MFH Househacking Question

5 Replies

Hey BP family, so I'm planning to a #househack with our initial investment property and planning to use a fha 203k loan in order to buy a fixer upper hoping to add value through renovating.   For those who have experience with househacking, how do you take into account the rent that you are paying? For example, your have a monthly payment (including mortgage taxes and insurance) of 2,100 and can rent out the other apartment for 1,100.  What do you consider the 1,000 that you have to put in? Rent? How do you account for vacancies, repairs, and/or cap ex? Do you take a percentage of the rent on 2100 or 1,100.

First of all you would never count what you pay for your living quarters as rent. It is not income it is just a cost of doing business. This is an investment property for you even if you are living in it or intend to. If you are lucky and can keep a tenant in the other unit you are doing good. Then if you want to rehab the other side you have to work something out with that tenant or wait until they move out to rent it after repairs. That I know of there is some kind of insurance that protects you against lost rents. I am not saying you will get paid the rent you otherwise would collect because of needed repairs but it is something you might as an insurance guy. 

Originally posted by @Angel Rosado :

Hey BP family, so I'm planning to a #househack with our initial investment property and planning to use a fha 203k loan in order to buy a fixer upper hoping to add value through renovating.   For those who have experience with househacking, how do you take into account the rent that you are paying? For example, your have a monthly payment (including mortgage taxes and insurance) of 2,100 and can rent out the other apartment for 1,100.  What do you consider the 1,000 that you have to put in? Rent? How do you account for vacancies, repairs, and/or cap ex? Do you take a percentage of the rent on 2100 or 1,100.

 Do all of your calculations based on if you had a tenant in all units. Remember that while you are living in the property, it may not cash flow, however it is important to know if it will cash flow once you move out.

Now in terms of the deal you are talking about, it doesn't sound very good. If your monthly mortgage with taxes and insurance is $2100, and you buy a duplex and are only able to get $2200 a month in rental income if both units are rented, that does not look like a good deal to me. There is only $100 a month to cover capital expenses, property management, utilities, and vacancy loss. 

Hi Angel,

I too am attempting to house hack as well. I also take my "owners revenue" into account, I use my current rent payment as a default "rent" for whatever unit I intend to live in. Basically it gives me a better idea how the money will actually flow with me paying myself rent.(yes I know its not really rent and isn't accounted for with the irs ect ect). Its more for me to figure out how in reality it looks in terms of will I be paying more or less than I currently am and how it might look once I move out.

This is the sheet I use to help evaluate properties. I account for Property Management, and then add it back to the bottom line as I plan on managing it myself at the end of the day. Of course there is the BP calculators in the Analyze section for your own reference. 

https://docs.google.com/spreadsheets/d/1OZWj-NXE4F...

Hope this helps!

@Andrew Auger nice model. A few quick things - your insurance rates for owner occupied vs. non owner occupied will be vastly different (I've seen instances of more than double for non-owner occupied).

5% maintenance seems a little low for a 4 plex. I suggest starting with $1,000 per unit per year PLUS a maintenance reserve, but the reserve is below the line (after NOI). Why $1,000 per unit? You tenant claims he has a clogged plumbing line - you can't fix so you call a plumber to come check it out. Thats $200-300. Each tenant has 2 of those calls a year, one of which is a simple fix and the other requires a little work (extra 300-400). You just spent $1,000 for that unit with 2 calls. Its amazing how fast it goes.

I KNOW you have snow plowing in Framingham (went to school in Wellesley), plus other yard work. Budget something for that.

You will need a HUGE grain of salt to swallow $125 per month in heat and electricity. Even if you are only paying for one unit, thats really low.

Last is security. Not enough investors budget for security, and I really harp on this but it will SAVE YOUR A$$. Even if its an inexpensive set of wireless cameras with a cheap DVR - have something that gives you 5-7 days recording time, even at 5 second increments. Someone has a break in? You're the hero for the footage. Someone "slips and breaks their arm"? Have the footage showing him practicing that gnarly kick flip. A landlord's best friends are cameras and a good heavy safe.

Good luck to both of you!

@Andrew Auger This excel sheet is great you should considering adding it to the file place if you haven't yet.  I really appreciate your inpit.

@Travis Lloyd thanks for your input I'll definitely take the info you provided and input it into the model.  I am on totally onboard with the security aspect, even before your post this was one of my criteria.  Safety is crucial for my properties and the tenants that I will be working with.  I rather be over prepared and expect everything this will allow me to be ready for anything. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here