House Hacking question

[James Coleman]

Hello, im new on bigger pockets and interested in using the house hacking strategy to break into real estate investing. What percentage of monthly mortgage payment needs to be covered to be a smart move? 

[Benjamin Sulka]

James, 

Welcome to BiggerPockets! Stick around these House Hacking forums - they're awesome. 

I'm a newbie just like you. Here is the criteria that I'm abiding by when determining what makes a "deal" for house hacking. 

1. Location is of upmost importance. A house hack involves living in the property which means it's somewhere where I (more importantly my future wife) would be willing to live. Better locations tend to have better tenants as well. 

2. Level of comfortability. I don't personally want to do a room by room house hack because I have a girlfriend and a dog so privacy is important. This is why the multifamily route makes more sense for me but it may not for you. 

3. If I bought a house hack, would my monthly payment be the same or less than it would be if I decided to rent instead of buy? 

More on this point. Let's say you could rent an apartment instead of buying and your rent is $1,200/month. Now let's say you buy a $200,000 duplex with 3.5% down (FHA loan for owner occupants) at 7.5% interest.

Your monthly mortgage payment would be $1,349. Now let's consider some other expenses. 

-Taxes

-Home insurance

-Mortgage Insurance 

-Maintenance/Repairs

-Capex

-Vacancy

-Property Management (many include this even if you don't plan on initially offloading to PM)

-Utilities 

Let's say all in expenses are $2,000 per month for easy math purposes. 

If you can rent the other side of your duplex for $1,200, you'd be paying $800 per month out of pocket which is less than you would if you were paying for rent at an apartment yourself. Additionally, you get the tax benefits of owning real estate, equity buildup as you pay down your loan, and you're actively learning how to landlord/manage a rental property. Yes, as a home owner you are on the hook for any other miscellaneous expenses that arise but that's why you take out reserves every month in your calculation. 

I've had the same question and have had countless house hackers describe to me why house hacking is a successful strategy even if you don't make money while you're occupying one of the units. 

Hope this is helpful!