N.Y House Hacking…is it possible to cash flow?

Question

Hello, I am new to house hacking. I am currently saving money and learning about the process of buying my first house hacking property (just finished Craig's book 👍🏼). I live in New York Long Island, I don’t have a specific neighborhood or area just yet of where I’m going to buy my first place but I do plan on buying a single-family home and renting by the room as to my understanding this is the best way to profit cash flow each month compared to the other house Hacking strategies. I am very curious in such an expensive market like New York & only putting down 3.5%-5% with a home owner occupied loan, is it possible to positively cash flow!? (Live for free, put money away for reserves and PROFIT each month!) even if it means the first year i live i pay a little of the mortgage out if pocket until i move out and rent the room i was in. I also read that there is a law in New York prohibiting more than three people that are unrelated to live in one single family home, limiting the amount of rooms I can rent and adding to my point, is it possible!? & is that law true? Thank you!

Julien Jeannot · Answer

I agree with Nicholas.

House hacking isn't meant to profit short term, if that was the case the property would have a massing return as a regular rental and would be snapped up for over asking price.

Instead play out the long term 5+year of equity build and YOY rent increase. When you plan on converting it to a full time rental, play out those numbers.

Ryan Thomson · Answer

@Daniel Steinmann Craig wrote a great book. However, you need to recognize that it was written during a time and using stories of when interest rates were much lower and homes hadn't appreciated like crazy. Things have changed that make cashflow much more difficult. But House Hacking is still a great investment.

Ryan Thomson · Answer

.....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.

Nicholas L. · Answer

i don't know anything about NY laws on this so you'll have to get the right expert to weigh in on your room questions.  but remember - house hacking isn't about 'profiting,' it's about doing these two things:

1 - paying less than you would renting, while 2 - building equity.

so if you're 'negative' $402 a month, but you'd be renting for $1800, you're way ahead, because you're not only saving $1400 a month, you're ALSO building equity.  make sense?  great.

go visit 50 properties and get back to us on how it went.

Benjamin Sulka · Answer

I concur with what every else said! It isn't necessarily about profiting during that first year or when you live there at all because you're taking up space/units in that property. The most important part of your analysis is how things will look once you move out.

Conner Olsen · Answer

I don't know NY but it's difficult to get the cash flow while you live there in most markets. Our buyers are doing creative strategies like MTR/STR to force more cash flow on their house hacks.

Tyler Radford · Answer

Hi Daniel

I'm doing this now on Long Island. Happy to connect/discuss! Feel free to message me.

Alexander Szikla · Answer

@Daniel Steinmann - if you are going the FHA route, you will not cash flow during the 1st year when you are occupying a unit. However, you will not be paying rent - so there is some opportunity cost you must consider. However, once all units are rented, it is possible to cash flow. Difficult - but possible! I've done it for many clients in the past.

As others have mentioned though, it isn't only about cash flow. If you put down 3.5% and a property appreciates only 2% per annum - that is a +57% return on equity. You can't get that anywhere else.

Now run the same assumptions for principal paydown and some tax benefits. Or even bring appreciation assumptions up to 3% per year. Think about this more holistically and consider absolute returns over a 10 year horizon as opposed to cash flow from day 1.

N.Y House Hacking…is it possible to cash flow?

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