So I totally get the numbers. It is a fantastic deal, especially for a beginner. But beyond the numbers, I'm wondering what it's really like. What kind of people choose a duplex/triplex/fourplex over an apartment or SFH? What is is it like living so close to your tenants? What are the 3 things potential house-hackers should know? (And by 3 I mean as many as you can think of.) What is the weirdest/scariest/best/worst thing that happened to you? Basically I'm looking for a reality check.
AFM, I'm just over 50, single, and find I don't really need a ton of space or prestige in my home situation. But I do want my home (even if just for a year) to have a positive vibe about it. My current neighborhood is a 50/50 mix of renters and owners, with a broad mix of incomes and educations - I like that. I'm trying to avoid the "4-plex ghettos" that are common in my city. Ideally, I would like a MFH in a "real" neighborhood, like where I live now.
Anway, let's have it. What say ye house-hacking veterans ?
The nice thing is that when you need to go to your units for some reason you just walk instead of having to drive. The bad thing is that they are right next door. Training your tenants is important whether they live above or below you, or across town or across the globe; but even more important when you are house hacking. Your tenants need to know that it's not ok to come knocking on your door at 2am because they clogged a toilet or sink.
I'm assuming you are going to manage the units yourself since you are house hacking. One thing that worked really nice for me was to introduce myself as the property manager. You're not lying to them because you are self-managing. If they ask, then be honest and tell them that yes, you are the owner, but if they never ask, then it provides a veil of separation between the live-in manager and the absentee owner. I know some might disagree with this approach, but I'd ask if they ever really truly lived in the same building as their tenants.
Last thing I'd suggest is to check with your state to see if it's OK, but as long as it is, have your tenants pay electronically or direct deposit. This way you're not having to physically collect rent from them. You have to constantly change hats between landlord and neighbor and it's nice when you can just be their neighbor. As long as things aren't breaking and they are paying rent on time then it's a happy situation.
It's funny, but in my mind I still see a huge gulf between a duplex and a fourplex. In a duplex, I'm just a next-door-neighbor, maybe 10-20 feet closer than a SFH in a "cozy" neighborhood. The 4plexes I've seen are scarrier: like a mini-apartment-complex where I am "the Man". In my mind I'd totally be open with a duplex neighbor that I'm the owner, just trying to get a leg up on retirement, yada yada yada. But in a 4plex, I've even imagined going incognito, even hiring a PM from the get-go.
Again, for me it's all about the vibe. I've seen (just lost one deal) duplexes that would be totally awesome to live in. Fourplexes, so far, have a little bit more of a down-market, rough kind of feel. Financially, a pricey 4plex with appreciation potential would be ideal, but I haven't seen that around these parts.
BTW, my market is Colorado Springs. Not quite the Denver Dynamo, but not quite Detroit either. People don't *need* to live in a 4plex to get by, but they still do. Who are they? What is it like living next door?
I think that the type of people that live/rent in multi-tenant buildings are generally people just like you, but without the knowledge of Real Estate Investing that you have. There are a lot of folks out there there that just don't think they can own a property, that it takes too much money down, and it's too hard to save that kind of money when they are trying to get by.
I do have experience with house hacking, although not in the way it's usually thought of. I had a SFR purchased shortly after being married. Shortly after being divorced, I had the house with a re-fied mortgage. I REALLY dislike moving and it just wasn't a good time to sell. However, it was just too much house for me alone, so I took on some roommates.
One of these was a co-worker in his late 40s, moving up to Denver from Atlanta. As it wasn't a good time to sell, he didn't have the funds to buy a new place, and was renting his home back in GA. This was a good opportunity for him until he was able to sell or ready to buy a 2nd.
The second was an old friend from back in PA, about my age in his mid 30s. He had been living in Denver a little longer than I had, and his apartment building was being sold, so tenants were asked to vacate for renovations. The timing was perfect, since I had another bedroom to rent.
A few years later, I met the perfect woman, and she and her children moved in. My first roommate moved into an apartment for about 2 years, and then bought his 2nd home. The second roommate, never managing to save up any money, is renting someone's basement now.
The challenges were those typical in a roommate situation, even though we weren't college kids. I'm sure they were somewhat different from what you might deal with as an owner/neighbor. However, I see the wisdom in some of what has been said already. Set clear boundaries. Possibly even put yourself out there as the manager, instead of the owner.
Yeah, I love the idea of room-renting as a way of house-hacking, but I think I'm just a little to old and set in my ways. I always recommend that to young people, though. They're much more adaptable and it's a more common way of life.
My wife and I have done it a few times and we're getting ready to jump into another few now. We take on distressed properties, do a lot of rehab work, and deal with some less than savory tenants when we take them over, but they turnaround soon enough and it works out fine. We have a wireless alarm system we take with us from place to place but we've yet to need it. Once the properties are repositioned we've had good quiet tenants that pay on time.
The main thing is screening, closely followed by not becoming friends. I'm not saying you can't be friendly, just don't involve them in your life and don't get involved in theirs. When that happens they will inevitably expect more leeway or special treatment because you're "friends", even if on a subconscious level. You and they need to know that you're relationship is business.
The first property I bought was essentially being sold because the owner didn't screen. She got a criminal in there and lost a ton of money because it became a crime scene. Then it got lost in the police files and wasn't released for several months, and after that was expensive clean up. The last one was an owner that was too close to his tenants and was loosing money because he kept letting them pay late, as in months... several... He also felt bad raising rents on them even though he was $200 under market per unit and loosing money. He basically liked them too much for his business to succeed.
The biggest thing I tell anyone who will listen is that you have to treat it like a business. As long as you do that, you'll likely be fine.
Agree with previous post, that you can house hack a SFR by renting rooms. If you buy a SFR w/ a "granny flat" or "mother inlaw suite" or "guest house" or whatever else you'd like to call it, you can take on roommates and still maintain some private space. Also, you could "live in flip" by putting in sweat equity but not renting rooms for 2 years, then sell tax free or move out turn it into a pure rental. Can even cash out refi at that point, so long as it will still cash flow. My wife would get so mad that we would fix up a place so nice and then rent it to move into a dump to start over and make nice (for another renter) ... she finally made me put a stop to it after having kids, but we built a nice little portfolio of cash flowing SFR rentals in Southern California that way :) Living in the middle of a remodel stinks, but sacrifices must be made somewhere, somehow in order to get ahead in life.
I also live in Colorado Springs and house hacked my first home. It was a SFH and I rented out the rooms. I could completely understand how you wouldn't want the same front door as your tenants, but the same roof is acceptable. My experience certainly wasn't bad, however, it certainly didn't come without its stresses. I would also agree with you that in this town, there are many 4-plexes I wouldn't want to live in. The one I would like living in are typically in downtown or old north end areas but those are very old homes and expensive which isn't for everyone. There are quite a few more duplexes and triplexes in parts of town I would rather be in.
@Jeff S. My first house was a duplex, we lived in one unit, rented out the other. We did this for 4 years. We have since moved, but still have that property. Living there it is very easy to manage, you see things everyday, you talk to your tenants regularly, they are comfortable with you. Once you move away for the property, you get a bit more distant and I have to remember to drive buy the property every once and awhile to make sure everything looks alright from the outside.
In my area, tenants breakdown into the following groups;
Apartment renters - looking for value or amenities. Since apartments are larger, they are willing to deal with less privacy, and don't mind that there living situation is not very home like. Generally high turnover.
Fourplex renters - looking for value. In my area, these are comparable to apartments in value, but have almost zero amenities. Most of the time, these are in less desirable area around me, but still in residential areas. Moderate turnover.
Duplex renters - looking for more of a home living situation. Lower priced than a SFH, and the tenants are not fully responsible for the house. Generally they don't have to worry about lawn care, maintenance, etc. I find that most tenants are younger people, or young families. They see the property as their home, just not their permanent home. Moderate turnover
SFH renters - they are looking for the independence of home ownership, but without the commitments. These are generally priced the highest compared to similar other housing units. The tenants are responsible and don't mind taking care of the property (lawn care, etc). They are typically families or working professionals. Sometime the tenant is in transition (just got divorced, relocated, etc). Generally low turnover.
This is just my opinion, and I am sure others will chime in.
When I was in college I house Hacked.
I first moved from Germany to Melbourne FL and was renting a room from a guy for $550 a month and it was terrible! I fed his cat, constantly changed the litter box because it smelled so bad and was embarrassed to have anyone over because the carpets were so badly stained. After two months of this I thought I should do the same thing and offer a much better place to live.
I found a bank owned run down property that was right next door to the college I was attending and a golf course. I placed an offer and it turned into a bidding war. I ended up getting it and only paid $500 more than the highest bidder. Purchase price was $110,000 with VA Loan. I then turned around and put all new carpets, paint, landscape, and several other cosmetic fixes for around $12,000. All together I have $122,000 into this 3 bed 2 bath 2 car garage house that is around 1980 Square feet. I rented out two of the rooms and I kept the master bedroom with ensuite for myself. I was actually getting paid to live in this house after rent came in and all expenses were paid, (Internet, power, water) The house now is appraising at $170,000 two years later due to all the improvements.
Warnings to anyone doing this:
1) You must always run a BACKGROUND and credit check on anyone you will be sharing a house with. I would suggest doing this on all your properties. I once rented another house to a lady that had a boyfriend who was a Felon. This was a nightmare.
2) Get at least a $200 security deposit.
3) Have a very clear lease that sets ground rules up front. No Drugs, no parties, no smoking in house etc….
4) Do not become friends with your roommates. You can be friendly, but have to keep it business as best as possible.
I no longer have roommates, but it was a great time while it lasted! I still use this as a room rental house and it does very well. I always do 1 year leases, but I give them an exit clause with at least 60 days notice with no penalties. College students and young professionals are very transient. I have had great tenants so far with this property. Possibly because I am fair with people and treat them the best I can and in turn they are good to me.
Geneses 2:15 Properties LLC
Wholesaler Colorado Springs Colorado
We're doing it now in an A+ area in Chicago. Most of the renters in the area can afford to purchase SFR homes, but prefer the flexibility of renting, especially the younger professionals. We have a duplex so it's fairly easy with just one tenant/neighbor. They email us with any repair items and call or text us for any urgent items. The first year we wanted to keep clear lines between being a landlord and neighbor, but as we got to know them more they became more neighbors as we never had any issues with them paying rent, noise, etc. They just purchased their first house and we're helping them find a sublet for the unit.
Here are the three things you should consider/know:
1. Ensure this is what you AND your family wants
House-hacking is easy in theory and where you buy and what you buy certainly helps, but you need to be sure you want to live in an apartment and manage the tenants that you can't duck by turning off your phone (I also don't believe in ducking tenants, address their issues and their shouldn't be issues). If you've never had your own SFR the transition is easier, but it's tough to go from a SFR to a duplex, especially if you have kids.
2. Screen Screen Screen
You can be more discerning in an owner-occupied building and should screen for neighbors, not just tenants. Take the extra step beyond the financial thresholds to ensure the tenant is the type of neighbor you want. Check their FB, check out their car, call all the references, ask about pets, etc.
3. Set and Respect Boundaries
Don't let tenants knock on your door because they have a faucet leak. Set a clear protocol that makes it easy for everyone and keeping things in writing when possible is ideal. Urgent matters are different, but be sure to help them understand what is considered urgent. Handle any items that arise in a timely manner and don't go into their unit without permission. Respect their home and make them respect yours.
Before and After Photos of the house hack
We are currently doing it...
Wife hates we have people living above and below, when they make noise.
She likes it however when I am out of town, and there are noises in the building, and not dead silence.
She gets upset, the tenants take long showers.
She enjoys have lots of extra disposable income because we are pocketing $2000/mo in rent.
everything in life has an expiration date. I have a date, and then we move on.
We are looking to pick up a duplex or triplex sometime in the near future and do exactly that. However I have read everything in this thread, and a lot of others, that has made me decide I will be doing very VERY thorough background checks.
@Jeff S. , it is wonderful! I have a four flat I bought with a 203K FHA construction loan few years back. I used the construction loan to do all the work needed, lived in one unit for free and after a year and a half, I bought another property. The fourth unit that I used to live in, now is rented and is paying half of my mortgage and expenses in the property I live.
I love all the cash flow I get, I loved having a home and saving all the money I would have paid for rent to buy my next property and I love my tenants. The tax deductions I get are a huge bonus and the tenants are paying off my mortgage...
My advice to you: Buy the biggest building you can afford in the best location you can afford, and make sure the numbers work! As long as you get the cash flow you want, or a unit for free and the property is in great condition, go ahead. If you intend to live in the property less than two years, than the location of the property in relation to where you want to live is not important. You'll hold this property for a long time, preferably for the rest of your life, so focus on getting a good location where you'll get the best tenants possible and not where YOU want to live.
You'll move on after a year or too, focus on the investment and don't buy emotionally!
The worst thing is to have all units vacant in the same time or to have tenants stop paying the rent. In order to avoid that, stagger the end of your leases, make sure they all end Spring to Summer and you hold security deposits. When you choose tenants, go through the entire process: have them fill out rental application, check their credit, do the background check, call their last two landlords and their place of work. You are running a business, so you want to have only tenants that are responsible and will take care of your property. Keep in mind that is better to have a unit empty for extra months than to take in a tenant that is not meeting your requirements.
The last thing, make sure you have reserves, and starting saving for those reserves starting your first month you own the property. You can save $100/door per month or $50/door/month minimum until you have 6 months of reserves to cover all the expenses of the building, and also to have reserves in case you need to buy a new appliance, your furnace stops working or any other emergency comes up!
Good luck to you!