I'm still learning as much as possible and am new to real estate investing. Through all the reading I've done and podcasts I've listened to (coupled with my current life/living situation), house hacking looks like the best approach to me. However, my area (high cost-of-living) could make breaking even or positive cash flow difficult.
The main question: is house hacking worth it or a "good deal" if cash flow from the rented units doesn't fully cover all expenses but you're significantly reducing living costs?
For example (and just picking arbitrary numbers here), let's say:
Current living expense: $1,800/month
House to hack mortgage: $2,000/month
Rental income from house hack: $1,600/month
Expenses (including $400 leftover on mortgage): $800/month
In this example, I'd be losing $800 out-of-pocket per month, but I'd be able to save an additional $1,000 from my day job over my current situation that I could use toward a second property. What are your thoughts on this type of deal? What if the property were to cash flow positively after moving out and renting the unit I was using (after living there for a year to satisfy FHA loan constraints, for example)? Would that make the short-term more appealing?
I'm really interested in everyone's thoughts on this. I've seen another forum post about this, but it was a bit old and I didn't see any discussion around the possibility of positive cash flow after moving out. Let me know your thoughts!
In my opinion, absolutely. Any time you can reduce your monthly expenses it's a good idea. Just make sure that the property will cashflow positive after you move out and rent both/all doors. $1000 a month back in your pocket will add up quickly.
My wife and I purchased a 500k duplex. We renovated upper unit and currently live in lower unit. We pay approximately $500/month to live in a 4/2 25 minutes west of NYC in what is considered one of the top towns in NJ. Rent doesn’t fully cover us but we pay a fraction of what we should pay for this unit. Once we move out we cash flow nicely.
Awesome, thanks for the feedback! That pretty much sums up my thinking on it as well.
That's great. Thank you for the real-life example! It's awesome to hear that it's working for your situation. What would rent otherwise be in your area for a similar property?
@Chad Lewis the unit we currently are living in will rent for approximately $2,800/month. Is that what you are asking?
Yes, that's pretty much what I was asking, sorry if that was confusing! That is a significant difference though. Thank you!
Yes, I would never pay it but thats why we purchased a MFR. We lived in a single family and couldn't stand paying mortgage out of our pockets so we sold property and purchases MFR.
Hey @Chad Lewis the house hacking idea is a great way to kill two birds with one stone, as the saying goes. Two years ago, I did the very same thing outside of Boston. Bought a 2 family fixer-upper using an FHA 203k loan with only 3.5% down.
We currently live in a 3/2 unit that would rent for $2,500 per month, but only pay a net of $1,550. We could live In the 2/1 and pay only $800 per month, but we need the bigger space.
Not only is our monthly expense spared, but we've built a substantial amount of equity in the house as well. This has allowed us to get rid of PMI and utilize a HELOC for any future investment purchases in the future.
My best advice for you would be to find a local real estate agent who is familiar with what you're trying to accomplish, a lender who can offer renovation financing (and navigate it smoothly, as sometimes they can be more complex), and a contractor who will be able to take on this type of project with the bank.
Best of luck!
That makes total sense. Rent in my area is astronomical... so I'm looking to get out of that situation as soon as possible!
Thank you so much! That's a great example and helps me wrap my head around it.
Also, awesome advice! I believe I have the lender lined up, but still need to look into agents/contractors.
Thank you! I'll be sure to update this as I make progress... even if it takes months :)
And yes, the point about equity is good. Definitely a fantastic option to finance additional deals once you get into the first one and build some momentum!