When house hacking a multi-family

Rental Property Investor · Boston, MA · Member since 2020 · 8 posts · 16 votes

Hey BP community, I’m starting out in real estate in the north east. I want to house hack my first property by buying a multi-family(3unit) to live in and rent out the others.

When analyzing this deal, is it ok if I break even on my expenses (using only 2 out of 3 rents) because I’m living in one unit and sacrificing that extra income? Considering if/when I move out I will cash flow well because that 3rd unit will essentially be 100% cash flow? I would love to get some insight on this strategy as I start to analyze more deals and walk through lots of homes. Thank you all!

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Nicole Heasley Beitenman

Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes

You need to run the numbers both as a hack and as a pure rental because you aren't going to live there forever. Does it meet your investment criteria when you move out? If so, I'd go for it. Paying less on rent or a mortgage is still better than paying full price. And if you're breaking even, you're living for free. That's a sweet deal. Unless, like Daniel said, you can find a better deal, take this one.

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Daniel Haberkost
Rental Property Investor · Colorado Springs, CO · Member since 2018 · 682 posts · 729 votes
6y
@Andrew Mowe
What is “OK” is completely dependent on your situation/market.
The scenario you just described allows you to live for free while beginning to benefit from the amortization/appreciation that comes from owning real estate. That sounds pretty good to me.
What’s the alternative? Paying rent or a mortgage yourself?
The only way I’d say your plan is not ideal is if there are better house hacking deals on the market where you can see cash flow while living in one unit.
6 Reply
Nicole Heasley Beitenman
Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
6y
You need to run the numbers both as a hack and as a pure rental because you aren't going to live there forever. Does it meet your investment criteria when you move out? If so, I'd go for it. Paying less on rent or a mortgage is still better than paying full price. And if you're breaking even, you're living for free. That's a sweet deal. Unless, like Daniel said, you can find a better deal, take this one.
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Andrew MowePro Member
OP
Rental Property Investor · Boston, MA · Member since 2020 · 8 posts · 16 votes
6y
@Daniel Haberkost
You’re absolutely right. I don’t want to pay to live anywhere ever again. I still need to analyze more deals to get more comfortable with my numbers but living for free will definitely help free up my income to put back into my capital. Thanks Daniel!
3 Reply
Andrew MowePro Member
OP
Rental Property Investor · Boston, MA · Member since 2020 · 8 posts · 16 votes
6y
@Nicole Heasley
Hey Nicole thank you for the insight. This place will meet my criteria if/when I move out. I think I’m getting stuck analyzing deals because I think I need to be cash flowing a certain about even while living in one unit. But if I break even living in the place then that third rent becomes my cash flow when I move out. Thanks.
3 Reply
Jon Schwartz
Realtor · Los Angeles, CA · Member since 2018 · 952 posts · 1k+ votes
6y
Originally posted by @Andrew Mowe:
Hey BP community, I’m starting out in real estate in the north east. I want to house hack my first property by buying a multi-family(3unit) to live in and rent out the others.
When analyzing this deal, is it ok if I break even on my expenses (using only 2 out of 3 rents) because I’m living in one unit and sacrificing that extra income? Considering if/when I move out I will cash flow well because that 3rd unit will essentially be 100% cash flow? I would love to get some insight on this strategy as I start to analyze more deals and walk through lots of homes. Thank you all!

Andrew,
I'm househacking a duplex in Los Angeles. I don't cashflow now, and if I move out in the next 2-3 years, I'll only just barely cashflow -- and this is a GREAT deal.
All real estate is local. All cashflow expectations are local. Don't expect your area to perform just like all the cashflow-heavy, Midwest towns that people write about on BP. If you're in or anywhere near Boston, I'm sure cashflow will be lighter.
In my situation, I'm paying about half what my tenants pay to rent the downstairs unit. I live on top in a better unit, and I pay half. When I move out, the property will cashflow. Just a little at first, then more over time. Plus, I'm in a A+ neighborhood in Los Angeles, so I have an excellent property for a longterm hold.
Best,
Jon
4 Reply
Roger Evans
Rental Property Investor · Boston, MA · Member since 2019 · 57 posts · 21 votes
6y
@Andrew Mowe
Definitely a good strategy to house hack and occupy the property for one year. In the meantime save as much as possible for your next home purchase or pay down any debt outside of mortgages that you have. Then after a year you can repeat the process and buy another 2-4 unit multi family the bank will catch on after you get 2-3 multi families and know you're using them as investment properties. however you can then transition into SFH's particularly homes that renters can afford to rent or you could sell at some point to a first time homebuyer. A lot of people buy big homes and studies show that the younger generation isn't going to be purchasing the big homes anymore so at some point when the interest rates jump back up a lot of people aren't going to be able to afford big homes and you could get stuck losing money. But to each his own, there will always be a middle class renter that can't buy a home but would prefer a small house over living in an apartment. Good luck either way!
3 Reply
Brian Briscoe
Real Estate Coach · Salt Lake City, UT · Member since 2017 · 272 posts · 414 votes
6y
In my opinion, if you can live at a discount, you're coming out on top. If you'd normally pay $2000 per month for rent/mortgage and house-hacking gets you in at $1500/month, you're able to invest the difference and you win (while you live there).

But as @Nicole Heasley Beitenman said, run the numbers both ways. If your plan is to temporarily live there, then move out, you need to make sure the numbers work both directions. My first home purchase in SoCal made sense for us to live there, but didn't quite cash flow once we moved out and put a PM in place. And when you run the numbers, make sure you're including taxes, insurance, maintenance, repairs, utilities, management, admin/legal fees, deposit to cap-ex account, etc.
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Nicole Heasley Beitenman
Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
6y
Originally posted by @Brian Briscoe:
In my opinion, if you can live at a discount, you're coming out on top. If you'd normally pay $2000 per month for rent/mortgage and house-hacking gets you in at $1500/month, you're able to invest the difference and you win (while you live there).

But as @Nicole Heasley Beitenman said, run the numbers both ways. If your plan is to temporarily live there, then move out, you need to make sure the numbers work both directions. My first home purchase in SoCal made sense for us to live there, but didn't quite cash flow once we moved out and put a PM in place. And when you run the numbers, make sure you're including taxes, insurance, maintenance, repairs, utilities, management, admin/legal fees, deposit to cap-ex account, etc.

Did the exact same thing. Bought it for location and looks. Thought I'd be there 5 years or more and had no idea I was going to become an investor. It cash flows under $70 a month, and I can't hire a PM. But if that's the worst I ever do, I'll be ok. We're selling it this summer.

2 Reply
Blair Kristi
Rental Property Investor · Seattle, WA · Member since 2020 · 8 posts · 2 votes
6y
Newb to Seattle - Looking for Real Estate Agent
0 Reply
Blair Kristi
Rental Property Investor · Seattle, WA · Member since 2020 · 8 posts · 2 votes
6y
@Blair Kristi yikes! Ignore me folks. Haven’t figured out how to delete stuff yet ;)
0 Reply
Noah Chappell
Investor · Minneapolis, MN · Member since 2016 · 254 posts · 228 votes
6y
@Andrew Mowe wow if you can find a house hack deal that lets you live for free in Boston I take my hat off to you.. let me know the neighborhood! I recently moved from Boston to the mid west to start investing, since I couldn't find anything in Boston that even close to made sense.
3 Reply
Saul Ponce
Investor · San Antonio, TX · Member since 2016 · 4 posts · 3 votes
6y
@Roger Evans
I have a Neigbor who bought a big home down the street. He started doing Airbnb and is doing great.
2 Reply
Roger Evans
Rental Property Investor · Boston, MA · Member since 2019 · 57 posts · 21 votes
6y
@Saul Ponce Hell ya good for him, I know a lot of big cities have banned Airbnb hopefully it’s lasts for him.
0 Reply
Matthew WatsonPro Member
Rental Property Investor · Omaha, NE · Member since 2016 · 57 posts · 101 votes
6y
When I was looking at house hacking I thought of it like this:
If I rent an apartment, im paying 1100-1500 for a nice two bedroom.
If I buy a house, im paying 1300-1600/month for a mortgage.
If I house hack, its a good deal if I can somehow pay less than than both of those situations and still set aside 10-20% for cap ex as I am paying less in rent, and my equity is building faster than either scenario above due to tenants helping pay down the mortgage. You dont always need to live rent free or even have cash flow for it to make sense.
4 Reply
Jonathan BombaciBusiness Member
Real Estate Agent · Lowell, MA · Member since 2019 · 1k+ posts · 1k+ votes
6y
Hi @Andrew Mowe congrats on making the decision to househack! In my opinion it is the best way to get started in real estate investing. In the greater Boston area I think you'll find it very difficult to get a 2-3 family and be able to "live for free" in one of the units. The prices and our carrying costs are just too high. If you go up to a 4 unit you can still use the FHA loan and you'll likely be able to live for free or maybe even cashflow a couple hundred dollars while living in one of the units.
My advice is to keep running the numbers and build your confidence. Then when you buy that Multi-family either way you'll be miles ahead of everyone else that is renting. Keep making smart decisions and you'll find yourself well on your way to financial Independence.
Also just throwing it out there but we run a meetup called Pints & Properties in MA (now virtual). Our next one is on 10/15 at 630pm if you want to connect with some like minded individual in the area feel free to PM me and I can send you the link to the BP Event.

Best of luck,

Jon
[email protected]978-710-8611
Candor Realty4.760 Reviews
Website View Page
7 Reply
Forrest L.
Rental Property Investor · Lowell, MA · Member since 2019 · 33 posts · 37 votes
6y
@Andrew Mowe I started out by house hacking a 4 family in Lowell Ma. I lived for free and had 1000$ left over after mortgage, taxes, and insurance from the other 3 units. I added value through sweat equity (lots of sweat) and cash out refinanced into my second 4 family. I’m in the process of repeating this and getting into a third building in the next few months.
Let me know if you have any questions!
9 Reply
Javier Barrera
Rental Property Investor · Member since 2019 · 3 posts · 5 votes
6y
@Andrew Mowe
It’s working for me. I bought a 2 unit property, mortgage is $830 and I rent it for $870. I’m planning on refinancing from 15 year to 30 year. Once I rent out the unit that I am living in, it should cover my next property with some cash left over.
4 Reply
Kendra Fowler
Investor · Washington, DC · Member since 2020 · 3 posts · 1 vote
6y
Nice @Javier Barrera what area? This seems impossible in the DC area
1 Reply
Devin HoneycuttPro Member
Member since 2019 · 3 posts · 1 vote
6y
I agree with the others, run the numbers both ways. I currently live in a duplex in southeastern MA that needed some tlc and pay around $150/mo in rent in an area where many apartments my size would be over 1200. My only possible regret would be that a fourplex would have cash flowed better, I didn’t hold off for a property with a garage and now that I’m looking for my second property I can’t get the owner occupied rate if it’s a three or four family (this could be not having the right lender, but I’ve talked to a couple so far). The upside was this was an easy way for me to go in safely knowing I could cover the mortgage myself if I needed to. If you can live for free, it’s probably a good deal if it’s a good area!
1 Reply
Alexis York
Rental Property Investor · Las Vegas, NV · Member since 2020 · 38 posts · 18 votes
6y
@Andrew Mowe Brandon turner has a lot of videos as well as webinars on what makes the deal a good one ! I would look into those and research a little more. Than you’ll feel more confident w your decision !!! Good luck :)
2 Reply
Alexis York
Rental Property Investor · Las Vegas, NV · Member since 2020 · 38 posts · 18 votes
6y
@Jonathan Bombaci well said :)
1 Reply
Patrick McGrath
Rental Property Investor · Westminster, MD · Member since 2014 · 165 posts · 221 votes
6y
@Andrew Mowe
Andrew, looks like you have a "good" deal on your hands. As othes have said, if it aligns with your goals and hits you check marks, pull the trigger and move forward. If I could go back in time I would have house hacked a multi-family as well.
Good luck on the beginning of your REI adventure.
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Andrew MowePro Member
OP
Rental Property Investor · Boston, MA · Member since 2020 · 8 posts · 16 votes
6y
@Forrest L.
That’s awesome! Exactly where I’m trying to go ASAP. I appreciate the insight for a newbie like me.
0 Reply
Andrew MowePro Member
OP
Rental Property Investor · Boston, MA · Member since 2020 · 8 posts · 16 votes
6y
@Alexis York
Thank you!
0 Reply
Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
6y
Originally posted by @Andrew Mowe:
When analyzing this deal, is it ok if I break even on my expenses (using only 2 out of 3 rents) because I’m living in one unit and sacrificing that extra income?

Of course it's ok to break-even. Living 'for free' plus principal pay-down is so much better than paying normal rent or mortgage it's ridiculous. I compare a househack against your current situation renting plus a hassle factor premium.

Mainly chimed in to point out that not all househacks are for newbs and young people that have to put up with a bachelor-type lifestyle. This pile of dust has a family and has been househacking for 13 years.

Luxury househacking a nicer place that happens to have an income-producing rental is still househacking. ADUs, carriage houses, casitas, MIL apts, etc are far from your typical plex where you live in one and rent out the same floorplan to others.

Mine costs me $1000 per month net, but the principal paydown of my mortgage is $1400. Does it cash-flow? No. A similar rental house in my area would cost $2200/mo. My luxury househack is $1200/mo cheaper than rent and builds wealth. Compare what youre doing now to what will be. There are other considerations with househacking than cash--flow👍
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