A Quick House Hacking Question

[Eric Schaaf]

Hello!

I am new to real estate and I am currently saving up for a down payment on a small multifamily to house-hack for a year or two. I am having an issue though, and perhaps it is just that at the time, there are no real "deals" for my area. However, here is the problem...

Most of the properties I am looking at, when renting out the other half, would break even on cash flow, or run me around $100-$150 in the negative each month. My question is whether or not this is acceptable, seeing as how I would still be gaining equity in the house per month, while taking what I would normally be paying in rent myself and putting it in the bank.

Does anyone have any experience with this situation? I tried looking through earlier posts on the forums, but wasn't able to find an answer to my question. If anyone has any advice or experience, I'd really appreciate some advice!

[Logan Allec]

Given the facts that (1) I could get into a property for a measly 3.5% down, which would free up cash to invest in other places if I so chose, (2) I was already throwing away rent every month such that I could still be cash flow negative of $650/month (what I was paying in rent) and still be better off because a portion of my monthly payment would be building my equity and the rest would be tax deductible, and (3) I'm in my 20s and have the time to take a long-term view of appreciation potential, it was a no-brainer to go the FHA 4-plex route in Los Angeles, despite the fact that it is one of the most expensive markets in the country.

One thing to keep in mind when looking for an FHA owner-occupied triplex or fourplex is that 85% of the market rents on all four units need to cover your monthly payment (principal, interest, taxes, insurance, and mortgage insurance). This is known as the self-sufficiency rule. It only applies to 3- and 4-unit properties (not SFRs or duplex) bought using FHA financing. I put together a spreadsheet here to help potential house hackers quickly analyze whether or not a property qualifies. There are other FHA requirements concerning which you should contact your local lender, but determining whether or not a triplex or fourplex meets the self-sufficiency rule is a good place to start as this rule will immediately eliminate many properties from your search, especially in expensive markets like mine.