I am trying to get into my first rental by using the house hacking method. In my analysis I am finding it hard that I make a positive cash flow with all expenses included while I am living there.
My question is should I expect my cash flow to be positive while I live there or should I expect to pay utilities and maybe a little towards rent or should I only accept a deal that makes me some money and has a higher percent cash on cash after I move out?
Updated about 2 years ago
Just an update I'm in the Cleveland area, West side (Ohio city, Tremont, Gordon square)
It definitely depends on how you buy and how many units you have. We cash flow in a 4-plex with three units rented and us living here.
In my area it would be pretty hard to cash flow in a duplex. They can still be bought so they can, but it's rare. If my next buy turns out to be a duplex, I am willing to pay housing costs as long as it cash flows as a pure investment once I've moved on.
The way I look at it is that we're willing to pay for housing otherwise, so why not be willing to pay discounted housing towards an investment?
@Aaron Diehl Good questions. This really depends on your market and the condition of the home. If you are buying a turn key property, I wouldn't expect to have positive cash flow while occupying - subsidized rent, principle pay down, management / RE experience and tax benefits still make a purchase worth while.
When I analyzed my property that I house hacked, I made sure that if I walked away from the property the next day, rent out each unit, the house will cash flow positive. The more units the property has, the more return you are likely to get (I recommend buying a 3 or 4 family home if you will be utilizing an FHA loan).
With that said, purchasing my home was the best financial decision I have made. Keep analyzing deals and you will know which property makes sense to purchase. Lastly, I must have made 15 offers before the offer for my house got accepted. Good Luck
Hi @Aaron Diehl and welcome to BP!
If you are using a low down payment, it's not really realistic to expect to be cash flow positive. When an investor is looking at being cash flow positive, they are typically putting down 25 percent or more. If you are in a high demand metro area, it's simply not realistic to expect to be cash flow positive if you are putting down 0-10%.
Now if that is all the capital you have, that is what it is....is it better to keep renting than to buy? Typically it is better to buy. Better to build your own equity through the debt pay down, enjoy the tax benefits of ownership, and garner the equity of an appreciating asset. You just can't expect to cash flow on an initial purchase with a low down payment. Now with time and rent growth, what could be a negative cash flow property might very well become a cash flow king, but that takes patience.
Another way to increase cash flow would be renting out rooms in the unit you live in, either Airbnb or longer term.
Thank you to everyone who replied so far. Going off what most people are saying it looks like it will be difficult for me to be cash flow positive in a duplex but I should make sure the deal will be worth my investment ( a good cash on cash investment) once I decide to move out. It will most likely be a duplex I move into because that's the most common in in the neighborhoods I'm looking at. Doing the math without me living there shows that I should be able to be cash flow positive and have a good return on investment. I really appreciate the feedback and answers.