Hello everyone! I am new to Bigger Pockets and looking for some advice on house hacking. I am a current college student who fully intends on investing in real estate upon graduation. I am a finance and real estate double major, so I am still learning about the business, however I have been reading and listening to a lot of podcasts. My current plan is to buy a duplex as my first house out of college, live in half and rent out the other. Everything I have read and listened to says to always invest for cashflow, however for this first house, would it make sense to buy a duplex that doesn't cash flow right away? I am thinking that even if it doesn't cashflow while I am using it as an owner occupied, the rent will still cover a decent portion of the expenses. While there still may be some expenses I will have to cover out of pocket, it will be much cheaper than renting or buying a single family. Not to mention I will be purchasing an asset that I can rent out fully after moving out in a few years which will then cashflow. Obviously finding a duplex that cashflows while living there is the best case scenario, but if that is not possible, is this a good idea or could you see it setting me up for future financial and investing nightmares? Thank you for reading! And any other advice would be greatly appreciated!
@David Archer your first deal or or 100th deal doesnt always have to cash flow. I have a bunch of properties in my portfolio that do not cash flow but I wish I had more. As long as you are not super cash negative and as long as the property is quality then you will be ahead of the game. You dont want to make it a habit to buy every investment that doesnt cash flow but theres nothing wrong with that for your first deal and living in 1/2 of a duplex.
@Alex Deacon Thank you! That is great advice. I plan on investing for cash flow with future properties but needed to get my skin in the game somehow and figured this would be the best way to do it!
When running the numbers, run them as if both sides were rented. It will give you a more accurate picture of how the property performs as an investment.
@David Archer House hacking is a great way to get started. Kudos to you that you are thinking of investing before you even graduate. That looks like great forward-thinking to me! :)
@David Archer many house hackers don’t cashflow on their owner occupied property. Those deals are very hard to come by in places most investors would want to actually live in. The point of house hacking is to purchase a property that will cashflow when all units are rented out eventually. While you live there, it should greatly reduce your living expenses and help you save for the next purchase.
@David Archer My advice would be to think long term here. Give thought to your exit strategy on the property and how this purchase potentially fits into your overall portfolio those considerations maybe the answer (make sure to run the numbers though).
@Fradel Schaechter I want to start early to get ahead of the game and reach financial freedom! Trying to avoid the rat race of a corporate job working for somebody else!
@Mark Gauger Great advice! I do plan on doing that as my plan is to eventually move out of that first duplex and keeping it as an investment property to begin my portfolio.
@Sung Park That is exactly what I plan on doing, but wanted to hear from others who had done it successfully. Thank you for the great advice!
@Vaughn Smith Long term I want to move into larger multifamily properties with more units. I want to start with smaller unit properties to get my feet wet and learn the business, while also building equity and generating cashflow. When the time comes to transition to bigger properties, I want to use the equity in these smaller unit properties to purchase the big one.
@David Archer as you know, you can always move out of the property after 1 year and get it to fully cashflow with 2 rented units.
You haven't mentioned what your source of financing would be, hence this may or may not be financially feasible. I recommend trying as much as possible to:
- If you can afford it, get a 3 or 4 unit property instead of a Duplex. If you plan to use FHA loan, it will be MUCH easier to get a 2nd loan approved in the future when going from 3 or 4 unit to moving into a Duplex, as opposed to going from a Duplex to a Trip/Quadplex.
- Unless you find an amazing turnkey multi-family deal, capitalize on forced appreciation. The 203K loan can help with financing the rehab portion of the loan. If you're going to be house-hacking, and if you plan to manage it yourself, which you should, then you'd better know a thing or 2 about basic property maintenance. A Multifamily requiring minor to medium upgrades is a great way to get your feet wet and to build equity off the bat.
- Think big! You are going to face all the delights of both property ownership and landlording anyways. Therefore, as house hacker, you go all in. A few other tenants living within your space will barely cause extra headaches, but the cashflow difference is more than worth it.
I am glad I found this thread. I am in a similar boat looking for my first duplex to house hack and of course it doesn’t cash flow if I live in it. But with comparable rents, if both units were rented out, then it would.
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