Is it normal to pay part of the mortgage?

Question

Hey everyone, it seems like it’s difficult to get the full mortgage covered + cashflow while living in the other half of a multi family. With the interest rates right now it’s even difficult to just get the full mortgage covered.

Have any of you ever paid a portion your mortgage while living in your house hack? I would only do this if the numbers showed that I would cashflow after moving out. Is this a viable strategy?

Conner Olsen · Answer

Yes it is a good strategy! My house hacking rules are:

1. You have to want to live there

2. decreasing living expenses while living there

3. cash flow when you move out

Ryan Thomson · Answer

@Valerie S. I wonder if your criteria may be a little unrealistic.

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

Also, whenever running ROI calculations you have to consider the alternative. In this case it is "throwing your money away on rent every month". What's your ROI on that? It is very negative. When you consider all of these things and start with the assumption that you need a place to live, House Hacking often comes out as a clear winner even if your "cash flow" is actually negative. It's a big win if you are paying less towards a mortgage than what you would be paying towards rent.

Julien Jeannot · Answer

Yes, I've never see it positive or neutral cash flow in a duplex house hack in Yr 1. Yr 5 though... different story.

Daniel McDonald · Answer

It is ABSOLUTELY normal to pay part of the mortgage. Yes, you want it to cash flow when you move out but paying part of the mortgage is not the end of the world. The internet made it seem like it’s so easy to live for free if you house hack but it’s not. My wife and I were paying $800 a month in our first house hack. This was a big difference from our 2k rent and a much nicer place. People that are living for free are usually sacrificing more. I could have covered that 800 renting out the guest room but my wife and I didn’t want that. If you’re really willing to commit then ya buy a duplex and feel it with as many people as possible. But that may not be the move you want.

Joey Banasihan · Answer

@Valerie S. seems like the overal consensus is it normal for you to pay a portion of your mortgage, I am currently house hacking my basement as an ADU/Mid-Term rental and paying a portion of my mortgage.

Something to think about is the inherent strategy of house hacking, which in my opinion is optimizing your primary residence to build future wealth. They key here is taking actionable steps forward in your REI future that will help you learn and build confidence. Definitely run your numbers, figure out multuple exit strategies, etc., the MOST important is taking action.

Reach out if you wanna talk more about different avenues of house hacking! You got this @Valerie S.! :)

Theresa Harris · Answer

It is going to be rare for you to be able to live for free while renting out the other half of a duplex.  Most people house hack because it is cheaper than renting your own home, you can get in with a lower down payment and when you move out, the entire property will cash flow.

Jonathan R McLaughlin · Answer

@Valerie S. Its not only normal its highly desirable. If you NEVER do anything else you have locked in a discounted primary with some (likely) tax advantages. If it can cash flow after moving out, you have 2 investment units. If the neighborhood allows it you have a potential for a condo exit, either living there or not. Potential refis in all these scenarios and a paydown bonus with a big potential gain exemption (yes, even with the rental side accounted for,  in most markets) if you sell the whole thing.

Zachary Ware · Answer

Yes, as others said, it is typical to have to contribute to the mortgage payment. When I look at these deals, I consider how much cheaper it is than to pay rent, and that it cashflows once I move out.

Zach Edelman · Answer

Definitely normal. There should be a break even point associated with doing this. I would see how different payment amounts affect your debt service and look at the breakeven point associated with this.

Benjamin Sulka · Answer

It is completely expected in this market for a house hack not to cashflow while you're living there. Most people house hack with a low down payment which further increases the monthly payment.

Do your analysis on what the numbers will look like once you move out. If that fits your goal and strategy, then it makes perfect sense!

I love what Ryan said. What's the ROI on paying rent every month?

Is it normal to pay part of the mortgage?

Most Popular Reply