Break Even or Cashflow After a Househack?

Question

I'm looking at buying my first property and want to househack it for one year then rinse and repeat. But, I can't seem to find any properties in Utah or Salt Lake County that, after I move out, would break even--let alone cash flow. Typically, there's at least a $500 per month delta between the estimated mortgage and what the property would seemingly rent for after I move out.

Here's my question: Has anyone had any success doing something like this lately? If so, how did you analyze the potential deals? I feel like I'm missing something obvious but, as the saying goes, I don't know what I don't know. Any advice or direction would be much appreciated. Thanks in advance.

Jaron Walling · Answer

@Devon Allgood You're on the right path to homeownership and not really missing anything. It's simply the nature of this market.

If you're trying to buy something not distressed, good location, with strong market rents, you're going to pay for it. The majority house-hacking people only do so to reduce there cost of living. It's not a cash-flow play. It's a smart long term appreciation play. Lately that seems to have flipped because shocker... high prices + higher rates... makes it cheaper to rent. Investors are on one side of the fence, renters the opposite, and house-hackers ride the fence. You can rinse and repeat like you mentioned, but it gets exhausting. End of day you'll have less desire to live beside the tenant especially if you're married, kids, etc. like myself.

Some buyers are getting qualified for loans based on the potential rental income. That's a dangerous place to be. Don't buy RE you can't afford alone. In a lot of markets it's hard to cash-flow once you move out. You said you calculated a delta -$500 per month but remember rents creep up. Maybe you have a chance to refinance and lower your rate. That shrinks the delta before you move out. You'll be glad you own the asset when you look back, run the future numbers, and realize you're cash-flowing +$375 per month after expenses. I wouldn't even make buy RE unless you plan to live there for at least 2-5 years. Best of luck.

Andrew Postell · Answer

@Devon Allgood yeah, this is going to be the case everywhere.  Now, I don't mean that you SHOULDN'T buy a home.  But househacking helps us with reducing the cost to own a home.  It's a great benefit.  When I buy my own primary home, I'm putting a LOW downpayment - 5% or less usually.  That means my loan amount is significantly HIGHER than most investment properties (investment properties need 20% or 25% down).  So, by default, my payment will be higher.  Again, this doesn't mean I shouldn't buy a home or househack, but when I move out I might need to plan on paying into it each month.

One other thing to think about:  when you do move out in a year, or two, or three...rents will be a little higher than now.  So, you will probably still be negatively cashflowing in the future just maybe not as much as you are calculating now.

Hope all of that makes sense.

Devon Allgood · Answer

@Jaron Walling,@Andrew Postell: Thank you both for your quick and thorough replies. I've been debating between doing the aforementioned "rinse and repeat" plan, or buying a house that we could easily afford without house-hacking (and where we'd be happy staying put for a while), but then renting out a basement or detatched ADU to free up cash for other investments. From what you both have said, it looks like the latter will be more feasible for now--especially given that I have a family that needs more room than some of the rinse and repeat properties could provide.

Nadeem Alamgir · Answer

The way most people make it work is by focusing on offsetting their living costs first. Even if it doesn’t cash flow later, living for cheaper (or close to free) for a year is still a big win. If cash flow is the main goal, that’s when a lot of investors start looking out of state in markets where the ratios are stronger. Otherwise, if you find a really well priced deal in Salt Lake, it can still make sense because of the appreciation and long term upside.

Jaron Walling · Answer

Devon, exactly. A lot of successful investors did it early in the journey, but talk to them you'll hear about the struggles! You can get good conventional loans, low DP, etc. but it's still a grind. If the family is on board (entirely different challenge) go for it just remember your "why" and make sure it's benefiting your family.

It's literally a joke when I talk to my wife about buying a duplex and living in one side. Our house-hacking opportunities flew out the window the monument our son was born. She's not on board with it. Happy wife, happy life. If we buy a multi-family I assure you we won't be moving in.

Break Even or Cashflow After a Househack?

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