House hacking by living in basement in Northern Virginia (NoVA)
Investor · Arlington, VA · Member since 2017 · 52 posts · 12 votes
I am 26 year old living in NOVA area and will likely stay here for the foreseeable future. I currently pay only $900/mo in rent, but I am considering buying a townhome for $350-400k, living in the basement and renting out the rest of the house for $1800-2100. My total monthly costs will be ~$2600 with mortgage, MIP, taxes, insurances, etc. I would be using a FHA loan as I don't have a large downpayment to put towards the house.
I'd want to stay in this house for a few years, then buy another home with a basement (and live in it), and so on and so forth. My goal is to have several properties first, then prioritize on paying them off in 15 years or so.
Is this a good idea? How can I make this work?
@Aditya Maini I think it is a good idea because our area is so expensive. This is what I did and it's been great but it is true our price vs rent ratio here sucks. Not sure how you are getting your total monthly costs but $2600 seems a little high for $350-400k house to me unless something has changed since 2015 when I bought mine, possibly taxes? Anyway, I would buy a property in a neighborhood with no HOA and needs cosmetic work, like fresh paint, cleaned, possibly floor/carpet replacement or just a good carpet cleaning, has good mechanical system (HVAC under 10 years old but Max 10 years old). Also, buy a property where there is enough space in the basement to possibly add another room and one that already has a full bath. FYI a basement with walkout is also a huge plus for home hacking in our area. The small improvements you make will add value to your home. It's not wise to bank on appreciation but at the rate things are going and the fact that we live in a strong appreciation market, in 3 years you could refinance, get out of the FHA and lower your payment. If the appreciation play doesn't work though you should be able to live at a very low cost and save for your next investment, not to mention the equity paydown by your tenants. Like I said, I bought an SFR and did this and it's been life changing. Takes some work but it can be done. I lived in the master bedroom rented all the rest of the rooms including basement out. Lived almost for free, my only costs were utilities.
Not sure on the market there but can you find something else where you can cash flow or live for free instead? The price to purchase vs the rent received and negative cash flow does not seem very great to me. I would not do it.
@Aditya Maini I think it is a good idea because our area is so expensive. This is what I did and it's been great but it is true our price vs rent ratio here sucks. Not sure how you are getting your total monthly costs but $2600 seems a little high for $350-400k house to me unless something has changed since 2015 when I bought mine, possibly taxes? Anyway, I would buy a property in a neighborhood with no HOA and needs cosmetic work, like fresh paint, cleaned, possibly floor/carpet replacement or just a good carpet cleaning, has good mechanical system (HVAC under 10 years old but Max 10 years old). Also, buy a property where there is enough space in the basement to possibly add another room and one that already has a full bath. FYI a basement with walkout is also a huge plus for home hacking in our area. The small improvements you make will add value to your home. It's not wise to bank on appreciation but at the rate things are going and the fact that we live in a strong appreciation market, in 3 years you could refinance, get out of the FHA and lower your payment. If the appreciation play doesn't work though you should be able to live at a very low cost and save for your next investment, not to mention the equity paydown by your tenants. Like I said, I bought an SFR and did this and it's been life changing. Takes some work but it can be done. I lived in the master bedroom rented all the rest of the rooms including basement out. Lived almost for free, my only costs were utilities.
It is definitely a good idea and the most common strategy used for starting investors in the area that do not have enough capital to get into a sfh. At that price point you are looking at areas like Lorton/Reston/Herndon/Manassas. I live in Springfield and I am at the second stage of your plan owning an SFH and renting rooms.
@Chris Nerio Thanks for your reply - it was very informative. I may be overestimating my mortgage costs, meeting with a lender soon to go over my options. The key to making this work seems to be with what you said with converting study rooms or basements into bedrooms and renting them out. I see a few options close to Herndon/Reston. How do you manage the washer/dryer being in the basement tenant's "space"? Or is it in a common enough area that the other tenants don't have to go into the basement tenant's space? Also have you thought about living in basement and renting the rest to a family? I'd assume that'd be less hassle than managing multiple individual tenants, but would also be less $$.
@Joaquin Camarasa Good luck! Ideally I'd be savvy enough to invest in real estate outside of the area. But I just don't see that being realistic for me given my 9-5 and other responsibilities.
@Aditya Maini I say go for it! I live in the Leesburg, VA area and this area is on the higher side for real estate, but with low rates and the limited supply for the foreseeable future you should be fine. You will be able to save a nice amount of money each month that you can put towards a future down payment on your next house. I encourage you to look for foreclosures or short sales so you can start with equity from day one! Best wishes!
@Aditya Maini - I like your idea, you should definitely move forward with it. And yes, you should not bank on appreciation, however you have the luxury of knowing that the chances of any home appreciating is strong due to it being the DC area. If you're considering a place that's $350-400k, pack those bags and go west.....way west. Twenty-two years ago I decided to forego a 1BR over the Ballston Station and for a sliver more, picked up a 3BR TH in Reston. Though it's not fancy, its ARV is north of $400k today. That means Herndon, Sterling or maybe Ashburn (though those might be too new) for you. Good luck and follow that dream!
@Aditya Maini Good question. For the laundry, I made sure it was in a common and accessible space in the basement, however many townhomes will have a stacked laundry set up on the middle or top floor so it wouldn't be too much of an issue. Not to mention, laundry is a privilege or amenity and to be honest, yes it is an attractive feature but a laundry included is not a must in my opinion. My property is literally 1 minute from a laundromat. Actually when my current tenants in the basement move out, I plan on not including laundry. Yes, you can do that as well, just keep in mind kids adds a different dynamic but you can do that also. Adults will most likely take care of a house better than a child, depending on their age. That's the beauty of house of hacking to me. You can do what you want really. Remember you're 26 and if you're on this site, I assume you are a bit of a go getter so bust your *** at your day job and continue to progress. You'll make more money, save more, gain equity, and invest. Yes, @Tchaka Owen mine is in Leesburg and just in 5 years has seen crazy appreciation and a 64% increase in equity, not to including what has been paid off. What @Johnny Lynum is true, get a property where you will have instant equity. Like I said a little sweat equity is good and small improvements can go a long way.
@Aditya Maini
Like Joaquin said, it’s a pretty good place to start as a young investor.
If you can rent out 4 rooms at 800 a piece, you can cash flow about $1000 a month.
$1000 a month is cool. But also living for free is a big benefit as well. If you were paying $1200 per month for rent before, then your net swing is + $2200 a month.
If you do that for three years your net worth gain is $80,000. If you also factor in 5% appreciation on a $350k asset (this is not guaranteed), that’s another +$55,000 equity gain.
So by renting out rooms in your house you could gain $135,000 in equity in 3 years, not counting tax benefits, barring any major downshifts in the market. Not bad!
The strategy is an excellent one for RE investors early in their careers especially if you have little or no experience with tenants or home repairs. You are right there and will see things good and bad first hand. (no comment on your particular investment as you have to be comfortable with the numbers)
Tenants usually behave better too if the landlord is downstairs!