Losing Money on a House Hack

7 Replies

Hello You All,

I would not say I'm new to the idea of investing, in fact, I've been obsessed for years. However, I am just getting to the point where I feel comfortable enough to put out feelers and begin the process. I am leaning towards a house hacking situation in a college town. Every few days, I'll run the numbers on a few duplexes and triplexes in the area and each time the cashflow is negative. But, is coming out of pocket 360 dollars a month comparable to paying rent? Is it so bad if the outcome is not necessarily income, but a reduction of personal expenses?  

@Sydney Key I tell clients all the time that house hacking where you can live 100% for free is almost impossible. In my market here in the Chicago burbs, it is common for the owner to have to chip in a few hundred every month while they are living there.  This is especially true if you are using a low down payment loan with very little skin in the game. Instead, consider the property as though you weren't living in it. Does it cash flow once you move out? I consider that a win. 

Second John Warren! I don't care where you are, if you can live in a decent house in a decent neighborhood for $300-400/month then that's a win. When analyzing the deal consider more how it will cashflow when all units are rented (assuming you're going to BRRRR it) - if its got good cashflow then then its got potential.

Hey @Sydney Key !

When you are running your analysis, are you looking at current or market rents? Only Duplex's, or larger units like Triplex's and Quads? Most deals in todays strong market, will require a little TLC, so Even if you are not extremely handy, Having the vision for what a property can become, can put you way ahead of the crowd. I have personally house hacked for the last several years, however none of the numbers would have worked had I not renovated my units to demand above market rent. 

I also support what @John Warren said! With low skin in the game, and a low out of pocket monthly cost it still pays to look at it from the perspective of having your unit fully rented once you move out and hold onto the property. Long story short, its the art of the first deal. And to be able to get into a multifamily property, with a owner occupant (30 Year, low interest) loan is an amazing opportunity. It doesn't have to be a home run, just something to get the ball rolling that will set you up for future success. 

Corey Griffo

The Grifford Team, RE/MAX Elite

Lexington, KY

@Sydney Key We tell clients to run their numbers on a potential house Hack as if they are not  going to live in the property; i.e. as a regular investment with all the assumptions regarding expenses, vacancy rate,......  If the property cash flows when running the numbers this way then it's a great opportunity for a house hack.  While you're living in one of the units you'll have the benefit of others paying a portion or all of your note.  When you move and rent your unit the property will cash flow or the cash flow will go up.

Are you running an analysis assuming you are living in one unit? of course the property will not cash flow if you are only 50% or 66% occupied. Run the numbers assuming it is fully rented at market rate. The reason is twofold. First, once you move out you need to know if it cash flows. Second, you are receiving the "Value" of the market rate unit. If rent is $1,000 your cashflow just increased by $1,000 because that is no longer a cash outflow on your living expenses.

@Sydney Key If you're having yo help pay the mortgage where will you get the funds for your expenses and repairs? Even if you are in a "free living" situation you should be setting aside some cash to cover expenses and/or vacancies when they do occur.

Just by owning you might be able to reduce your expenses, but if you don't plan for expenditures you're jeopardizing your future success.