How Much Should a House Hack Make in 2027? (Rookie Reply)

Ashley:
Today’s rookie reply is about a question almost every beginner has. When the numbers are not perfect, how do you know if the deal still makes sense? A house hack might not cover the full mortgage. A rental might only break even and return expectations can get confusing fast.

Tony:
Today’s questions come from the BiggerPockets forums and we have someone trying to house hack in a really expensive market. We have a rookie asking what does breakeven really mean? And a first time house hacker wondering what returns to expect in today’s…

Ashley:
This is the Real Estate Rookie Podcast. I’m Ashley Kehr.

Tony:
And I’m Tony J. Robinson. And with that, let’s get into today’s first question. So our first question today comes from Dominic, and Dominic says, “House hacking is an amazing way to get into real estate and the most promoted benefit is if the tenant pays the mortgage or most of it while there’s also a low down payment. But I live in Portland, Oregon and a duplex goes for 450,000 bucks to sometimes quite a bit higher. After doing some numbers, I would still be paying a hefty portion of the mortgage even after taking into account market rent on the other half. An example, the purchase price is 450,000. One unit is being rented for about 1,150 and the other unit I would be living in. The monthly mortgage payment is 3,321 with 5% down, which means I will be paying 2,171, about 2,200 bucks. This doesn’t even take into account repairs, et cetera.
This defeats the entire goal of house hacking. So I was wondering how house hacking is being done when property prices are so high. Is house hacking a thing of the past in these markets or is there some tactic that I’m missing? Dominic, great question. And I don’t think, Nash, I’m sure you’d agree, I don’t think house hacking is a thing of the past. I think we just need to redefine what a successful house hack actually means. And yes, when prices were much lower and interest rates were much lower, maybe you could get a bunch of cash flow on top of your house hack. But I think today the bigger question is, can you either A, subsidize the costs that you’re already spending to live somewhere or B, even if you’re paying the same, can you at least have that same payment go towards an asset that you own as opposed to paying some other landlord’s mortgage balance down?
So for you, you said that your mortgage would be about 3,300 bucks and you’d be paying about 2,100, 2,200 bucks per month to offset the rest of the mortgage. So the question is, if you were to go rent a comparable place somewhere else, would you be spending more or less than 2,200? And if you would also be spending 2,200 bucks somewhere else, still kind of a win, right? You’re spending the same amount that you’re already spending, but it’s going towards something that you own. So I think just redefining what a successful house act actually means is probably what I focus on.

Ashley:
And then on top of that, besides just paying towards your own mortgage payment and owning the asset, you’re getting other advantages like the tax advantages of owning real estate compared to renting a property. You’re having your tenant pay down part of your mortgage and you’re getting appreciation in the property. Plus you own the property so you can kind of make the rules and do with it what you want to. So there’s other factors to think about instead of just your housing cost also. But most of the time you can decrease your living costs or even if you can’t decrease them and they’re staying the same, there’s all these other things that come into play that make it such a benefit to you as an investor, not only financially, but also kind of for your life too.

Tony:
I think the other piece that I’d add also is, is there a way, Dominic, for you to increase the revenue potential on this property? Because if you said like, “Hey, the one unit’s being rented for 1,150, is there a way to increase that 1,150 to some other number? And maybe instead of just doing a traditional long-term rental, can you rent by the room?” If it’s a three bedroom or a two bedroom duplex on the other side, rent out both rooms individually. Can you go from 1,150 to maybe 1,600 or 1,900, whatever it may be. Can you switch the strategy? Can you furnish the place and maybe do a midterm rental where now instead of 1,150, maybe you’re covering your entire mortgage with just the rents from that other side being a midterm rental or a short term rental, whatever it may be. So I think maybe also getting creative on the ways to increase the top line revenue on the other side.
And then even on your own side, right? It’s like maybe – We got to

Ashley:
Come up with a name for this, like a super house hack

Tony:
Or something. The super house hack. Yeah, the mega house hack, right? But you stack these strategies together. So it’s like even on the side that you’re living in, you didn’t mention, but maybe you’re a single guy, can you rent out the other rooms on the side with you? So you’re midterm renting the other side, making three grand a month, then you’re renting out the other rooms on your side. So you’re also generating revenue and now you’re at a point where you’re not only covering your own living expenses, maybe you’re making some additional on top of it as well.

Ashley:
The last piece that I’ll add to this too is if it does need some renovation so that you can increase the rents is that if you are living in the property, opposed to you living somewhere else and having a vacant unit and you’re renovating, if you can live in the property while it’s being renovated, maybe you’re doing renovations slowly over time, overall that is going to decrease your expenses because you’re not paying for a place for you to live and you’re not holding onto a property that has a vacant unit that’s not bringing in any income. So if you take out your living expense and you put yourself into that duplex in that unit, you just eliminated a big expense for yourself by not having to have a vacant unit sitting. And then you can go ahead and do it over time, YouTube university or get contractors in there to be able to renovate it and then you can decide to move out and then you have a renovated unit that you can rent for a lot more than that 1,150.
Then you could even switch sides and go to the other side and do the same thing too if you wanted.

Tony:
Ash, I want your opinion because as stated right now, he’s saying like, hey, 1,150 on one side. So if you rent out both sides, what is that? 2,300 and the mortgage is 3,300. So it’s a net 1,000 negative if he were to run out both sides. To me, I’d say I probably would move forward with that specific deal because once you do move out, I would hope that it’s at least paying for itself and paying for itself mean it’s covering all expenses. So I would say leverage some different strategies to get that revenue ceiling up. But would you agree with that?

Ashley:
Yes, I would absolutely. And that’s why you got to have an estimate, a timeframe of when you would actually move out of the property. So if this is something you only want to be there for a year, you’re probably not going to, unless you’re doing a big renovation, adding a ton of value, you’re probably not going to be able to make up for that thousand dollar difference. But if you’re planning to live there for some time, you could see an increase in rents, you could see you add some value, there definitely could be room for improvement. So it really depends on the property type, how it sits now, if you have a lot of value that you can add to increase those rents to cover it. But if you’re already planning to move out in a year and you’ll know you’ll be cash flow negative a thousand dollars, then no, I wouldn’t do this deal.
Okay, so coming up, a rookie asks, what about breakeven? What does that actually mean? So we’re going to break it down, which expenses count, which ones the rookies forget and when a breakeven rental can still be a smart first deal. We’ll be right back.
Okay, so Dominic is wrestling with what counts as a win when the cash flow is not obvious. Our next question zooms in on that same idea. What do investors really mean when they say a property breaks even? And this question comes from a BiggerPockets Forum member. So while listening to the podcast, I keep hearing people say you are doing well if you are breaking even on a long-term rental year one with the way rent to price ratios are in most areas. Can anyone weigh in on what they’re including in breakeven? Is it just your mortgage, property taxes, insurance versus the rent you bring in? Or are they also including a reserve for stuff that breaks capital expenses, et cetera, in their calculation? Thanks for help with the rookie question. So we can’t tell you what people are including because investors are probably including lots of different things where some are probably just including their mortgage payment, their insurance and their property taxes and saying, my rent is 2,000, my mortgage payment is 2,000 and I break even.
For us, that is not breakeven. Breakeven includes all of your fixed, all of your variable expenses. So it does include the repairs and maintenance. It does includes the capital improvements. It does include any utilities you’re paying. It does include the person you’re paying to cut the grass in the summer. So that’s end of the day, bottom line, income minus all of your expenses. If you are breaking even and there’s no surplus and you’re not negative, that’s what we consider a true breakeven number.

Tony:
And I think just to also define, because there’s the gross revenue generated by your rental and there’s the net income at the end of the day. And in reality, when we talk about breakeven, it means that your gross income minus all expenses, your net income becomes zero. But your gross income is just like the rent that the property produces. So in a long-term rental is whatever your tenant is paying you. In a short-term rental, it’s the combination of the revenue generated from all of your reservations. Same for a midterm rental, it’s the net coming from your leases. And then your expenses, to your point, ash are all the things we’re paying on. And then after that, after we take account all of those expenses, that is your net income.
But how do you make sure that you’re accounting for the right thing? My best advice is just to use the BiggerPockets calculator when you’re analyzing a deal because it’s going to force you to actually make sure that you’re accounting for everything. And Ash and I, we both talked about how early in our careers, that’s how we gained confidence in actually analyzing properties was going through the BiggerPockets calculators because it literally forces you. There’s a field that says, “Oh, hey, you forgot this.” Or, “Hey, if you’re not sure how to calculate this, here’s a good rule of thumb to make sure that you incorporate this.” So I think rather than guessing, just go to biggerpockets.com/calculators, take a deal you’re thinking about, plug it into that tool, and you’ll get a really good idea of what breakeven actually means for that specific property. All right. After the break, a Pittsburgh rookie is trying to house hack in today’s rate environment and is getting wildly different advice about returns.
So we’ll talk about what expectations actually make sense today. All right. Our last question comes from Ian Zuber and he’s looking for an FHA financed multifamily house hack in Pittsburgh and is just trying to figure out what return target is realistic in today’s market. So Ian says, “I’m a new real estate investor and after a few books and hours of YouTube videos, I’m knee deep in my search for an FHA financed multifamily househack in the greater Pittsburgh area with interest rates as high as they are and home prices elevated as well. I’m not sure where my expectation should be as far as cash on cash return and the total ROI percentages. I’m interested to hear what more experienced investors have to say. I’ve heard some people say that cash flow isn’t necessary while you’re living in the home and to analyze a property once you move out and it’s fully rented.
I’ve heard from others that cash flow is essential and they expect a 10% cash on cash return and over 25% of total ROI or else it’s not worth it. I think the viewpoints of my fellow investors will help me come to my own conclusions about what I can and cannot accept in a deal.” So please share your thoughts. I mean, we just hashed out in the first question about house hacking. Cash flow and what’s a good house hack versus a bad house hack? So we won’t rehash that here again. But the other part is what is a good return? First let me say every market’s going to vary wildly. Ashley’s market in Buffalo is going to be very different than here in Southern California. It’s going to be very different than the Midwest and the Southeast. Then name the part of the country, every market is going to operate in a slightly different fashion.
So we can’t say that a good return in Buffalo is also a good return in Pittsburgh and that the kind of return that Ashley expects may be completely unreasonable in Pittsburgh and vice versa. So I think the first thing is we just have to understand that every market has its own return that is reasonable. Now the bigger thing for you, Ian, is asking yourself, “Well, what kind of return do I want and what kind of return do I want on my money? What kind of deal is it that I’m actually looking for?” Set your own goals and expectations first. And then from there we just want to see does Pittsburgh actually align with what those projected goals and expectations might actually be? And if you find that, okay, after analyzing a few deals, Pittsburgh is terrible. I want a 10% return, but everything in Pittsburgh is like a 2%.
Well, then you’ve got your answer, but I think we can’t take this big national number. Let’s underwrite Pittsburgh specifically to get to that answer.

Ashley:
Yeah. And I got two things to say about this. First is what’s a good return to you and what’s a good return to somebody else could mean very different things. So this capital that you would invest in this deal, what else would you do with that money and what other type of return could you get? If you have another opportunity where you can make a 25% cash on cash return and you’re analyzing Pittsburgh deals and they’re not getting anywhere near that, maybe you need to take that other opportunity or maybe a different market you want to look at. So I think also understanding what makes it worth your while. Then the other thing is actually comparing the other elements that come with real estate investing. So you have the cash flow of the property, but there’s also the management of it. There’s your time commitment into it.
So how is the acquisition going to be on this deal? Is it going to be easy? Do you need to get permits for things? Do you need to do a heavy rehab that’s going to take time?
Is this in a high crime area where you’re going to need to put a security system in for the tenants? What are some of the headaches and the time commitment and the problems you will have to solve to be able to get that return? Is this just a set it and forget it duplex where you will not have to do anything and it is turnkey? So think about that. Think about other things that don’t have a monetary value to actually calculate into the cash on cash return, such as your time is a really big one. The next thing I want you to look at as in what are the other advantages to real estate? So even though we can say your cash on cash return is this, it’s not calculating all of the benefits that you can get from real estate such as the tax advantages.
If you are a high income W-2 earner and you have a stay at home spouse and now you’re going to buy this property, there are tax laws out there where you can get a huge, huge deduction in your taxes just from owning this one piece of real estate, which could make this a way better benefit for you than just thinking about the cash on cash return.

Tony:
I think the only other thing that I’d add is that Ian, you’ve got a decent buy box here, right? You said I want an FHA financed multifamily house act in the greater Pittsburgh area, which is a great starting point because a lot of other Rickies are just like, I want a deal. So this is more specific than something as open as I want a deal. But I think I would actually challenge you to refine the buy box even further. And once you do that, I think you have a better idea of what the actual cash on cash returns might be. And my approach for building out a buy box is I don’t start by going to look at what’s for sale in a city. I start by researching the supply that’s already active in that market in terms of the rentals, the rental supply in that market.
So go look at all of the other multifamily in that area and maybe you’ll start to see, well man, if I buy a fourplex, my per unit rents are going to be X, so my gross is actually this. If I buy a three unit, my per unit rents are going to be this and my gross is going to be that. So even though the per unit on the two bed is lower, it’s actually a better deal overall because the price of the two bed. So there’s different ways you can skin that same cat, but go do research on the market, understand, hey, what types of multifamily perform the best? Is it a side by side? Is it an updown? Is it a threeplex, a fourplex, a duplex? What type of specific property should I be targeting? Once I have the type of property, what area of town should I be focused in?
Do I need to be on the southeast and in the northwest? Is there a river that goes through Pittsburgh? I feel like there might be a river. Do I need to be close to the river away from the river?What does that look like? Narrow it down to specific zip codes, to specific neighborhoods, construction quality. Are these all high-end finishes or is it more like traditional builder grade? Get really, really clear location, construction quality, architectural styles, and from there you have a much, much better picture of the actual rent potential and then you can do a better job of backing into what your returns might be. So that’s the only thing that I’d end with is just get even more clarity on the buy box.

Ashley:
Today’s episode is about not letting perfect numbers kill a good first deal. If the property improves your housing cost, protects your downside, and it can become a solid rental later, that can be a real win for a rookie investor.

Tony:
But the real key is just knowing what do you mean by good, right? So define breakeven, include reserves and compare the deal to your real alternatives before you pass on it or jump in too fast.

Ashley:
This has been an episode of Real Estate Rookie. I’m Ashley, he’s Tony, and we’ll see you guys next time.