Tell me why I SHOULDN'T househack a quad on my first deal

Rental Property Investor · Missoula, MT · Member since 2019 · 85 posts · 35 votes

Hello y'all,

I'm 24 y/o and I currently work as a project engineer in the San Diego area. The project I'm working on will last about a year. I'm going to save at least $25k during this project then go to Phoenix, AZ to get my first deal. My plan is to find a quadplex and househack it to have small or no housing expenses (cashflow while living there would be ok too of course). I would try and finance it with a 3.5% down FHA. I have been obsessed with BP and REI for about two years now and feel I have equipped myself with the basic knowledge and tools to do my first deal. I am feeling summer 2021 will be the time to actually pull the trigger. I have began my search of agents in the area to help me understand the Phoenix market better.

Tell me all the reasons why I shouldn't do this!! Because to me it seems like a good idea.

Any advice from RE vets or newbies like me would be greatly appreciated!!

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Daniel Haberkost

Rental Property Investor · Colorado Springs, CO · Member since 2018 · 682 posts · 729 votes

@Bridger L Logan one of the most common mistakes I’ve seen when people start with a house hack is often the entire reason someone starts with this strategy, which is that they have no (very little) money.

Make sure you have a chunk of cash separate from your down payment in case:

1.) You can’t find tenants right away

2.) You inherit bad tenants and have to evict one or multiple.

3.) A boiler immediately breaks and costs you $10k (this is a real example from a friend of mine)

Etc.

Ive been house hacking for years and it’s a phenomenal strategy if you plan/prepare properly. Just don’t over extend yourself financially, screen your tenants hard and don’t let the property fall into disrepair.

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Daniel Haberkost
Rental Property Investor · Colorado Springs, CO · Member since 2018 · 682 posts · 729 votes
6y
@Bridger L Logan one of the most common mistakes I’ve seen when people start with a house hack is often the entire reason someone starts with this strategy, which is that they have no (very little) money.
Make sure you have a chunk of cash separate from your down payment in case:
1.) You can’t find tenants right away
2.) You inherit bad tenants and have to evict one or multiple.
3.) A boiler immediately breaks and costs you $10k (this is a real example from a friend of mine)
Etc.
Ive been house hacking for years and it’s a phenomenal strategy if you plan/prepare properly. Just don’t over extend yourself financially, screen your tenants hard and don’t let the property fall into disrepair.
15 Reply
Bridger L Logan
OP
Rental Property Investor · Missoula, MT · Member since 2019 · 85 posts · 35 votes
6y
0 Reply
Bridger L Logan
OP
Rental Property Investor · Missoula, MT · Member since 2019 · 85 posts · 35 votes
6y
Originally posted by @Daniel Haberkost:
@Bridger L Logan one of the most common mistakes I’ve seen when people start with a house hack is often the entire reason someone starts with this strategy, which is that they have no (very little) money.
Make sure you have a chunk of cash separate from your down payment in case:
1.) You can’t find tenants right away
2.) You inherit bad tenants and have to evict one or multiple.
3.) A boiler immediately breaks and costs you $10k (this is a real example from a friend of mine)
Etc.
Ive been house hacking for years and it’s a phenomenal strategy if you plan/prepare properly. Just don’t over extend yourself financially, screen your tenants hard and don’t let the property fall into disrepair.

@Daniel Haberkost Thank you very much for the advice. My plan is to have enough saved to be able to match whatever the down payment may be. A large fear is biting off more than I can chew. Im going to do all I can to be prepared for the worst and hope for the best with finances and knowledge. I have heard of legacy tenant horror stories myself and will carefully vet the new ones. I will do my due diligence!

1 Reply
Sandy Gabin
Rental Property Investor · Lawrence, MA · Member since 2020 · 252 posts · 153 votes
6y
It's a great idea only if you are a handy man! I have to tell you that I was fortunate enough to buy a quadplex and I have been living it for 4 years. I will be honest with you, I didn't have much money to fix the units, but thanks to my husband, we became a team and we were able to fix the unit after I had evict 2 of the tenants that were already living in it (my neighbors). It took us like a year, but after that, I was able to put good responsible tenants, and pay me on the 30th or the 31st of every month. So for me, at first it was negative, but i was able to turn it to a positive outcome. At the end of the day, you will know when your heart tells you what to do.I wish you the best!
5 Reply
Daniel Haberkost
Rental Property Investor · Colorado Springs, CO · Member since 2018 · 682 posts · 729 votes
6y
@Bridger L Logan sounds like you’re fairly risk averse and will do your due diligence. An extra down payment as reserves will likely suffice assuming you aren’t buying a distressed 4plex.
The other big issue is the tenants of course. Read up on how to screen them, set your standards, document everything and never veer from your processes/standards!
4 Reply
Pamela Sandberg
Realtor / Attorney · Phoenix, AZ · Member since 2018 · 388 posts · 265 votes
6y
The only problem with this plan here in Phoenix is that small multis (anything under four doors) are very hard to come by. There is a lot of competition for the few that are available, and you'll be competing with a lot of investors (some of whom can pay in all cash). There are other ways of house hacking that work a little better here. One strategy is to get a property with a casita/in-law suite/etc. If you live in the smaller unit and rent out the larger house, you could have your mortgage paid and potentially cash flow a bit. There are some other creative solutions that can work. And of course, a quad isn't impossible - you just have to be prepared to move quickly when something comes available.
2 Reply
Bridger L Logan
OP
Rental Property Investor · Missoula, MT · Member since 2019 · 85 posts · 35 votes
6y
Originally posted by @Pamela Sandberg:
The only problem with this plan here in Phoenix is that small multis (anything under four doors) are very hard to come by. There is a lot of competition for the few that are available, and you'll be competing with a lot of investors (some of whom can pay in all cash). There are other ways of house hacking that work a little better here. One strategy is to get a property with a casita/in-law suite/etc. If you live in the smaller unit and rent out the larger house, you could have your mortgage paid and potentially cash flow a bit. There are some other creative solutions that can work. And of course, a quad isn't impossible - you just have to be prepared to move quickly when something comes available.

I recently have been in touch with some realtors who send me properties that fit my criteria as soon as they hit the market. I know there will be a great competition, especially ones on the MLS. Thank you for the input!! I am just looking for the most units possible while remaining in the residential arena.

1 Reply
Chris Herrera
Real Estate Agent · Addison, IL · Member since 2015 · 185 posts · 88 votes
6y
If you’ve been studying for 2 years then I think there really isn’t anything new you’ll learn at this point until you get hands on experience.
I’m sure you’re more informed than the average joe so as long as it cashflows after you move out, it’s in an area you’re familiar with, you have reserves for cap ex and 3-6 months of mortgage payments and have a business bank account setup you should be good to go.
3 Reply
Bridger L Logan
OP
Rental Property Investor · Missoula, MT · Member since 2019 · 85 posts · 35 votes
6y
Originally posted by @Sandy Gabin:
It's a great idea only if you are a handy man! I have to tell you that I was fortunate enough to buy a quadplex and I have been living it for 4 years. I will be honest with you, I didn't have much money to fix the units, but thanks to my husband, we became a team and we were able to fix the unit after I had evict 2 of the tenants that were already living in it (my neighbors). It took us like a year, but after that, I was able to put good responsible tenants, and pay me on the 30th or the 31st of every month. So for me, at first it was negative, but i was able to turn it to a positive outcome. At the end of the day, you will know when your heart tells you what to do.I wish you the best!

Luckily, I am a decently handy person. I work in construction and am a problem solver by nature. I love trying to figure out things I don't understand. My largest task will be having good tenants. Legacy tenants are risky, and vetting new ones will be a strict process. Thank you very much for your input!!
2 Reply
Brian Hamel
Nashua, NH · Member since 2017 · 66 posts · 58 votes
6y
@Bridger L Logan
I did it. I loved it. Do it
5 Reply
Bridger L Logan
OP
Rental Property Investor · Missoula, MT · Member since 2019 · 85 posts · 35 votes
6y
Originally posted by @Chris Herrera:
If you’ve been studying for 2 years then I think there really isn’t anything new you’ll learn at this point until you get hands on experience.
I’m sure you’re more informed than the average joe so as long as it cashflows after you move out, it’s in an area you’re familiar with, you have reserves for cap ex and 3-6 months of mortgage payments and have a business bank account setup you should be good to go.

Thats what I have been realizing. I am starting to get repetitive with the learning meaning I know what I should to get going. I just have to find the deal now. And that is excellent advice. Im hoping it cashflows while im living there too.

0 Reply
Bridger L Logan
OP
Rental Property Investor · Missoula, MT · Member since 2019 · 85 posts · 35 votes
6y
Originally posted by @Daniel Haberkost:
@Bridger L Logan sounds like you’re fairly risk averse and will do your due diligence. An extra down payment as reserves will likely suffice assuming you aren’t buying a distressed 4plex.
The other big issue is the tenants of course. Read up on how to screen them, set your standards, document everything and never veer from your processes/standards!

I certainly will! Thank you Daniel!!
1 Reply
Bridger L Logan
OP
Rental Property Investor · Missoula, MT · Member since 2019 · 85 posts · 35 votes
6y
Originally posted by @Pamela Sandberg:
The only problem with this plan here in Phoenix is that small multis (anything under four doors) are very hard to come by. There is a lot of competition for the few that are available, and you'll be competing with a lot of investors (some of whom can pay in all cash). There are other ways of house hacking that work a little better here. One strategy is to get a property with a casita/in-law suite/etc. If you live in the smaller unit and rent out the larger house, you could have your mortgage paid and potentially cash flow a bit. There are some other creative solutions that can work. And of course, a quad isn't impossible - you just have to be prepared to move quickly when something comes available.

I am looking for exactly 4 doors. And even more specific, 4 doors on a zoning that would allow an ADU. But I'd definitely like to stay in the multifamily realm. I will be scouring deals from now until next summer (2021) to get used to running the numbers so when a good comes along i'll know it quickly and can react fast.

0 Reply
Bridger L Logan
OP
Rental Property Investor · Missoula, MT · Member since 2019 · 85 posts · 35 votes
6y
Originally posted by @Brian Hamel:
@Bridger L Logan
I did it. I loved it. Do it

Do you currently live there or have you moved on from it? Have you done more than one househack?
0 Reply
Twana RasoulBusiness Member
Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
6y
@Bridger L Logan house hacking a 4 unit is not a good idea...its a great idea! Best of luck!
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2 Reply
Raul R.
Rental Property Investor · New York City, NY · Member since 2017 · 493 posts · 386 votes
6y
Personally I think its a great idea.. Assuming you have all the financing in order I think one of the biggest pitfalls for a new landlord is the tenant / landlord relationship. I live over 500 miles away from my tenants , which is fine by me.. New landlords dont know the dynamics and all tenants are different, Im not a fan of being neighbors even less roommates with your tenants. Im assuming you will not have a Property Manager make sure you have your systems set in place beforehand (concerning how to handle maintenance request, rent, applications etc) and that you understand your State Tenant & Eviction Laws.. Just like any relationship in the beginning honeymoons are bliss but divorces can turn nasty .....
3 Reply
Bridger L Logan
OP
Rental Property Investor · Missoula, MT · Member since 2019 · 85 posts · 35 votes
6y
Originally posted by @Twana Rasoul:
@Bridger L Logan house hacking a 4 unit is not a good idea...its a great idea! Best of luck!

You freaked me out for a second.. but thank you for the boost!

1 Reply
Bridger L Logan
OP
Rental Property Investor · Missoula, MT · Member since 2019 · 85 posts · 35 votes
6y
Originally posted by @Raul R.:
Personally I think its a great idea.. Assuming you have all the financing in order I think one of the biggest pitfalls for a new landlord is the tenant / landlord relationship. I live over 500 miles away from my tenants , which is fine by me.. New landlords dont know the dynamics and all tenants are different, Im not a fan of being neighbors even less roommates with your tenants. Im assuming you will not have a Property Manager make sure you have your systems set in place beforehand (concerning how to handle maintenance request, rent, applications etc) and that you understand your State Tenant & Eviction Laws.. Just like any relationship in the beginning honeymoons are bliss but divorces can turn nasty .....

This is very solid advice.. I am going to study on that right away!

1 Reply
Linda S.
Investor · Richmond, VA · Member since 2016 · 1k+ posts · 2k+ votes
6y
@Bridger L Logan,

We have always had duplexes, but got our 1st quadplex last month. Depending on what price point/quality of the quadplex, you might be buying deferred maintenance. With SFH, chances are someone lived in it and loved it, quadplexes, it was a rental property, and the question is-- was the person a slumlord or good landlord? If your whole strategy is low/no money down, that's a tough strategy when a quadplex might have 4x more problems than a SFH. Logistically, incomes are better than 1.. just be VERY conservative on the reserve side, bad stuff happens ALL THE TIME Whatever you think you should have saved up ready-- multiply it by 3 or 4. Is it worth the risk? Probably, and I'd definitely say go for it.. but just be ready, the bills can be 4x more than a regular SFH.
Others mentioned the honeymoon stage, IMO that only happens with new tenants when it's a nice newly renovated house, inherited tenants start out frustrated and annoyed.. as the one we just bought is frustrated, she's lived there 6 years, prior landlord never improved her house, but fixed the other units to rent them out,... if you buy a one that needs work, it's not a happy "great, you're my new landlord, I want to like you" type of deal.. it's a "oh, BTW here is a list of problems that were never dealt with...." Just realize what you're getting into and responsibility that comes with it!

2 Reply
Bridger L Logan
OP
Rental Property Investor · Missoula, MT · Member since 2019 · 85 posts · 35 votes
6y
Originally posted by @Linda S.:
@Bridger L Logan,

We have always had duplexes, but got our 1st quadplex last month. Depending on what price point/quality of the quadplex, you might be buying deferred maintenance. With SFH, chances are someone lived in it and loved it, quadplexes, it was a rental property, and the question is-- was the person a slumlord or good landlord? If your whole strategy is low/no money down, that's a tough strategy when a quadplex might have 4x more problems than a SFH. Logistically, incomes are better than 1.. just be VERY conservative on the reserve side, bad stuff happens ALL THE TIME Whatever you think you should have saved up ready-- multiply it by 3 or 4. Is it worth the risk? Probably, and I'd definitely say go for it.. but just be ready, the bills can be 4x more than a regular SFH.
Others mentioned the honeymoon stage, IMO that only happens with new tenants when it's a nice newly renovated house, inherited tenants start out frustrated and annoyed.. as the one we just bought is frustrated, she's lived there 6 years, prior landlord never improved her house, but fixed the other units to rent them out,... if you buy a one that needs work, it's not a happy "great, you're my new landlord, I want to like you" type of deal.. it's a "oh, BTW here is a list of problems that were never dealt with...." Just realize what you're getting into and responsibility that comes with it!

I really appreciate that advice! I will certainly keep the maintenance funds on the conservative side. I will also do my part in really finding a quad that has been recently renovated if possible or i guess find the true rehab scenario of the place before making the plunge. If I get legacy tenants I will do my part as the new landlord to make sure their needs and concerns are met. The more time I take to make happy tenants, I believe that will pay off in the long run!

2 Reply
Ben Clark
Investor · Newark, NY · Member since 2016 · 19 posts · 41 votes
6y
@Bridger L Logan
I house hacked a quad in my area 4 years ago when my wife and I got married and unlike you I had NO idea what I was doing. I just knew I'd have a place to live and rent coming to me. I ran no numbers (because I didn't even know what that ment) and had no idea how to be a landlord. Like you I had a background in construction and I used an FHA loan. I learned along the way how to be a landlord. I haven't yet had a bad tenant 🤞. The place cash flowed a little while I was there and now that I've moved out the place cash flows really well. I'm currently looking for more multi units. So if you've been studying for 2 years and know what you're doing I have no idea why it could be a bad idea unless you run into bad luck! Good luck! I hope you can find a great deal!
1 Reply
Henry Lazerow
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
6y
House hacking a 4 unit is a great strategy for the first deal (I house hack a 4 unit in Chicago) they tend to cashflow a lot better then 2 or 3 units and you still get to use the low down mortgage.
2 Reply
Bridger L Logan
OP
Rental Property Investor · Missoula, MT · Member since 2019 · 85 posts · 35 votes
6y
Originally posted by @Ben Clark:
@Bridger L Logan
I house hacked a quad in my area 4 years ago when my wife and I got married and unlike you I had NO idea what I was doing. I just knew I'd have a place to live and rent coming to me. I ran no numbers (because I didn't even know what that ment) and had no idea how to be a landlord. Like you I had a background in construction and I used an FHA loan. I learned along the way how to be a landlord. I haven't yet had a bad tenant 🤞. The place cash flowed a little while I was there and now that I've moved out the place cash flows really well. I'm currently looking for more multi units. So if you've been studying for 2 years and know what you're doing I have no idea why it could be a bad idea unless you run into bad luck! Good luck! I hope you can find a great deal!

Thanks Ben! I'm glad that worked out for you back then. I'm really going to work to vet all my tenants to make sure I dont run into any nightmares.

1 Reply
Tom Shallcross
Rental Property Investor · Chicago · Member since 2018 · 612 posts · 1k+ votes
6y
@Bridger L Logan - all great advise already given. One small thing you can also do since you are looking for something renovated/close to turnkey, take a look at the remodeled units that sold or are listed and talk to the selling agent to let them know you'll be interested in the same unit in area X (you can even take it a step further and find the owner/contractor on title and reach out to them directly). If they happen to do one 6months from now in that area, this increases your chances of potentially getting a look at it before it hits market.
Before I knew anything about real estate investing I bought my current residence this way. We saw a flip where my wife loved the property, but didn't like the area. I called the listing agent and they were a husband/wife - contractor/realtor duo. I said next time you have a project in this specific zipcode, let me know, we'll buy it. We got lucky and that situation occurred a few months later and we offered before it ever hit market.
2 Reply
Bridger L Logan
OP
Rental Property Investor · Missoula, MT · Member since 2019 · 85 posts · 35 votes
6y
Originally posted by @Henry Lazerow:
House hacking a 4 unit is a great strategy for the first deal (I house hack a 4 unit in Chicago) they tend to cashflow a lot better then 2 or 3 units and you still get to use the low down mortgage.

That's the plan my guy! Most NOI with low down payment, and hopefully keep up on maintenance and keep tenants happy.
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