House Hacking vs. Not Hacking

3 Replies

Hi All,

I'm still trying to learn what I can about Real Estate and was looking into doing a house hack. I know this is the way I would like to go but given my current situation I may not be able to move. So, I'm basically wondering what's the difference in terms of cost between house hacking and just buying and renting a multi-family. I think it would disqualify me from getting an FHA loan but I wasn't sure what some of the other drawbacks were? Would it be worth waiting until I'm able to move and house hack?

Thanks,

Justin

@Justin Wotton the obvious difference is that your have to put a lot more down to buy a property as a pure investment. Typically 20-25% down. The advantage, though, is you can focus on the property purely as an investment without thinking about all the things you want in the property. For instance, a yard may not bring you more income over the long run, but many house hackers also want a white picket fence. 

House hacking is a good strategy as it gives you a bit of a cheat code. The 5% down conventional loan in particular is an incredible tool if used as an opening move for novice investors. A lot of folks who work with our brokerage in Chicago do a house hack as their first and second deals before moving on to the 25% down world of investing. 

@Justin Wotton

With house hacking you have the ability to come in with 3.5% down on an FHA loan.

  If you try to buy a multi family investment the minimum I’ve seen lenders allow down is 20%. 

  So depending on your price point the difference can be significant. 

Starting out buying a multi family and moving into one unit while you learn the ropes is a great move if you can do that. Then after a year you’d be able to move out and grab another property with 5-10% down. Very easy way to get going. 

 - Mike

Correct. If it's an investment, you'd need to put 25% down and rate would be slightly higher. If it's a primary residence, you could look at as little as 3.5% down on FHA and 5% down on conventional. House-hacking is the term used for the strategy of putting a roof over your own head and doing so for cheap.....so, just a different concept from those that are buying for investment. Many similar goals, but as a primary it serves two purposes by being your home as well as an investment. Therefore, some slightly different considerations between the two.