answer

Absolutely agree. This is difficult if you are trying to do an FHA though (which I am trying to do).