Looking to househack a multifam for 1st prop. Is it a reasonable goal to break-even?

New to Real Estate · SE Massachusetts · Member since 2023 · 6 posts · 2 votes

Hello everyone,

I am ready to begin my real estate investing journey and am looking to house hack a multi-family property to get into the game for little down payment. Is it reasonable goal to look to break even on this first investment? I've been evaluating the expected expenses for deals in my area and the numbers do not seem viable based on current rates and home prices.

Any advice or past experience with househacking via FHA on multi-families would be greatly appreciated.

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Jason Bowden

Member since 2023 · 57 posts · 27 votes

Quote from @Connor Sheehan:

@Jason Bowden thanks for the insight Jason. Did you plan to move and repeat the process after a year in your 4plex?

If I could, perhaps. But buying the 4plex tied up a lot of my capital for the next down payment. Especially where I'm located, real estate is expensive. I'm investing in some other non RE opportunities at the moment.

Also it's lot of work moving, and I like where we live right now. We live in a nice part of town and our tenants are cool.

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Justin Hammerle
Realtor · Providence, RI · Member since 2022 · 404 posts · 262 votes
3y
@Connor Sheehan - I think this is budget and location specific; I'm sure around Boston it will be difficult to breakeven with a 2-family, but if your on the outskirts or even out of state maybe you can afford a 3-4 family that will get you there.
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Connor Sheehan
OP
New to Real Estate · SE Massachusetts · Member since 2023 · 6 posts · 2 votes
3y
Quote from @Justin Hammerle:

@Connor Sheehan - I think this is budget and location specific; I'm sure around Boston it will be difficult to breakeven with a 2-family, but if your on the outskirts or even out of state maybe you can afford a 3-4 family that will get you there.

@Justin Hammerle Awesome, thanks for the reply Justin. Would you suggest targeting tri & 4 plexes over a duplex if in my budget?
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Jason Bowden
Member since 2023 · 57 posts · 27 votes
3y
In my personal experience in Oakland, CA - no. But I think it's dependent upon location. In the Bay Area real estate is priced really high and the math just never worked out in my favor. We live in a 4plex and have a majority of our monthly payment offset by our tenants - we pay about $1200/mo after everything.
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Connor Sheehan
OP
New to Real Estate · SE Massachusetts · Member since 2023 · 6 posts · 2 votes
3y
@Jason Bowden thanks for the insight Jason. Did you plan to move and repeat the process after a year in your 4plex?
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Mekkel BlanchardBusiness Member
Realtor · Taunton MA · Member since 2018 · 39 posts · 20 votes
3y
Hey @Connor Sheehan awesome to hear that you are taking the steps to house hack your first property! Definitely will be location specific. The goal should be whatever you currently pay for rent - you ideally want your mortgage payment to be less then that after you have received the rent payments. Once you own your first property and start paying down your mortgage and building equity you will be Able to tap in to the equity down the road with a HELOC and leverage debt to purchase more. So as long as you are breaking even or not paying more then what you currently pay for in rent I think its a no brainer and better then renting! Ive done some housing hacking myself in Cumberland RI and Taunton MA and has been the best decision ever! Also the bigger the property the better so always look for 3-4 units and 3+ beds if possible.
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Connor Sheehan
OP
New to Real Estate · SE Massachusetts · Member since 2023 · 6 posts · 2 votes
3y
@Mekkel Blanchard Thank you Mekkel! Really appreciate your comment and enjoyed looking at your investments on your profile. I also am looking in Taunton area (really anywhere in Bristol or Middlesex county). Thanks for connecting!
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Jason Bowden
Member since 2023 · 57 posts · 27 votes
3y
Quote from @Connor Sheehan:

@Jason Bowden thanks for the insight Jason. Did you plan to move and repeat the process after a year in your 4plex?

If I could, perhaps. But buying the 4plex tied up a lot of my capital for the next down payment. Especially where I'm located, real estate is expensive. I'm investing in some other non RE opportunities at the moment.
Also it's lot of work moving, and I like where we live right now. We live in a nice part of town and our tenants are cool.
1 Reply
Sarita ScherpereelBusiness Member
Real Estate Agent · Chicago, IL · Member since 2018 · 659 posts · 376 votes
3y
@Connor Sheehan Yes, it's definitely possible in some markets. You might have to be further from the city than you'd like. So definitely look at the appreciation of the areas you're looking at to see if you can add value, force the appreciation and refinance out of your PMI.
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3y
Quote from @Connor Sheehan:

Hard to say without seeing numbers.
Most house hackers seem to charge rent to their Tenants, but not themselves. My recommendation is that you treat yourself as a Tenant. Sign a lease agreement, pay your rent. This ensures you are collecting rent for the entire space and see how the property performs as a rental. It will help you cashflow, ensuring you can set aside money for reserves or a future investment. And it allows you to show concrete proof of performance, which may be necessary for lenders or a future buyer.
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Paul De Luca
Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes
3y
Quote from @Connor Sheehan:

Hello everyone,
I am ready to begin my real estate investing journey and am looking to house hack a multi-family property to get into the game for little down payment. Is it reasonable goal to look to break even on this first investment? I've been evaluating the expected expenses for deals in my area and the numbers do not seem viable based on current rates and home prices.
Any advice or past experience with househacking via FHA on multi-families would be greatly appreciated.

Is an investment a good investment if it doesn't make you any money?
I think it depends on the broader context of house hacking in your market. If that's the norm because you live in an expensive area, maybe it does make sense. If possible you should definitely pursue 3-4 unit properties.
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Tyler SmithPro Member
Boston · Member since 2021 · 5 posts · 14 votes
3y
@Connor Sheehan Lots of great advice in this thread. I agree that it will be property and location specific, likely further out from the city. One thing to keep in mind is that while inventory is low and demand increases in the Spring market properties will tend to become more competitive and loans with low money down will be less favorable. If you haven't already, I suggest connecting with a great lender to figure out the best financing options for you. From there you can research areas with properties that you can afford and connect with a great agent there also. You should ask your agent to help identify off-market opportunities if possible to help reduce the competition.
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Andrew ValeriBusiness Member
Rental Property Investor · Attleboro, MA · Member since 2020 · 22 posts · 17 votes
3y
@Connor Sheehan As a new investor I would recommend narrowing down a specific market you want to live in first. Identify your reasons why you believe in that market. Once you target a specific town/city you can much more easily evaluate what would make sense for you in that market. It is difficult to truly analyze 10 different towns and cities. If you narrow your criteria and aim to learn a ton about your target area you will waster less time in analysis paralysis because you will be confident in property values and rental values.
I wouldn't expect to break even in year one while house hacking and looking to put down a small amount. However - if you look at all your overall expenses you might be able to find yourself saving ~$800-$1000/month in rent on a triplex. This can help you get your next one down the road.
Unless you are "solving a problem" you are rarely going to cashflow in this area while house hacking and putting low money down. If you can find out what problem you can take on that will cost you less/have the resources/knowledge/time/skillset to deal with. That may differentiate something that is a deal for you vs a problem for the owner/other potential buyers.
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Miranda Micire
Real Estate Agent · Pittsburgh, PA · Member since 2020 · 82 posts · 55 votes
3y
Yes, I think for a house-hack its very reasonable to break even or to be paying a small portion of the mortgage since you are living there.
We bought our first property as a house hack and broke even on day one. Now, the property is fully rented and cash flow is around $800 a month. Definitely worth it!
1 Reply
Connor Sheehan
OP
New to Real Estate · SE Massachusetts · Member since 2023 · 6 posts · 2 votes
3y
Quote from @Nathan Gesner:

Quote from @Connor Sheehan:

Hard to say without seeing numbers.
Most house hackers seem to charge rent to their Tenants, but not themselves. My recommendation is that you treat yourself as a Tenant. Sign a lease agreement, pay your rent. This ensures you are collecting rent for the entire space and see how the property performs as a rental. It will help you cashflow, ensuring you can set aside money for reserves or a future investment. And it allows you to show concrete proof of performance, which may be necessary for lenders or a future buyer.

@Nathan Gesner Awesome. Thank you Nathan I hadn't thought about this approach nor have heard it anywhere else. Great insight thanks a lot!
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Connor Sheehan
OP
New to Real Estate · SE Massachusetts · Member since 2023 · 6 posts · 2 votes
3y
Quote from @Miranda Micire:

Yes, I think for a house-hack its very reasonable to break even or to be paying a small portion of the mortgage since you are living there.
We bought our first property as a house hack and broke even on day one. Now, the property is fully rented and cash flow is around $800 a month. Definitely worth it!

@Miranda Micire That's great to hear Miranda. I love hearing past experiences. It gives me confidence that this is a strong strategy and motivates me to start. Thanks for your response!
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Ryan ThomsonBusiness Member
Real Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
3y
@Connor Sheehan I wonder if your criteria may be a little unrealistic for the current market.

House hacking is tough to cashflow in year one (with current house price run-ups and interest rates) for a couple reasons:

1. You are living in one of the rentable units

2. You are only putting 5% down so your loan amount is much larger and therefore your mortgage payment.

I would consider your net worth ROI. What I mean by this is considering how much your down payment returns to your net worth (appreciation, loan paydown, tax benefits, AND rent avoidance). Don't forget to include rent avoidance in your numbers! You have to live somewhere.

You may need to lower your return or cashflow expectations so you can get into a house hack that will allow you to avoid throwing rent money away every month. You know this, but don't forget all the other ways real estate makes you money. Paying down your mortgage and owning an asset that will appreciate over the long term.
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Alli Breighner
Lender · San Diego, CA · Member since 2022 · 587 posts · 298 votes
3y
Hi Connor!
I grew up in Boston, MA. I'd love to discuss details with you and get the ball rolling for you first investment.
Would love to connect.
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Colin Kelly-Rand
Member since 2022 · 58 posts · 62 votes
3y
Connor, You might want to consider Taunton or Providence where the rent to home price ratio (I.E yield) is a bit better.
Boston itself is a bit harder to purchase in as the prices have not yet adjusted to the higher rates.
OR just wait for a slight pricing correction.
My first triple-decker in Dorchester I house hacked, 3% down, and then rented out 2 apartments and lived in one with 2 roommates. Renting units covered the PITI. That would be your ideal scenario. Again, I think you can find this in Providence. Probably not Boston at the moment.
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Patrick Menefee
Real Estate Coach · Charlotte, NC · Member since 2016 · 399 posts · 341 votes
3y
@Connor Sheehan There's definitely some great advice in this thread! Here are the top things I'd consider:

1. As others said, it's market dependent. But breaking even shouldn't be the top factor
2. Are you planning on living in this place forever? Or moving out and doing it again as you mentioned in one of your replies? If the latter, then the emphasis needs to be on what the cash flow looks like once you move out (also why the advice on paying yourself rent is outstanding). If all units are rented out, will that cover PITI, property management, vacancy, capex, and maintenance each month? If not, even if you break even, it's probably not a good investment
3. More doors obviously means more income. It also means more potential issues...more HVACs, more water heaters, more plumbing fixtures, etc. There's certainly a ton of benefits to more doors, but don't blindly fixate on the income benefits without thinking about the rest. Picking up 4 doors is great...a little less great if you need 4 of everything replaced!

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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
3y
@Connor Sheehan it's always tough to cashlfow when you pay Retail prices.
You need to build your network, so you can find off-market properties with better prices.
[email protected]248-209-6824
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Patrick Hayes
Real Estate Agent · Chattanooga TN · Member since 2022 · 27 posts · 4 votes
3y
Im house hacking with a FHA loan in my experience the duplex I bought hasnt been covering my mortgage yet but like others have said there are other ways real estate makes you money with FHA you have to live in the property for at least 1 year my 1 year mark is coming up and Im planning on refinancing to a conventional loan in order to get rid of my pmi payment with FHA the pmi payment is for the life of the loan so it never goes away unless you refinance into a conventional loan where the pmi goes away once you reach 80% LTV or loan to value basically once you've paid 20% of the loan down. hope this helps
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