House Hacking not a good deal?

Question

I have been looking at purchasing a side by side duplex to house hack in the greater Minneapolis area but the numbers don't work based on current prices and rates. I am analyzing the deal to see what I would pay while living there and how it will perform when I move out. While I live in the unit it would cost more than what my current mortgage is and when I move out and rent both sides it will negative cash flow. Every deal I analyze has a significant negative cash flow and at very best has low negative cash flow (-$50/mo).

Am I analyzing these deals wrong? Should I be factoring in something else when analyzing these deals? Is anyone else experiencing the same?

I would like to get into a house hack but from what I am seeing in the numbers it just doesn't make sense right now.

Thanks,

Mike

Am I analyzing these deals wrong? Should I be factoring in something else when analyzing these deals? Is anyone else experiencing the same?

I would like to get into a house hack but from what I am seeing in the numbers it just doesn't make sense right now.

Thanks,

Mike

Miller McSwain · Answer

I'm a house-hacker in Colorado Springs, and I had a similar experience when I started analyzing. I found that it was difficult to get Duplexes to cash flow because of the high purchase price; however, it was much easier to find single-family homes that would cash flow if rented out by the room.

As an example for you, we ended up buying a 5 bed/3 bath single-family. We occupy 2 of the rooms in the basement, and the main level 3 bedrooms bring in $2300 while our mortgage is $2800. So we are negative cash flow while living here, especially when adding in capex, repairs, etc.

Even when we move out, we may be negative for the first year or so, but things look much better by year 3, 4, 5, ... So be sure to consider projected cash flow (with reasonable rent increase, expense increase, etc assumptions).

Also, don't forget that you will also be making money from the other 3 wealth generators: Appreciation, Loan Paydown, and Tax Benefits. So when we added those into our projections, we saw that we may be negative cash flow while we live here and for the next couple of years, BUT we are very positive when you consider all the generators.

So in summary, CONSIDER THE BIG PICTURE: projected cash flow and all wealth generators 😀

Jordan Moorhead · Answer

@Michael Teagarden if you could post your analysis here we could help. I did my first househack there and I know @Jeff Schemmel helps people find them all of the time. I've sold dozens that work great there so I know it's possible!

Ryan Thomson · Answer

Great answer @Miller McSwain. @Michael Teagarden 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.

Also, remember it is tough to cash flow when you only put 5% down on a property and are taking up one of the rentable units.

James Carlson · Answer

@Michael Teagarden

Like @Miller McSwain said above, the rent-by-the-room house hack is the way to go if the best returns are your goal. Our house hacking clients in Denver are getting $800-$900/room, and just under that for our clients in Colorado Springs. If you can find yourself a 5br house, the numbers look pretty good.

Also, be aware that numbers just kind of suck in general right now. You can't buy at the same high prices as a year ago but pay double the interest rate and not be affected. Rates are likely to go down next year, so you've got some hope of refinancing into a better rate as Brett said.

Finally, making the most money might not be the top priority for you. Some people -- me included -- don't want roommates and taking less revenue to still have a good investment for the future but without random people in my space would be worth it.

Good luck!

Conner Olsen · Answer

If you rent your property by the room, STR, or MTR you can force cash flow. At high prices and high interest rates LTR don't work in many markets.

Diya L. · Answer

Maybe buy a duplex with extra land to build or subdivide, or a duplex that can be made into a triplex, or STR the other unit instead of long term renting it? Be creative in your deals. I still prefer house hacking over paying rent even when the cashflow is not there - bought a house in Austin in 2018, house hacked by renting out the rooms on airbnb and was basically about $500/mo cashflow negative (I just considered it my "rent" to myself). Sold it for $270K more in 2021. Thinking of getting back into austin now that the market is cooling down but we keep buying more hotel and STR deals... lol.

Simon Ashbaugh · Answer

I would not expect a house hack to cashflow when you're living there, as long as its cheaper than what you're paying now. It sounds like that's not the case. Negotiate the price down to where it breaks even when you move out/ its cheaper than your current mortgage while you're living there. Also, re-run your numbers, factor in a refi in a couple of years, and see what that does.

Nicholas Coulter · Answer

@Michael Teagarden this is a consistent problem for us down in Southern California. I have had to get creative with strategy for example looking into medium term rentals and STRs. I got a dulpex in SD that would be negative cashflow if not operated as a STR, so our plan is to STR the main house and live in the small studio. We will then convert the garage to another unit to allow a better exit strategy! I also have to mention the tax benefits and appreciation will carry the performance of this property for years to come! Hope this helps

Alyssa Strom · Answer

@Michael Teagarden Current interest rates are killing a ton of deals right now. One option to consider that might make a house hack pencil out is a 2/1 buydown paid by the seller. You'd be betting on future rates though because at year 3 it adjusts to the rate you lock in today. That being said many lenders think rates will come back down eventually so you could refinance at that time. I've also seen an increasing number of seller-financing opportunities. Not all of them make sense but if the seller is motivated there usually is some room to negotiate on terms. And lastly, if you haven't considered it already, you could rent out one side of the duplex as a short-term or mid-term rental. I know a few Twin Cities investors who are having success with converting long-term rentals to mid-term rentals to help increase their cash flow. What the next 6-12 months hold is anyone's guess but I personally think prices are going to remain stable locally since supply is still low. Buyers and sellers seem to be waiting on the sidelines to see what happens.

House Hacking not a good deal?

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