House Hacking in Rhode Island

[Tim Holt]

Hello! I am a new investor looking to purchase my first property in the Rhode Island/Bristol County, MA area. I have built up enough savings to purchase a multifamily property with an FHA (3.5% down) loan or Fannie mac (5% down) loan. I would like to house hack as my first real estate purchase/investment.

My question is, in today's market, is house hacking still a good option? I am ok with the property not cash flowing right away, but I would like my living expenses to be minimized by a lot if I am house hacking. Ideally, I'd like to live in the property for 1-2 years, and keep it as a long-term rental property when I move out. Therefore, the property would need to cash flow when I move out and rent out all units. 

Any thoughts and/or advice is greatly appreciated, thanks! 

[Julian De la Guardia]

Hey Tim,

House hacking is not just a good idea; it's a fantastic strategy for someone in your position. First off, kudos to you for building up the savings and diving into the multifamily market with an FHA or Fannie Mae loan. You're making a smart move, and that kind of foresight will pay dividends over time.

Now, let’s dive into your question: Is house hacking still a good option in today’s market? The short answer: Absolutely, yes, but with a few nuances to consider. I’ve worked with investors in similar markets (Providence and neighboring areas) and have seen first-hand how house hacking can be a game-changer.. even in today’s fluctuating market.

A friend of mine recently purchased a three-unit property in New Bedford, MA, just a stone's throw from where you're looking. He was in a similar position! used an FHA loan with 3.5% down, lived in one unit, and rented the others. The first year was tight because of higher interets rates, but his tenants effectively covered about 70% of his living costs. By year two, he refinanced to lower his rate and dramatically increased his cash flow. Fast forward three years: He's moved out, and the property now nets him close to $1,200 a month in profit after expenses. That's the beauty of house hacking.. it's a long-term play with massive upside.

What to Look Out For

1. Analyze the Numbers Thoroughly: With your goal of having the property cash flow once you move out, the key is to run your numbers with future rents in mind, not just what you’ll pay while living there. Websites like Rentometer can give you a quick snapshot of rental comps in your area.
2. Multi-Unit Strategy: If you can swing it, aim for a 3-4 unit property instead of just a duplex. Larger properties spread your risk.
3. Be Ready for Some Sweat Equity: Many first-time house hackers underestimate this part, but putting in a little elbow grease can drastically improve your returns. Painting walls, updating fixtures, or handling minor repairs yourself can save thousands upfront.
4. Consider Your Exit Strategy: You’ve got the right idea;house hack for 1-2 years, then convert the property into a long-term rental. Make sure the property meets the 1% rule or close to it (monthly rents = 1% of purchase price) to ensure it cash flows after you move out.

Yes, interets rates are higher than they were a couple of years ago, but rents have also increased significantly in many markets, including yours. From what I’ve read in the Wall Street Journal, average rents in Providence are up about 15% over the last two years, which could work in your favor. Plus, living in the property gives you the unique advantage of understanding it inside and out.. making you a better landlord when you eventually rent out all the units.

If I were you, I’d prioritize properties with room for rent increases or small upgrades that could boost value. It’s like my client in Omaha (where I’m based) :-) he bought a triplex where rents were under-market by $200 per unit. With minor cosmetic upgrades, he increased the rents, and now it’s one of the best-performing properties in his portfolio.

I also had a client in Providence last year who bought a fourplex. It wasn’t the perfect deal on paper. one unit needed some repairs, and the others were under-rented. but we saw the potential. He lived in one unit for two years, fixed up the property, and gradually increased rents. Now he’s moved out, and the building cash flows over $1,400 a month. Stories like these are what make house hacking worth it.

I hope this helps, Tim! If you want to chat more or dig into specific neighborhoods, shoot me a message. Whether it’s Providence, Omaha, Austin, or Phoenix, I’ve got the network to help you find the best deal and make it work for you.

Best of luck.. and welcome to the investing world; it’s a wild ride, but one that’s totally worth it!

Julian & Jasper

Turning investment visions into REALITY in Omaha, NE - Ranked as the #1 City to move to by Forbes Magazine.

[Anthony Thompson]

Hi @Tim Holt I think in general house hacking is usually a good move because it gets you off the sidelines and into the game with the most favorable financing possible (30 year fixed).

There's a lot of value in getting started today vs waiting some undefined number of years until conditions are better, which could be a long time from now, because real estate is a business and the sooner you start actually learning about that business, the better.

With all that said, I always recommend that people analyze any potential house hack as a pure investment that they aren't going to live in, because someday they may want to move out and you should know up front (before you commit) whether you're going to be able to do that, or whether you're overpaying and will be stuck in the property unable to move out because it'll be cash flow negative if you do.

So you had it exactly right when you wrote, "the property would need to cash flow when I move out and rent out all units."

The only way to answer that in general (whether house hacking in today's market is still a good option) or for a particular property, is to learn how to run the numbers and analyze a specific property to see whether it will be able to stand on its own as an investment when you move out someday.

There are a lot of resources here on BP for doing that but I'd just say, make sure the assumptions you're putting into your spreadsheet or deal analyzer are realistic.

Make sure the rents (especially for vacant units or pro-forma #s) are realistic by doing your own rent comps; make sure the mortgage rate is realistic by doing some research online and/or talking to some mortgage folks; make sure insurance #s are realistic by getting a couple of quotes for the # of units and zip code / area you're looking in; etc.

I hope that helps, and good luck 😊

[Tim Holt]

Quote from @Julian De la Guardia:

Hey Tim,

House hacking is not just a good idea; it's a fantastic strategy for someone in your position. First off, kudos to you for building up the savings and diving into the multifamily market with an FHA or Fannie Mae loan. You're making a smart move, and that kind of foresight will pay dividends over time.

Now, let’s dive into your question: Is house hacking still a good option in today’s market? The short answer: Absolutely, yes, but with a few nuances to consider. I’ve worked with investors in similar markets (Providence and neighboring areas) and have seen first-hand how house hacking can be a game-changer.. even in today’s fluctuating market.

A friend of mine recently purchased a three-unit property in New Bedford, MA, just a stone's throw from where you're looking. He was in a similar position! used an FHA loan with 3.5% down, lived in one unit, and rented the others. The first year was tight because of higher interets rates, but his tenants effectively covered about 70% of his living costs. By year two, he refinanced to lower his rate and dramatically increased his cash flow. Fast forward three years: He's moved out, and the property now nets him close to $1,200 a month in profit after expenses. That's the beauty of house hacking.. it's a long-term play with massive upside.

What to Look Out For

1. Analyze the Numbers Thoroughly: With your goal of having the property cash flow once you move out, the key is to run your numbers with future rents in mind, not just what you’ll pay while living there. Websites like Rentometer can give you a quick snapshot of rental comps in your area.
2. Multi-Unit Strategy: If you can swing it, aim for a 3-4 unit property instead of just a duplex. Larger properties spread your risk.
3. Be Ready for Some Sweat Equity: Many first-time house hackers underestimate this part, but putting in a little elbow grease can drastically improve your returns. Painting walls, updating fixtures, or handling minor repairs yourself can save thousands upfront.
4. Consider Your Exit Strategy: You’ve got the right idea;house hack for 1-2 years, then convert the property into a long-term rental. Make sure the property meets the 1% rule or close to it (monthly rents = 1% of purchase price) to ensure it cash flows after you move out.

Yes, interets rates are higher than they were a couple of years ago, but rents have also increased significantly in many markets, including yours. From what I’ve read in the Wall Street Journal, average rents in Providence are up about 15% over the last two years, which could work in your favor. Plus, living in the property gives you the unique advantage of understanding it inside and out.. making you a better landlord when you eventually rent out all the units.

If I were you, I’d prioritize properties with room for rent increases or small upgrades that could boost value. It’s like my client in Omaha (where I’m based) :-) he bought a triplex where rents were under-market by $200 per unit. With minor cosmetic upgrades, he increased the rents, and now it’s one of the best-performing properties in his portfolio.

I also had a client in Providence last year who bought a fourplex. It wasn’t the perfect deal on paper. one unit needed some repairs, and the others were under-rented. but we saw the potential. He lived in one unit for two years, fixed up the property, and gradually increased rents. Now he’s moved out, and the building cash flows over $1,400 a month. Stories like these are what make house hacking worth it.

I hope this helps, Tim! If you want to chat more or dig into specific neighborhoods, shoot me a message. Whether it’s Providence, Omaha, Austin, or Phoenix, I’ve got the network to help you find the best deal and make it work for you.

Best of luck.. and welcome to the investing world; it’s a wild ride, but one that’s totally worth it!

Julian & Jasper

Turning investment visions into REALITY in Omaha, NE - Ranked as the #1 City to move to by Forbes Magazine.

Thank you so much for the thoughtful response Julian. There is a lot of great advice here that I will keep in mind as I look for my first house hack.

Your New Bedford example is a scenario that would be great for me. I know it's difficult to find a house hack that cash flows right away in today's market, but if 60-70% of my living costs could be covered, that'd be great. Also, in this case, it will probably be cheaper than renting and I will also enjoy all the long-term benefits of owning real estate. 

Thanks again and I will be sure to reach out with any questions! 

[Tim Holt]

Quote from @Anthony Thompson:

Hi @Tim Holt I think in general house hacking is usually a good move because it gets you off the sidelines and into the game with the most favorable financing possible (30 year fixed).

There's a lot of value in getting started today vs waiting some undefined number of years until conditions are better, which could be a long time from now, because real estate is a business and the sooner you start actually learning about that business, the better.

With all that said, I always recommend that people analyze any potential house hack as a pure investment that they aren't going to live in, because someday they may want to move out and you should know up front (before you commit) whether you're going to be able to do that, or whether you're overpaying and will be stuck in the property unable to move out because it'll be cash flow negative if you do.

So you had it exactly right when you wrote, "the property would need to cash flow when I move out and rent out all units."

The only way to answer that in general (whether house hacking in today's market is still a good option) or for a particular property, is to learn how to run the numbers and analyze a specific property to see whether it will be able to stand on its own as an investment when you move out someday.

There are a lot of resources here on BP for doing that but I'd just say, make sure the assumptions you're putting into your spreadsheet or deal analyzer are realistic.

Make sure the rents (especially for vacant units or pro-forma #s) are realistic by doing your own rent comps; make sure the mortgage rate is realistic by doing some research online and/or talking to some mortgage folks; make sure insurance #s are realistic by getting a couple of quotes for the # of units and zip code / area you're looking in; etc.

I hope that helps, and good luck 😊

Thanks for the response and insight Anthony. If you have any other resources (preferably free) to analyze properties, it'd be greatly appreciated. I have been practicing my deal analysis daily, but it's hard to tell if my numbers are accurate without comps. 

I'll be sure to keep all your advice in mind as I look for my first house hack! 

[Wale Lawal]

@Tim Holt

From my experience, house hacking can work well if you focus on minimizing living expenses and setting yourself up for future cash flow. Start by analyzing market trends and targeting neighborhoods with strong rental demand. Look for properties with features like separate utilities and layouts that appeal to tenants. Pre-approval for loans is essential, as is learning landlord-tenant laws to manage effectively. This strategy can set you up for long-term appreciation and scalability in your investing journey.

Good luck!

[Tim Holt]

Quote from @Wale Lawal:

@Tim Holt

From my experience, house hacking can work well if you focus on minimizing living expenses and setting yourself up for future cash flow. Start by analyzing market trends and targeting neighborhoods with strong rental demand. Look for properties with features like separate utilities and layouts that appeal to tenants. Pre-approval for loans is essential, as is learning landlord-tenant laws to manage effectively. This strategy can set you up for long-term appreciation and scalability in your investing journey.

Good luck!

 Thanks for the advice Wale! Will definitely keep this all in mind as I move forward.