House Hacking or House Flopping?

Question

Hello, my name is David and recently I’ve been drawn to the idea of house hacking. After doing some research in my area the cash flow analysis does not seem to be profitable. For example, duplexes are ranging from $240k to $280k with rent averaging around $750 to $1,000 per unit. With an FHA loan this makes the monthly mortgage $1,900 to $2,100 (not even including the vacancy rate, capital expenditures, etc.). Does anyone have any insight, advice, words of encouragement, etc? I was really excited for this idea but after doing my basic due diligence I have been feeling discouraged. Thank you in advanced!

Eliott Elias · Answer

If your monthly payment after collecting rent is less than if you were to rent you're doing great

Luke Stewart · Answer

This is what you should focus on! There are many markets where house hacking won't cash flow until you move out. I am about to buy a duplex and I will have to pay up to $2000 a month for the first year. I travel for work so will STR my unit while out of town for work but I am budgeting for the $2000 a month payment to be safe, that's after renting the other side for $2000 a month too, but a duplex in Denver costs $600k or higher. You need to have your plan laid out, I know I have to swallow $2000 a month for 12 months. But after that I will move out and buy another duplex. Then the first duplex will be bringing in enough cash to potentially cash flow $500 a month (maybe more with midterm rentals). While that's not a ton, it is on top of equity, appreciation and the forced equity I plan on getting with redone kitchens and bathrooms. THEN lets be generous to rates staying high and say 5-7 years down the line I refinance to a lower rate, and I am potentially cashflowing $1000-$1500. I tell you this because you have to have the big plan in mind, a year of paying out of pocket will lead to solid cash flow and a great asset. The bottom line is you start, get the first property and then watch the doors of opportunity open! good luck!

Ryan Thomson · Answer

Good stuff in here from the BP Crowd! I count my "rent avoidance" towards my "cashflow". Rents typically grow making the cashflow better in the future. Also, don't forget about appreciation (in the long run) and loan paydown. In addition, you can deduct the portion of your property that's used as a rental (so 1/2) against your income. Another benefit - I qualified for QBID - Qualified Business Income Deduction because I did a decent amount of work to set up my property. This made the first 20% of income I made tax free. Talk to a tax professional, well worth the money.

Rick Albert · Answer

Here's the deal, if the numbers worked at 3.5% down, why wouldn't an investor putting 25% down buy it? There are a couple of things to keep in mind:1. What are the rent appreciation possibilities in your area? For example I rented part of my house hack for $3K a month (which I now live in). Three years later and I could probably get $4K a month. 2. House Hacking has other benefits. For example my tenants in the smaller unit are paying the equivalent of the interest on my mortgage. So although I'm not living for free, I do effectively have a 0% interest mortgage. All while having the tax benefits of owning.3. It's still better than renting. With all the volatility of the market right now, generally speaking rents are remaining strong. So you can sit on the sidelines and hope for a deal but all the while you are still paying rent.4. Maybe a fixer is up your alley. Both of my house hacks were fixers, which allowed me to force appreciation. It also gave me a competitive edge because I could buy the property at a discount but still pay more than a traditional investor would. I just sold my first house hack for almost double what I paid for it in 7 years and my current house hack has appreciated tremendously as well because I added a second unit.

David Lund · Answer

Thank you Luke!

Eron A. · Answer

It depends.If you make enough money....and can still stack up......having a property that does not cashflow, MIGHT WORK. BUT....I wouldnt do it.I like properties that will cashflow at least $500, AND...have potential to go much higher.This last property I got.....has about 7 rooms in it, and will have 4 bathrooms when Im done. PI=$1100, T=$250, I=$250....and I plan to rent these rooms for $500 each min. There are issues with this, however. But point is, if I rent out 3 rooms here, Ill take care of my PITI.

Simon Ashbaugh · Answer

I'd look more at whether it cashflows when you move out. Even if it's not cashflowing with you living there, odds are it's cheaper than renting and you're building equity. And it's definitely cheaper than paying a mortgage by yourself.

David Lund · Answer

Great info! Thanks for the reply!!

David Lund · Answer

Thank you so much for the response!

David Lund · Answer

Thank you so much for the response!