Current interest rates: worth house hacking, or better to wait?

Question

I'm currently looking to get a 3x1.5 SFH. However, from running numbers, due to interest rates increasing, every "deal" so far is showing me that I would lose money. Would it be better to just get a 2x1, and rent out one room to at least get started in REI? I don't want to lose even more buying power and miss out as rates get higher. However, I'd rather not share a bathroom, and also don't want to have a difficult time selling a 2x1 SFH to a family in the future (with it not being at least a 3x1.5).

Benjamin Carver · Answer

Look for  3/1.5 with the option to (semi-easily) convert into a 2 or add another full bath to make it 2.5 bath. with current rates you can use house hacking to still make it make sense. Here's what I'm doing in Raleigh. I'm under contract on a SFH 3b2ba in prime location, 40 years old and needs a cosmetic rehab. This way, I can get a steal on a great home, immediately build forced equity, and when rates drop and or prices go up a year or two from now, I can refinance and pull out money (BRRRR house hack) OR lower my monthly payment. Also, FHA gave me a 6.99 which is better than what a lot of rates have been. Last bit of advice here, new construction if you find one without an HOA that prevents rentals, sometimes offers low interest either temp like a 3-1 buydown OR permanent like pulte with 5.99 rates on select homes. Worth looking into. Not ideal, but a new construction townhome with reasonable HOA covenants could work. That was my backup option. I definitely would not wait because rates dropping means a frenzy of buyers and home prices increasing. OR rates continue to grow or it stays stagnant. Either way you lose if you don't take action. Just how it works.

Rick Albert · Answer

Don't forget that in real estate you make money four different ways:

1. Cash Flow

2. Appreciation

3. Loan Buy Down

4. Tax Benefits

What some buyers are doing right now is buying today and when rates drop (most experts say they will, although no guarantee), then they will refinance. If you wait for rates to drop, so will everyone else and then you are competing on price and still lose.

Also keep in mind that owning in general is still better than renting. Right now you may not be cash flowing positive, but you still get the other three benefits. If you are renting you get nothing.

I always refer to people who bought the day before the market crashed in 2008. Assuming they kept their homes, at this point the home values have bounced back (or likely greater) and they are half way through their mortgage. They are arguably in better financial shape than those that buy today.

Since you are house hacking, you are taking away some of the risk since you would be renting anyways and you need a roof over your head.

I would be focusing on properties where you can add value. For example, in that 3/1, can you make it a 3/2? That way you are building in some added equity.

Paul De Luca · Answer

Why not house hack a 2-4 unit instead of a SFH? That way you wouldn't have to share bathroom and you can probably get better cash flow. Like you said, opportunity cost is a major factor to consider when deciding to invest today or wait.

Carlos Ptriawan · Answer

House hacking is the best

Find single family that has multiple building or private entrance is the key.

Nicholas Coulter · Answer

@Casby Bias If I were you I would try and get something that allows you to cashflow 200 or so dollars when you move out. This is tight yeah and you wont be living for free but when rates go back down you can refi and then really improve your cashflow. I can tell you also sharing a bathroom isnt really that bad and it might help you make more profit!

Ryan Thomson · Answer

@Casby BiasI wonder if your criteria may be a little unrealistic for the current market.

House hacking is tough to cashflow in year one (with current house price run-ups and interest rates) for a couple reasons:

1. You are living in one of the rentable units

2. You are only putting 5% down so your loan amount is much larger and therefore your mortgage payment.

I would consider your net worth ROI. What I mean by this is considering how much your down payment returns to your net worth (appreciation, loan paydown, tax benefits, AND rent avoidance). Don't forget to include rent avoidance in your numbers! You have to live somewhere.

You may need to lower your return or cashflow expectations so you can get into a house hack that will allow you to avoid throwing rent money away every month. You know this, but don't forget all the other ways real estate makes you money. Paying down your mortgage and owning an asset that will appreciate over the long term.

Andrew Syrios · Answer

BRRRR is really tough in this rate environment but I think house hacking can still work because you aren't hit by DSCR issues that make LTVs super low. And since you can refinance when rates go down and then buy another house with an FHA or homeowner loan, I wouldn't stop looking now just because rates are high

Carlos Ptriawan · Answer

precisely, it's funny though with 5-6% mortgage rate and primary househacking, the DSCR is above 1.0 ; but standard rental with cap rate of 3% with only one tenant could generate DSCR 0.6-0.7 only. Househacking works because interest rate is lower and more than two tenants can cover all PITI.

Michael Dumler · Answer

@Casby Bias, to piggyback off of Nate, this all depends on your situation and financial position. Assuming that you are currently renting and paying someone else's mortgage, house hacking is a great approach to enter into real estate even if the deal breaks even or cash flows negative. Your living expenses for house hacking an SFH will be substantially less than if you were to rent a studio apartment in ATL. What areas have you been looking in? Also, keep in mind, the market we're now experiencing is far different from what we were seeing 6-7 months ago. Even though interest rates have nearly doubled since this time last year, sellers are much more willing to offer concessions. I help buyers acquire house hack deals regularly. Feel free to give me a call, text, email, etc. if you're running into roadblocks or need help with anything (contact info listed in my bio).

Current interest rates: worth house hacking, or better to wait?

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