Building a multi for house hacking

11 Replies

Hey everyone,

My wife and I are talking about if we want to save for a house of our own, or buy investment properties while continuing to rent. I have heard about house hacking and my wife seems to be on board with it as well. Just the other day I started looking into buying property and building a modern prefab house which I hear CAN be cheaper than buying existing or doing traditional home building. That argument aside, what if we went straight to building an affordable duplex on a plot of land and jumped into house hacking right away on the first property we owned? Aside from me needing to learn more about the home building process for my area and if it'll work for my budget in the first place, does anyone see any downfalls to this scenario? I know a lot of people start with SFH and then "upgrade" the multi arena, but in the DC area there are not a lot of existing multis around, and their either too expensive for me right now or they are in a bad area so I wouldn't do an owner-occupied situation. Please let me know what you think!

You've never been a landlord, you've never done construction, you've never been a homeowner. I hope your marriage is bulletproof! 

I'm not going to tell you one way or the other what you should or shouldn't do, but having done all three,  I can tell you that there are huge learning curves to each one. To tackle them all together is going to be a challenge. Not out of the question, and not impossible, but you should really get a mentor that you can call or vent to or drink with when things get hairy, challenging, and frustrating. 

I agree with Matt. You need to learn to walk before you run. "Walking" for me was buying a cosmetic fixer SFR and living there while putting in "sweat equity" in paint, flooring, kitchen, and baths. Believe me, this alone is stressful enough on a relationship. Then, after 2 years of living there, you will have learned acquisition and remodeling and can buy the next fixer and turn the 1st house into a rental to learn the landlording side. If you want to try landlording before then, you could rent out rooms. If you can find a duplex where the numbers and quality of neighborhood works for you, you could do that too, but you said that it didn't look like it would. One other tip: sometimes the numbers work better without it being ghetto on the outskirts of town or in the burbs ... your sacrifice there will likely be commute time.

Thanks for the responses guys. I guess I should definitely find one simpler direction and go in, but I feel like I'm already behind and have to play catch-up! I'll have to see what the future holds...

I think in theory this is a good idea, but realistically it would be very hard to execute.  I actually have explored the idea of doing a prefab build for myself...but the areas I would live in have very high "impact fees"..Montgomery County and DC.  Virginia I think has lower impact fees, as does Frederick County and Howard County. 

No many prefab builders though will have a multifamily available, then the zoning of the land will be an issue, then multiplying the impact fees by the number of units.

You are correct that the DC area does have a huge lack of multifamily housing. What many people do though is they convert their basements into another unit, and rent it out to a "roommate," to help offset their housing cost. (No legal advice given, research the risks of doing this)

@Erik E. I would certainly go in the direction of Single Family. The DC Market has strong appreciation and if you do your homework, you can buy in an area that is on the rise. Also, like David, I would find something that you can add value to while living there. I have advise people to buy a two year home, fix it up while you live in it, and sell it without paying capital gains. (look into the capital gains, it matters a lot when you sell it) Its a great springboard into REI.

  I bought a house in 2009 and ended up using the appreciated equity at least 3 times to buy other investment properties.  You can do a lot as long as you get in the game and do something.  Good luck, if you need advice I live only an hour from you.  

@Erik E. As mentioned above, zoning in your preferred area might be an issue. I am not in your area, but around me, the city is very strict with the zone on where you can put a multifamily and where its SFH only.

I think if you look into it, prefab'd multifamily house are very limited in design.  I briefly looked into it, but gave up as there is so little choices.  The cost savings is very, very dependent on local labor costs, and around me it not a slam dunk from a cost savings standpoint. 

My first place was a duplex, so I think it would be a great way to start out. I also build investment duplexes, and that would put a strain on you, as there are alot of choices to make when building a house. Another thing to consider is value or resale value. SFH are always going to get more $/ft2 than MFH, but the multi will likely cost you more (especially if you are outfitting to the same level of details), as your building two kitchens, two electrical systems, two piping systems, two HVAC systems, etc.

Hi @Erik E. . A form of house hacking my neighbors and friends have done in the District of Columbia and in PG Co are the following:

Roommate in the house: This is what I did for about a decade until I got married. I bought a two bedroom townhouse in a transitional neighborhood (Shaw) and rented out the larger bedroom to short term tenants. Why short term, because sometimes I wanted the house to myself. A neighbor, another single woman, also did this with her 3 bedroom, with longer term tenants, and later moved out to be with her SO, so now it is a group house with 3 different leases. I'm not sure how that works. My husband's former landlords in PG Co also have this sort of set up (sort of because there are so many people in and out the house). They have a 4 but then later 5 bedroom (added suite in the huge basement) house with their sons, pets, family friends, etc coming through. They rent to university students from their church, providing room and board and a family environment. They see it as a mission. There are others at his church who have similar set ups, where they have large homes and they rent out one or 3 of their extra rooms to fellow church members or people highly recommended by their own friends. Some other friends a couple, in town, have a large house and do Airbnb. It is big enough that the roommate or guest (they do long term stays of a month or more) has their own 2 room suite. With roommates, unlike tenants, you can be picky a decide girls only, vegans only, etc and it is really on you to screen the people who will be sharing your space.  At first I only rented to women, then I expanded to guys when I got comfortable sharing my home. But it helps to really spend time screening.

The Roommate in the Basement- This has happened when there aren't separate utilities and your townhouse has a basement with the separate entrance. The legality of it is questionable, but it has been done. Neighbors managed to sell their house with the roommate in the basement.

Tenant in the Basement- Usually a townhouse with an english basement. I think the rule is the basement must be at least 7 feet and have a front and rear exit. Had some friends who converted their basement and get college students and professionals as renters. I've got neighbors who bought their town house with the intention of renting the basement out for extra income.

My experience with the roommate situation was to learn how to deal with bounced checks, calling references (yes, I do call), dealing with inquires from people who apparently don't know how to read and figuring out what the market rate was in my neighborhood was, because it kept changing.

If you decide to start with having a roommate/boarder never, ever, ever, ever, ever (times infinity) rent to someone sight unseen.

@Matt Motil How did you get started in investing?  I hear a lot of people buy a home, fix it up, rent it out once you move.  I just feel that might be too slow of a pace for me, but I need to remember, crawl, walk, run.

@David Faulkner Yeah, I'm trying to achieve a balance with my wife on where we would live, how far away from the city that's going to be, etc.  I'm hopeful there are a couple of duplexes that hold some potential within DC.  I think I'll take a drive around those neighborhoods and check them out.  If that doesn't work, I will definitely be considering the route you took with the sweat equity. Thank you for all your advice.

Originally posted by @Erik E. :

@Matt Motil How did you get started in investing?  I hear a lot of people buy a home, fix it up, rent it out once you move.  I just feel that might be too slow of a pace for me, but I need to remember, crawl, walk, run.

 I bought something I could live in that needed major work, and I got a great deal on it. I fixed it up while I lived in it and then took the equity out via refi and then rented it out. Is it slow at first? Sure, but I had very little money to work with and I needed a place to live so it made total sense for me. 

You can make a lot of money on deals and hit grand slams in real estate. It happens. But it's like picking up a baseball bat and saying you want to be the guy that drives in the winning run, bottom of the ninth, bases loaded, game 7 of the world series. Your experience in baseball is going to a couple games each year and watching it on TV. Make sense? 

I am not trying to crush your dreams one bit. Those that have gotten to know me here know I'm exactly the opposite, I want everyone to dream big, but you're ticking off a lot of first time boxes on this plan. Getting rich quick or making a ton of money fast (sustainably) in REI isn't the most realistic goal unless you have a small fortune you are sitting on to start out.

In the grand scheme of life, 1 year is a very short time. It goes by incredibly fast. Buying something to fix up while you live there (while maintaining a family and W2 income, I assume) will take longer than you think. You're building skills, sweat equity, and experience. When you get to the point where you refi it and rent it out and move on to the next deal you will do it all so much faster and on bigger scales. It can take a bit to gain traction but once you do it can take off on you so fast you need it to slow down. If you don't have your systems and processes in place ahead of time you'll be wishing you had taken the time to do it right. 

My $0.02 for what it's worth.