How to Diversify Your House Hack to Recoup More Cash Flow

[Jonathan Greene]

With the upswing in the country's short-term and mid-term rental markets, a unique opportunity is presenting itself to house hackers during a time when it's harder to cash flow than it was a few years ago. You can diversify your house hack inside itself if you combine rental strategies. (I know a lot of investors who are doing this, but I've been surprised to find out that it's a new concept that others haven't considered.)

The more units, the better in this scenario because you can hedge your bets with more units. The diversification comes from using short-term or mid-term in your other unit(s). Of course, you can do this in a stand-alone rental, but numbers are incredibly tight for house hackers now, so I thought it would be better served in this forum.

Let's take a four-family where you house hack one of the units:

1. Unit 1 - you live there

2. Unit 2 - long-term rental (this will usually be with an existing tenant since you already have that running well or in a larger unit that might net the highest rent as a long-term)

3. Unit 3 - mid-term rental (this would be best for the most private unit as most mid-term renters are more concerned with privacy and creature comforts than amenities)

4. Unit 4 - short-term rental (this would be best for a unit with a separate entrance so you reduce the bother to other tenants because the changeovers will be more here)

Is anyone doing all three (LTR, MTR, STR) in their multi or house hack now?

I think it's the best way to A/B test the potential. Mid-term is more likely to work in any market than STR, but I think you would be surprised at how well an STR could do if there are no other options like that in the area (think people's parents or friends coming in for the week(end)).

I've seen a lot of people grimacing at the net-negative house hack (it's just a product of rates and low inventory in a lot of markets) and this is one option to try to recoup some of that loss.

[Tim Delaney]

It would be great to have all three strategies going in one house! Using a househack for an STR could be particularly advantageous in municipalities where STRs have been cracked down on more but still allow you to do it if you are living in the property. Being able to A/B test MTR at the same time would allow you to know if you can convert the STR to MTR if you ever want to move out and keep the property.

As for the net negative house hacks - I always like to remind people that shy away from a deal because they aren't making money that they are usually still coming out ahead if they are spending the same or less than they would on rent.

[Jonathan Greene]

Quote from @Tim Delaney:

It would be great to have all three strategies going in one house! Using a househack for an STR could be particularly advantageous in municipalities where STRs have been cracked down on more but still allow you to do it if you are living in the property. Being able to A/B test MTR at the same time would allow you to know if you can convert the STR to MTR if you ever want to move out and keep the property.

As for the net negative house hacks - I always like to remind people that shy away from a deal because they aren't making money that they are usually still coming out ahead if they are spending the same or less than they would on rent.

Great last point. It's not net negative if you are living for less than you would pay for rent...and PS, you wouldn't be earning appreciation or any cash flow on that either.

[Bonnie Low]

I work with a lot of MTR investors and what I am seeing frequently with multifamily acquisitions, particularly with new investors, is that they often test the property just like you're mentioning, as a way to dip their toes in the water and see what works in their area and for their personal style. Typically, if they can make it work as an STR they go that route because it almost always generates the most revenue. Interestingly, though, people who have experience with STRs seem more likely to pivot to the MTR strategy once they realize how much easier it is and how well the renters treat their units. This is especially true with single family homes. There's no one size fits all of course, but generally the STR/MTR/LTR mix in a multi-family unit can be challenging because the way renters utilize these properties is so different. You STRs tend to be a little higher end and guests have higher expectations. MTR attracts a lot of traveling medical professionals and WFH individuals who need a quiet space during the day, which may not be compatible with families living in the attached LTR. So it really just comes down to figuring out what solution works for a given market, but it's yet another great thing about real estate: having options!

[Jonathan Greene]

Quote from @Bonnie Low:

I work with a lot of MTR investors and what I am seeing frequently with multifamily acquisitions, particularly with new investors, is that they often test the property just like you're mentioning, as a way to dip their toes in the water and see what works in their area and for their personal style. Typically, if they can make it work as an STR they go that route because it almost always generates the most revenue. Interestingly, though, people who have experience with STRs seem more likely to pivot to the MTR strategy once they realize how much easier it is and how well the renters treat their units. This is especially true with single family homes. There's no one size fits all of course, but generally the STR/MTR/LTR mix in a multi-family unit can be challenging because the way renters utilize these properties is so different. You STRs tend to be a little higher end and guests have higher expectations. MTR attracts a lot of traveling medical professionals and WFH individuals who need a quiet space during the day, which may not be compatible with families living in the attached LTR. So it really just comes down to figuring out what solution works for a given market, but it's yet another great thing about real estate: having options!

I agree with all of this. I do think you need a separate entrance option or at least two entrances in a four-plex to make it easier on the LTR tenants, but if you are open about it form the start, everyone gets it and you choose the unit composition based on which ones will be STR or MTR.