Should I House Hack?

[Tar-U-Way Bright]

Hello everyone,

I'm just starting out in the Atlanta Metro Area and I'm looking to buy my first property in the next 3 - 6 months. I've been reading over the forums regarding house hacking and I've come to a couple conclusions:

1. It is difficult to cash flow in most major cities

2. I should always avoid negative cash flow (which is what I'm seeing) 

3. I should look at house hacking as a way to reduce my living expenses

All of that makes sense to me but in my personal situation, I live with my parents for free. If I were to house hack, I would actually be increasing my living expenses significantly. Currently, I'm able to save 2,000 per month just for investment purposes by living with my parents. I want to start my REI journey but I wonder if house hacking would be the best option.

At the moment I have about 30K ready to invest. With a FHA Loan I could easily afford a 300,000-350,000 property and start my REI journey. If I go the conventional route ,at the pace of my savings, I would be able to afford a property in that price range a little over a year later. Not including closing cost.

My only goal with this first property is to position myself to get a second property. However, I don't see how I would be able to do that if I am not cash flowing or worse, ending in a deficit.

Any perspective, strategy or help with my situation would be greatly appreciated. Thank you all in advance.

P.S. because it is my first property I want it to be local to me.

[John Mason]

Tar  Welcome to Bigger Pockets !  Is it possible to save up for some more time? Like maybe get to 60 K in savings . If you use up almost all of the 30 k in the down payment you may not have enough reserves in case of emergency. IN case the house you bought needs urgent repairs because of some natural events .

[Gregory Schwartz]

@Tar-U-Way Bright Using FHA loan you should be able to house hack a $300-350k home for $15-20k. This lets you keep some money in reserve which is always a good idea. Ideally, it will also lower your living expenses so you can save up faster for the next investment or next house hack.

What if yo just house hacked every year for the next 5 years? You'd have a nice little portfolio valued around $1.5M and you'd only be out of pocket $100k!

[Madri Koppe]

It may make sense to go ahead and save up more money while you can by living at home. I think house hacking still makes sense once you are ready, you’d eventually step out on your own anyways. It’s very common in my area to have roommates so that could be an option to maximize income from both units. Especially starting out you’d get good experience as a landlord and have a portfolio. 

[Derek Brickley]

Hey!  When I graduated college I went through this exact tradeoff... was living rent-free or I could househack and own a place that builds equity, but I would need to put into it every month.  Cash flow on a househack is near impossible, the best thing to look at will be if you were to move out would you cover costs.  My take - find a light value add property and househack.  While you're doing repairs on your unit, treat it like a live-in-flip almost.  Then when you finish repairs, depending on the time frame you would have lived there as a primary residence at which point move back with parents and rent that unit for even more because you just rehabbed it.  Yes there will be months you will be "down" because you'll be paying to live there but it would be the cost of acquiring the property and will help you start your portfolio sooner rather than later.

[Rick Albert]

Keep in mind you make money in real estate four different ways:

1. Cash Flow

2. Appreciation

3. Loan Buy Down

4. Tax Benefits

With living with your parents you get none of these. Plus with House Hacks it is about reducing living expenses and getting into investing at a lower down payment and better interest rate.

With this said, what people are saying is correct. It doesn't hurt to have more than just the down payment to buy. There are almost always going to be repairs needed. I just bought a remodeled fourplex and there are issues. It happens and is part of it.

[Matthew Porcaro]

The way I made house hacking work in a HCOL area (New York) was buy a fixer upper multiunit. I was able to get in at a lower cost basis, and the property didn't cash flow while I was living there (this is a common misconception with house hacking) but I lived almost for free - Only had to kick in a few hundred bucks a month. 

Everyone gets really focused on triplex and quadplex properties, but there aren't many of them and as you've said, the numbers just won't work on something move in ready. 

Plus, its worth noting that no Retail Priced property will be at a number where you're going to get the benefits of investing (cash flow and equity)

What is working now is looking for single family with accessory units or mother-in-law suites, or duplexes. There are more of them. 

You won't get cash flow while you live there, but you'll have a much larger selection to offer on, giving you higher chances of finding something that's actually a deal from an ROI standpoint.

Then, also look for fixers so you can build equity into them, make nicer rentals that you can get top dollar for. 

You can do this with the FHA 203k or Fannie Mae Homestyle loan.

[Tar-U-Way Bright]

Quote from @Derek Brickley:

Hey!  When I graduated college I went through this exact tradeoff... was living rent-free or I could househack and own a place that builds equity, but I would need to put into it every month.  Cash flow on a househack is near impossible, the best thing to look at will be if you were to move out would you cover costs.  My take - find a light value add property and househack.  While you're doing repairs on your unit, treat it like a live-in-flip almost.  Then when you finish repairs, depending on the time frame you would have lived there as a primary residence at which point move back with parents and rent that unit for even more because you just rehabbed it.  Yes there will be months you will be "down" because you'll be paying to live there but it would be the cost of acquiring the property and will help you start your portfolio sooner rather than later.

 Thank you for this. You really helped me out and I feel more confident in taking the next step!

[Tar-U-Way Bright]

Quote from @Matthew Porcaro:

The way I made house hacking work in a HCOL area (New York) was buy a fixer upper multiunit. I was able to get in at a lower cost basis, and the property didn't cash flow while I was living there (this is a common misconception with house hacking) but I lived almost for free - Only had to kick in a few hundred bucks a month. 

Everyone gets really focused on triplex and quadplex properties, but there aren't many of them and as you've said, the numbers just won't work on something move in ready. 

Plus, its worth noting that no Retail Priced property will be at a number where you're going to get the benefits of investing (cash flow and equity)

What is working now is looking for single family with accessory units or mother-in-law suites, or duplexes. There are more of them. 

You won't get cash flow while you live there, but you'll have a much larger selection to offer on, giving you higher chances of finding something that's actually a deal from an ROI standpoint.

Then, also look for fixers so you can build equity into them, make nicer rentals that you can get top dollar for. 

You can do this with the FHA 203k or Fannie Mae Homestyle loan.

 I really appreciate you taking the time to respond to me. You've really helped me and I feel more confident now taking the next step!

[Wale Lawal]

@Tar-U-Way Bright

House hacking can help reduce future housing expenses, build equity, and leverage appreciation. Living with parents can save $2000/month, but it may not provide real estate appreciation or tax benefits. Buying a property with a FHA loan can reduce living costs, while waiting and saving aggressively can delay entry into the real estate market. Leveraging FHA loans and staying local in Atlanta can help build equity and leverage real estate's long-term benefits.

Good luck!

[Greg Kurzner]

@Tar-U-Way Bright Lots of good insight above. I have helped a few new investors fresh out of college living with family get started on their investment journey. They have done it two ways...the house hack/live-in flip, and the 2-4 unit house hack. Either work but in Metro Atlanta, the easier option is an SFR with roommates or potentially separating the basement as a separate lease space. The benefit of an SFR is if you can do some value-add while you occupy, then you can look for flip it or re-fi and cash out for the next investment. As the above comment mentioned, serial house hacking is a great option when you are young and flexible.

If you buy, rather than stay and save, you likely will see a similar about of savings in property appreciation especially if you can do some value add.  

[Alecia Loveless]

@Tar-U-Way Bright I’ve house hacked for close to 30 years. I’m currently living in a duplex. During the warmer months of the year I typically pay the electric bill and for my internet/tv services. During the cold months I also pay for the heat as it does both sides of the duplex and can’t be separated.

If my partner was willing to move I would rinse and repeat every 12-15 months with low down payment loans.

The trade offs for getting in your first property are well worth losing the free rent with mom and dad in my opinion.

You might want to save up for your reserves for another 5-6 months before getting started.

[Louis P Lessor]

Everyone is correct about having a little extra money in the reserves just in case something happens. 

I have been house hacking for the last four years, and it's a great strategy for building wealth. 

What helped me the most was getting clear on your real estate goals and being flexible about those goals, as new opportunities will arise to build your wealth through real estate. 

[Griffin Malcolm]

2 and 3 kind of cancel each other out in my opinion. Like you're saying, it is difficult to cash-flow in expensive markets, but the way I look at house-hacking is a way to reduce your living expenses. If you can rent part of your house and only pay like $500 to live that's a massive win. 

Bigger thing to look at is if it'll cash flow after you move out. If it doesn't then yeah you may want to find something else

[Matthew Kwan]

The word difficult is subjective. It really comes down to what you value in the short or long term.

Do you value cash flow or appreciation more?

Numbers are more doable in the Midwest where you can acquire units for a lower cash and might get 1% or more of return. However, the rents are slightly lower and could potentially wipe out your monthly cashflows with one major repair.

As for higher appreciation market like West/East Coast, it's more expensive, but rents are higher due to a strong labor market, there will be a certain amount of demand for those markets, but the downside is that you will need to be creative by adding more values for the property. It could be adding an extra bedroom, parking space, or kitchen where you can maximize the potential rent of the property.

@Albert Bui @Carlos Valencia

[Josh Bowser]

Tar-U-Way,

House hacking makes a ton of sense (in most cases) if you're already renting. To your point, you're more likely to put yourself in a less favorable short term cashflow situation if you take on debt to acquire property since you are living for free. However, the house hack is more often than not the lowest barrier to entry to get your investing journey started. 

House hacking with a rent by the room model may allow you to be able to be breakeven or slightly cashflow positive. Typically you need this to be 4 bedrooms+ in an area where you can acquire a property for around $250k. Most areas of the metro you can rent to an individual for $800+ month / room and even more than that if you're renting a room and private bathroom. 

Earlier this year, I helped a client who acquire a 5 bed / 2 bath house hack deal just south of the airport that she is netting about $500 / month on after PITI and expenses. She was in a similar situation where she was living rent free with her mom but was eager to get her foot in the door. Side note, she was able to get into this property for just under $13k and we we're able to negotiate the seller putting in a new AC unit as well as paying a $7000 invoice to a contractor to replace the roof.

Moreover, if your credit is solid, I'd opt toward a 5% down conventional loan if you're leaning toward the 3.5% down FHA route. Reason being - conventional financing is way more favorable compare to FHA when it comes to competing offers.

Fannie/Freddie is offering a 5% down conventional loan product on owner occupied small multifamily properties as of Nov 2023. You can find 2x1 duplexes in the metro for under $300k excluding prime intown neighborhoods and expensive areas of Gwinnett & Cobb county. 

Shoot me a DM if you have any questions - happy to help however I can!

[John Steffen]

If your hesitation is resting on inability / delay in qualifying for your second.. 1) most importatnly, you need to start with one..and househacking with low down is the best way to start. 2) buy that first one with intent of leveraging it to buy the 2nd/3rd property, IE live-in flip or find a motivated seller offering a steep discount. You could cash out refi OR sell in a year and 10-31 the profits into 2-3 more doors. Another option to make your cash go further is to pay for a turnkey house hack at market value and negotiate 6% (if using fha) to cover all closing costs and rate buy down so you are only out of pocket the 3.5% down payment and nothing extra.