House Hack Dilemma

27 Replies

I am a newbie investor, learning all that I can from investors like you through Bigger Pockets, so thank you. I heard about the house hacking concept through a podcast on BP which explained the concept of purchasing a duplex, living in one side and renting out the other. It's genius and I want to try it! 

After researching numerous properties, I found one with each unit having the same finished square footage as our current home, because I know my wife wouldn't be interested in downsizing. After running the numbers on the BP calculator, I knew it would save us $1,500 a month to make this move. I prepared a great slideshow (geek) on PowerPoint, detailing our current situation, and laying out the potential savings of the hack. 

I presented it to my wife after she got home from work. She watched intently as I explained each number and how I had come up with them. After the show was over, I asked for her feedback...there were tears forming in her eyes. She broke down and cried. Come to find out, she has become emotionally attached to our current home of 6 years. She explained that we were just getting to the point where the house was the way we wanted it. 

We had put a great deal of time, money and energy into installing hardwood floors, ceramic tile, built-in cabinets by the fireplace and a kitchen remodel that took 3 months to complete. The backyard was shaping up and was now a place we could relax in on the weekends. She makes a valid point, but....

We both want to get started investing in real estate, and although we have money, we need to save more before buying rental properties. The house hack would allow us to live in a house while the tenant pays the mortgage, which gives us the ability to save a great deal more. In turn, this will enable us to purchase our next property even faster, and increases our income, due to the unit next door being rented out. Our current house only costs us. 

Has anyone else hit the brick wall when trying to convince their spouse to buy into this concept? How did you overcome it or did you take an entirely different path altogether? If you took a different path, please share what that path was. Thank you!

Happy wife = happy life.

I seriously would just find a different way to invest in real estate. There are plenty out there and any of them will be better with the support of your lifelong partner in crime. Even if you manage to convince her this is the right move there will be ZERO room for error. Anything and everything that goes even slightly askew will be because you made her move from her dream house (even if it isn't really her dream house, it will be when the attacks begin). The stress on your relationship is so not worth it and would likely undermine your investing anyway.

Pick and choose your battles. You could win this battle and lose the war if you aren't careful. I have always bought real estate as an investment, even the homes I lived in. My wife keeps talking about our "forever home", though, which makes absolutely no sense to me financially, but I guarantee you she will get it and I will make it happen. Even if it puts a damper on my investing.

Remember it is all about finding a solution where everyone wins and based on the reaction you described, there is no situation right now where she will consider moving from that house a win. Find a different solution, they are out there. Maybe not as ideal as house hacking, but still good, and all that much better when you come home to a happy, loving, supportive wife.

Ed

Maybe just give it some time. My wife and I took almost three years to get to the point where we were both ready to give up the "comfort" of a single family home and make the jump to house hacking. 

Originally posted by @Edward B.
Happy wife = happy life.

I'd have to agree with Edward on this.. 

hi @Keith John - It sounds like a great idea - but I do agree that there are other ways to get started...... definitely put your relationship first.  If I were in your shoes, I might do another investment first, show that it truly works,  and there might be a change of heart down the road. I was negative about real estate investing when we first started out, and now I am all in.  My husband never pushed me - I had to come around on my own.     

Jonna Weber, Real Estate Agent in ID (#SP41257)

If you kept your current house and rented it out for a couple of years would cash flow or at least break even? If so how about pitching your wife on house hacking the duplex with the idea of returning to your current home in 2 to 3 years?

She might just need more time to process. You say she is interested in REI, which is an important point. If she's seriously interested then she'll think more about it and perhaps the advantages will start to overcome the disadvantages for her. Frankly, the powerpoint presentation may have been a bit too much of a hard sell, lol. A simple "ya know, honey, I've been thinking...." type of easy intro to the idea might have landed a little softer. Something to consider for future 'negotiations'. Just an idea... obviously I don't know you guys so I may be way off base.

Jean Bolger

I also agree with Ed on this one. My husband and I are currently looking at properties to invest in. I've brought up the idea of house hacking before, but my husband isn't really on board. To be honest, the only reason I liked the idea of house hacking is for us to save more to invest in other properties. We have been renting for the past 6 years and have been waiting to purchase our own single family for awhile. We have never been closer than we are currently to buying our own house, having our own yard. I'm not sure either one of us could house hack at this point; buying a house where we still have to deal with people on the other side of the wall, and the extra hassle of also being their landlord.  While it may take us a little bit longer to buy our first investment property, I think we will be much happier owning our own house first, then finding an alternative way to start investing.

@Edward B.

@Jay J.

Great advice, and know that I would never do anything to jeopardize my marriage. We are in this together, and I am merely trying to get us to a point to where we can get moving on investing. As @Jean Bolger pointed out, my wife is interested in REI, and that is important. If she had no interest at all, I don't believe there would be REI in my future. As for the PowerPoint Jean, she needs to see it "on paper", so-to-speak, LOL. The slideshow is just an effective way to lay out a lot of data into a meaningful chronological order to see current state to future state of our investment path. Man, did I really just say that? Corporate BS :)

@Richard Smith

We have a 15 year mortgage, which is seriously inflating the monthly payment. We had every intention of paying it off until reading 'Rich Dad, Poor Dad' and finding the Bigger Pockets website! If we refinanced this house, it would probably cash flow, but it wouldn't make sense from a financial perspective, as we would have to pay for closing costs and possibly points to reduce the interest rate. I would much prefer to sell it and turn the proceeds into a down payment on the next rental property.

@John Warren

@Jonna Weber

I think your approach might be best for us...just giving it time. I know she wants to invest, and she sees the potential. Perhaps letting things cool down will give her the opportunity to come around to the idea of selling this place. Time to research more properties!

@Ashley Harris

I can certainly appreciate your desire to get away from neighbors on the other side of the wall. Renting does have its setbacks, as does being a landlord next door to your tenants. The real question you have to ask yourself, though, is am I satisfied with the pace of my REI? That's where I get caught up on the House Hack...we all need a place to stay...why not let someone else pay for it and put your savings in hyper drive?

Selling is often more expensive because of the transaction costs. Run the numbers to be sure. Might be worth refinancing to lower your payment so it cash flows and then getting a HELOC to access the equity for another property. Heck, it might even make more sense to stay where you are.

I am not a big fan of 15 year mortgages. To me it is not worth the savings in interest. With a 30 year you can always make the extra principle payments if you wanted to pay it off faster, but the sooner you pay it off the sooner your tax benefits go away and the more money you have locked up in one property. At least with the 30 you have a choice every month vice the 15 where you are locked into the higher payment. Gives you more flexibility at a slightly higher interest rate. One to two percent maybe. And if you are investing the money you are saving on the monthly payment instead of just spending it, it will be more lucrative anyway.

@Edward B.

I'm not a fan of 15 year mortgages now either, after educating myself on REI. If you intend to stay in your home and can afford the increased monthly payments, the 15 year saves you a ton in interest. Although you have the flexibility to pay more if you choose on the 30 year mortgage, you will be paying a higher interest rate, and many people are not disciplined enough with their money to make the extra payments, so the 15 year can help lock you in to paying off your mortgage early and saving on the reoccurring interest charges up front.

So, why am I no longer a fan? It simply comes down to what else could I be doing with that extra cash that I am currently handing over to the mortgage bank. For the real estate investor, tying up the extra cash is an opportunity loss. Now that we are committing to REI and are becoming passionate about it, staying at a 15 year has lost its luster and is tying up our cash. Our choices seem to be:

1) Refinance to a 30 year mortgage at a higher interest rate (which might not be so bad since we have been paying down the mortgage heavily).

2) Purchase a duplex (townhouse) and house hack, allowing us to boost our savings by drastically cutting monthly expenses, then selling our current house.

3) Do nothing with our current house/mortgage and use the cash we have saved to buy an inexpensive multi-family (will still need financing). The inexpensive property will probably translate to lower rent, more frequent vacancies and less cash flow.

I'm a fan of the second choice!

@Keith John

It's hard to say because I don't know what kind of numbers you are looking at but I think you have more options than that. Do you have any equity in your house that you could tap into with a HELOC? If you refinanced into a 30yr, or maybe an ARM if you are pretty sure you want to unload it, what would your cash flow look like?

Here's a possible scenario. Refinance into a 5/1 or 3/1 ARM so your rate is closer to your 15yr rate. Take out a HELOC for any equity you have in the home. Now you can save faster AND have money for a downpayment on another property in case a deal comes your way. Then sell your home down the road if it won't cashflow when you are ready to move.

Or maybe you realize that you can clashflow with a 30yr mortgage, i.e. the rents would be enough to at least cover your mortgage and expenses. I would not sell a property you have already bought as long as it at least pays for itself. You will still reap the tax benefits, appreciation, and loan paydown. Unless you need the money for a better deal, I would refi and get the HELOC and then you could house hack when your wife is ready but if a deal comes along in the mean time you could move on it with your equity and any money you have saved up.

If you don't have equity for a HELOC then I'm not really sure how selling your current property would help unless you are eligible for a low down payment program. And none of this even begins to touch creative financing deals, i.e. lease option, subject-to, seller financing, private or hard money for a BRRRR deal. You definitely have more than three choices, regardless of what route you take.

There's definitely a good alternative. Let's say your mortgage on your house in $700 a month, so by househacking, you'd be living for free and saving $700 a month. Well what you could do instead is buy a duplex or triplex further in the suburbs or even out of state that cashflows $700 a month, so it'll be the exact same but you can keep your house. There's definitely multi-families out there with cashflow like that, as long as it's in a cheaper market like maybe in the midwest or something like that. I'm in Atlanta and experiencing the same exact problem where a duplex here is kind of unafforable in a decent location so I'm considering just buying a rental instead of househacking.

@Edward B. ...I like the idea of the 5/1 or 3/1 ARM if unloading the house, but are you obligated to keep the house a certain period of time after refinancing? As for the equity in the house for a HELOC, if I sold it, we should be able to get more cash from the transaction than I could borrow through the HELOC (80% LTV I believe?). Wouldn't it make more sense to just dump the house and take the cash to reinvest? Thank you for all of the advice BTW!

@Vincent Crane

Unfortunately, the majority of the real estate investment deals around my area have low rental rates with fairly high prices, so it is unfavorable unless you can land a really good deal. The best property I have found so far would only cash flow about $250. I would need several deals at that rate to completely offset my current mortgage. Using the 2% rule as a guideline, I wouldn't touch anything I have found so far. Typical yield is 1%. Might have to expand the borders!

@Keith John

You are not obligated to hold a house for any length of time after refinancing. It just doesn’t make financial sense to refinance if you are going to turn around and sell it soon. Best way to determine that is to divide the difference in your old mortgage payment and new mortgage payment by the cost of the refi. That will tell you how many months it will take to recapture the refi costs. For example if your current mortgage payment is $1000 and your new mortgage payment is $800 and it is $4,800 to refinance then you would recapture your costs in 24 months. $4,800/($1,000-$800)=24. So as long as you held the property for 24 months it would make more sense to refinance it now. It is a little more complicated than that but this is a rough rule of thumb.

I have not looked lately but I would think you could still get a HELOC at 90% LTV. I got my last one in 2011. Talked about it in this post, http://www.biggerpockets.com/forums/12/topics/205381-using-your-home-equity-to-purchase-rental-units. So yes, 10% equity would be locked in your house and that may not be insignificant depending on the value of your home. However, if you sell your house, 6%-7% of that 10% will go to the real estate agents and more could get sucked up by seller concessions. I would rather just have it locked up in the house.

Ed

Bigger Pockets, the only place where you will get REI and marriage advice through the same medium! Haha. In all seriousness, I'm 22 and have no advice to offer on this matter. I was just entertained by the thread. Good luck to you and your wife and I hope your next move makes the both of you very happy!

Adam Rothweiler, Contractor

    @Keith John

    I realize that this is an old thread, but I suspect that you haven't made a big move yet considering the reaction of your wife. Has she come around?

    One thing that was not addressed in this thread: Your wife was crushed at the thought of leaving the house that she's grown to love... but she never considered the idea that she could love another house just as much or more! 

    You don't have a buy a duplex that you don't like. Tell your wife that she's the point-person on selecting the new place. You line up 3-4 duplexes to see each week and she walks in the door in front of you and you stay silent until she gives it thumbs up or down.

    Another option to consider is to have a brand new duplex built! It can literally be exactly what she wants! Hardwood, cabinets, etc just as she wants it. Plus, you'll be a new house with no maintenance, fetching top-shelf tenants. 

    Give us an update :)

    @Matt Geerts

    Hey Matt! Thanks for bringing me back to this post. I do have several updates, so here goes:

    Regarding the house hack...my wife still isn't comfortable with the idea, even though now is probably the best time to sell due to property values continuing to increase, and at an all-time high since we have owned the property. Although I have not entirely abandoned the idea, we have agreed to take a different approach to reaching our REI goals. Compromise is the best solution.

    Last October we purchased a duplex we found in July after analyzing the heck out of it. A big shout out to the Bigger Pockets team for creating the calculators! Although there are a significant number of duplex rentals in our town, this one was unique. It is located conveniently close to grocery stores, major interstates and the downtown area; much closer than most. It has attached garages and separate laundry rooms for each side. Given the location, the curb appeal and the amenities, we have had no real difficulty in renting it out. We finished rehab on one unit in November and rented it out immediately. The other unit was finished in early January and rented in February. The property cash flows nicely and although it won't cover our mortgage, it certainly covers a good portion. This makes the house hack dilemma much less of a dilemma!

    Our next move appears to be purchasing a quad with a partner. We are still evaluating the partnership and we have many details to work out, but it looks promising.

    @Keith John  

    Thanks for the update. I'm happy to hear that you're making progress :)

    I'm a bit confused when you say "The property cash flows nicely and although it won't cover our mortgage, it certainly covers a good portion."

    Cash flow is defined as the cash that is left over after all expenses (real and expected) are subtracted from the income. Can you explain what you mean?

    @Matt Geerts

    Hey Matt. Perhaps I should clarify something...we don't use any of the cash flow to literally put towards our personal mortgage. What enters the business, stays in the business for covering capex, repairs and vacancy, as-well-as capital for future investments. When I refer to cash flow, it is exactly as you defined above..."cash that is left over after all expenses (real and expected) are subtracted from the income". This property, after all expenses (duplex mortgage, utilities, lawn care, snow removal) are paid and percentages set aside for capex (2%), repairs (10%) and vacancy (5%), cash flows nicely. Since this is our first investment, we still perform our own property management. I hope this brings clarity.

    Oh, I see! When you say "Covers the mortgage" you mean you're looking for your portfolio to pay for your own house so you can be "free". Keep at it, my friend!

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