Math on a house hack

[Thomas McNeil]

Ok,

Total newbie. I know about the 1% and 2% guidelines for rental incomes, but, what should someone be looking to bring in for rental income on a house hack in order to make it worth it to buy the house?

I have a place I'm looking at that is $400,000 but has rental income of approximately $1800. Seems like a good deal to me, but, still trying to understand whether it is or not.

Thanks for your help!!

[Andrew Postell]

@Thomas McNeil love house hacking.  It's how I got started.  Some things to keep in mind here:

We are purchasing our own, primary home.  The home has to meet our personal needs.  What are your personal needs?  I mean, I don't know what yours are specifically...but most people need a home that fits their commute time.  Maybe one that fits their furniture.  Possibly one that is in good school zones for their kids.  One that they feel safe living in.  And maybe you have none of those...and maybe you have others.  The reason I am saying it like this is what's your kids education worth?  So, is this home "worth" it?  It depends on what your "personal needs" are.  There's nothing that is going to have someone sacrifice their kids education if they can help it.  That's the extreme example...but maybe not.  Maybe some of your "personal needs" are even more important than that and are priceless. "Worth" is arbitrary in this space.  It's your own home and it's not all about the numbers here.

Keep in mind that house hacking REDUCES my cost of home ownership. You will NOT cash flow on any property that you purchase. There's probably no 1% rule or 2% rule that will apply here.  I'm not sure if anybody has said anything different to you but I need this to be your expectation. Remember, you are occupying one of the units/rooms...it would be impossible to cashflow in that scenario. Ok, maybe if you rented out each room and maybe did everything Short Term or something like that. But if it's long term renting, then you won't cashflow. But it will still allow you to afford a SIGNIFICANTLY higher price point than if you did not house hack.

If real estate appreciates 5% per year, then a $500,000 will have $138,000 in value after 5 years and a $1million home will have $276,000 in value increase after 5 years. That's higher our value, the higher the equity gain is - even if the % of gain is flat...the dollar amount is higher because the property is worth more. That's how house hacking helps us gain wealth. We certainly aren't gaining $276,000 with $200 of cashflow. So, don't sweat the "no cashflow" thing. Just focus on purchasing a good home that you feel comfortable with living in. Your commitment is to live in it for 12 months...and then you can do it again and again!

I hope these things make sense.  Feel free to ask anything else if you need.  Thanks!