House Hack Calculations

[Cody Friedrich]

Hi All - I have recently moved to Dallas, Texas and I'm looking to continue my real estate investment journey. I currently own a duplex in Indiana and bought it using a conventional investment loan. I'm now looking to house hack in Dallas or the surrounding areas (likely Arlington) but am a bit stuck on how to run the numbers.

When calculating cash flow on the my duplex in Indiana I took into account PITI, vacancy reserves, maintenance and repairs reserves and utilities to get down to my net cash flow amount.

When running the same calculations using 5% down on the house hack, I find myself quite a bit in the negative. Understood there are other factors to account for including loan pay down, tax benefits, lower rent etc. However, if my goal is to house hack this for a year and then move into another house hack, should I be looking to at least break even accounting for all expenses mentioned above? I just want to make sure I set myself up for a smooth exit into another property. If helpful, I can posit an example of penciled numbers.

Would love to know y'alls thoughts and appreciate any insights!

[Bruce Lynn]

I think you will probably need 4-5 bedroom to make it work close to break even and you may even need to rent out your bedroom occasionally when the opportunity presents itself.  What price range do you want to be in?  

I've seen a couple I thought would work lately.  Not perfect homes, but I think ones that would allow you to make the numbers work.

[Cody Friedrich]

Hi Bruce - Looking at 2-4 units buildings rather than doing a SFH.

[Jay Hurst]

Quote from @Cody Friedrich:

Hi Bruce - Looking at 2-4 units buildings rather than doing a SFH.

 Cody,

It is not easy with low down payment and  with current prices, property taxes and rates to live for "free" these days in most of the country. BUT, you have to live somewhere right?  If you buy a duplex and your "cost" per month is 750 (just using a number) but for you to rent or (even buy) a similar single family it would cost you 2000 a month then you are still 1250 a head every month!  That is much better then NOT being ahead 1250 a month. And of course when you do move out, your have some one else paying your mortgage in full. 

[Rick Albert]

The reality is if you are putting 5% down and the numbers work, why wouldn't an investor putting 20% down just buy it? This is an expectations issue, not a calculation one.

With that said, you need to be looking at properties where you can add units and/or bedrooms. For example, you are looking at a four bedroom house but you can enclose the dining room into a 5th bedroom. Another example is converting the garage into an Accessory Dwelling Unit. These types of improvements increase your house hacking income. 

[Cody Friedrich]

Quote from @Jay Hurst:

Quote from @Cody Friedrich:

Hi Bruce - Looking at 2-4 units buildings rather than doing a SFH.

 Cody,

It is not easy with low down payment and  with current prices, property taxes and rates to live for "free" these days in most of the country. BUT, you have to live somewhere right?  If you buy a duplex and your "cost" per month is 750 (just using a number) but for you to rent or (even buy) a similar single family it would cost you 2000 a month then you are still 1250 a head every month!  That is much better then NOT being ahead 1250 a month. And of course when you do move out, your have some one else paying your mortgage in full. 

 Thanks, Jay.

[Cody Friedrich]

Quote from @Rick Albert:

The reality is if you are putting 5% down and the numbers work, why wouldn't an investor putting 20% down just buy it? This is an expectations issue, not a calculation one.

With that said, you need to be looking at properties where you can add units and/or bedrooms. For example, you are looking at a four bedroom house but you can enclose the dining room into a 5th bedroom. Another example is converting the garage into an Accessory Dwelling Unit. These types of improvements increase your house hacking income. 

 Rick - Agree with this fully. Thanks.

[Jake Andronico]

@Cody Friedrich

Assuming you bought the duplex in Indiana non-owner occupied, house hacking is a completely different calculation (in my opinion). 

You're also LIVING there when you house hack, so you have to factor in what your "normal" comparable living costs would be. 

If you can own the property and pay a similar amount for a similar lifestyle, it's probably a good decision (assuming you can afford it if it doesn't go perfectly, needs repairs, etc.)

With house hacking the rule of thumb is: The more uncomfortable you're willing to live, the better the numbers will be. The more comfortable you need to live, the worse the numbers will be. 

Hope this helps! 

[Aaron Zimmerman]

The biggest thing with house hacking is making sure the property breaks even when you leave after all expenses. Similar to what others said, it’s probably not realistic with current rates on most houses to live for free. The key is stack the savings. 

I would you to think long term as far as rent appreciation, insurance (which keeps ticking much higher each year), and property taxes (which may get reassessed when you purchase the property). 

[Cody Anderson]

have you considered house hacking with someone else? Usually the increased buying power and shared expenses can help make the numbers tie out, especially when you consider getting creative with occupancy (maybe yall split time at the house and spend time elsewhere through out the year).

Im seeing more and more interest from folks who are looking to do this sort of thing in tandem. Buy and occupy for 2-3 years, improve it, and sell it tax free (up to $500k if you and your partner both OO for 2 yrs) so you can move onto the next one.

Starting to think team house hacking might be the primary way for folks to make this model work nowadays.