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!
Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
5y
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.
Lender · Boston, MA · Member since 2018 · 171 posts · 137 votes
5y
@Andrew Mowe Looks like you've already received some great feedback from others. I'll add my two cents as well.
I've been house hacking in Boston successfully for the last three years. In my opinion, value-add is key to make the numbers work.
My first house hack, I converted a two family to a three family. While living there I made about $400 and was living for free.
My current house hack, I added about 900 square feet of living space and an additional 3 bedrooms and bathroom to my rental unit. I'm making about $1,000 per month while living for free.
Most will say the numbers won't work, but if you can get creative - you can make them work. As you mention, if you can live for free, or at least very close, it's a win in my book as when you move out, it should be a profitable asset and you'll be saving a ton of cash while living there.
My last piece of advice when searching - 3/4 families are subject to a self-sufficiency test if you're using FHA. This means the building needs to be profitable (using only 75% of rents) without using your contributions. This becomes a challenge in Boston - but not to say it can't work. Just be aware that you will need to find a really good deal to make it work.
Real Estate Agent · Fayetteville, NC · Member since 2020 · 86 posts · 91 votes
5y
Hey Andrew, so I'm sure you've heard it already but what is "good" or "ok" is really subjective. It's great because you get to define it! Just some food for thought, even if you don't cashflow, you break even, or still owe some money at the end of every month, your net worth return on investment (NWROI) is typically still awesome! I also want to give a friendly heads up, a lot of new investors look for strictly multifamily properties, but not every market can support that goal, and a lot of new investors get discouraged. I wouldn't totally rule out a single family home and renting by the room. House hacking is a balance of working with what is available in a specific market and your desired comfort level of living. Let me know if you have any questions, best of luck!
Real Estate Agent · Oklahoma City, OK · Member since 2020 · 471 posts · 462 votes
5y
@Andrew Mowe
Hey man, great question! Without diving into the details, a house hack that “breaks even” with 2 out of 3 rented is awesome! Living rent free is awesome, especially when you have a mortgage getting paid down by tenants. But like people are saying, run the numbers before and after living there, and make sure it pencils out. For example though, I have considered some house hacks good investments when rent only covers half of what the unit I would be living in costs. Because it would still save me money and cash flow after I moved out. Good luck!
Realtor · South Florida · Member since 2020 · 7 posts · 3 votes
5y
@Andrew Mowe
It depends on you. If the other two units pay you debt & expense you are living rent free. Plus if you bought a great deal from the start that’s a double win! Good luck!
Investor · Corpus Christi, TX · Member since 2019 · 71 posts · 43 votes
5y
@Andrew Mowe haven't read all the comments but here it goes!
In The House Hacking Strategy a quick way to analyze your property is to take your Expected Rental Income, minus your PITI, minus any reserves, and that should give you a number. If that number is zero, then congrats, you're living for free while investing in your first property!
**If you get a number of zero this also means that you will cash flow positive when it is a stand alone rental property. Make sense?!**
If you get a negative number this still might be in your best interest to move forward on the property.
Let's say you get a number of -$200(negative $200 dollars) when you use this system. If you're paying more than $1000 bucks a month in rent then I would still move forward on this, because think about it. You're saving $800/month on your living expenses($9600 annually), basically paying $200/month to live there compared to $1000/month AND you're getting into your first investment property.
**Again, once you move out and fill your spot, it will still work as a cash flowing rental property.**
New to Real Estate · Union City, NJ · Member since 2020 · 35 posts · 15 votes
5y
@Andrew Mowe
Hey I know it may not be convenient, but Consider if you’re taking one unit, if there are other bedrooms perhaps a friend or room mate may help go from break even to income producing. Just weigh whether it’s worth the head aches or not, I know room mate situation isn’t pleasant, but definitely something that will give at least $500 or so a month. I’ve done it, some days it’s a pain others it’s great. Just food for thought.
Rental Property Investor · Depends on where my employer sends me · Member since 2018 · 171 posts · 142 votes
5y
Mr. Mowe
good for you to look at cutting down on what is probably you're greatest household expense which is a roof over your head (I don't count taxes because that is money one never sees).
I currently house hack a triplex in Miami that rents for 3050 compared to a total payment of around 2900 (that is P&I, insurance, internet, water, and electric). I have an exemption from property taxes at the moment due to being a disabled veteran which maxes out at 5k a year (would be 3600 without the exemption). As everyone has said, it allows me to save all of my W2 income and the income from my three other rental units. With that being said here is some food for thought.
1) Don't get so caught up on only going after small multifamily. My family lives in West Palm Beach so I was looking for a place to that had an additional dwelling unit so we could have have privacy when my family was visiting. Unfortunately everyone wants to get small multifamily housing so good deals are always tough. If you don't mind getting some roommates, SFH might actually cash flow better given that you are renting out individual bedrooms.
2) Plan for the worst case scenario in terms of potential expenses. I factored in 5% for vacancy loss, cap ex, maintenance and reserves. After look at rent comps in several zip codes, I was then able to simply plug the numbers in the BP calculator and get cash flow numbers for the property with one unit vacant and with all units occupied. I also factored in a 12% PM fee for when all units are occupied. These numbers may seem extreme but I was able to quickly eliminate properties did not meet my criteria.
3) Have specific goals on what you are looking to do with this house hack. All the advice in the world will not help if you do not have a specific vision on where you want this house hack to lead you. House hacking is simply a mechanism in this beautiful asset class we call Real Estate Investing. It is up to you to decide what this mechanism will do for you.
I like many of my colleagues in BP are rooting for you and look forward to hearing your progress. Happing hunting sir!
Rental Property Investor · Souderton, PA · Member since 2020 · 124 posts · 106 votes
5y
@Andrew Mowe
I did the same thing for my first property last year. It was a triplex and while I was living there we were cashflowing $350 a month (this was a white whale, I got a really good deal and ended up closing 120k under his original asking price).
After living there for a year I bought a duplex and rented my old unit and that triplex is currently cashflowing $1700 a month. At the duplex we just break even, so we are living there for free. Next year when we do the next one we will cashflow $1000 a month there.
It’s a good plan and you should stick to it! I wouldn’t limit yourself to a triplex in your search though look at duplexes and quads too!
It depends on your market but for me, most of the time if I can live there for free its a good deal!
Clemson, SC · Member since 2020 · 1 post · 0 votes
5y
@Andrew Mowe
My brother and I are sort of house hacking while in college. My brother, who is 23, co-signed with my dad on a 4 BR Condo purchase. He and I live in two rooms “for free” and rent the others out. We are break-even on expenses vs. I come but still decided to do it because once we are ready to move out he will have equity and appreciation in the property as well as cash-flow once we move out and rent all four rooms. I think it’s good to consider how long your time horizon is for actually living in the property!
Boston, MA · Member since 2019 · 15 posts · 19 votes
5y
@Andrew Mowe I am closing in Nov. on my first house hack just outside of Boston in Malden. To many of the comments already stated, it will be tough to find a 'live free' house hack in Boston, at least based on the 60+ properties I looked at.
While I am not living for free in this duplex house hack, I am reducing my current living expenses by 40%, while reaping the benefits of appreciation, depreciation, taxes etc., that's all while still having to pay PMI. Once 20% equity is secured, through either natural or forced appreciation, we will no longer pay PMI, and the property will cashflow $800-1000 should and when we move out.
When running numbers, make sure you run 4 different ways: 1) how much will it cost me to live in one unit with the others rented while paying PMI 2) how much will it cost me to live in one unit with the other rented without PMI 3) how much will the entire investment cost me with all units rented and paying PMI 4) how much will the entire investment cost me with all units rented and no PMI. If scenario 1/2 decrease your current living expenses (rent), it could be a good deal! Most importantly, you want the numbers to work when you move out and all units are rented, living for a discount or free is the icing on the cake!
I created a few excel docs that allowed me to quickly analyze 60+ properties at a glance. Feel free to DM me if interested.
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!
Which lenders have you spoken to? Are they all local banks/credit unions?
@Amanda Forde I've been working with a mortgage Broker, and have also discussed with a bank of america lender that's a friend for advice. It's not that I can't finance a three or four unit, but that it won't go through as owner occupied therefore the rate is higher.
Real Estate Agent · Boston, MA · Member since 2016 · 106 posts · 69 votes
5y
@Andrew Mowe to give you market specific answer, it depends where you are buying. If you are buying within 20-30 min of Boston, then I would say its very difficult to find something that breaks even completely while living in the property (when you really account all expenses beyond PITI, such as maintenance, vacancy, utilities, snow etc). On 3 families you could get pretty close, but still most likely it will cost a couple of hundred of dollars.
When analyzing house hack numbrs I would look at both scenarios of owner occ and full rental, and priortize the latter since I'm assuming your goal would be to turn that into a rental prop ASAP. As long as you can hit $200-$300 per door in cash flow (again, for markets within 30 minutes of Boston), then you are on the right track with the property.
@Andrew Mowe Hey Andrew, I am also around your area! What I am currently doing is search for a MUlti Family home with a full basement. I plan on renting out all the floors and live in the basement rent free to maximize cashflow. Hope that could give you and idea instead of living in one of the apt!