Is a fourplex right for me as a first home buyer?

Question

Hi, I am trying to purchase my first home, a fourplex. My plan is to househack by staying in one unit and rest out other three. I have already analyzed my deal in the Rental property calculator, its coming out a negative COC ROI. Here is the breakdown of the deal:

home price: $380K
rental income: $3600/per month (4 units)

Need expert opinion on the deal.

Jason Wray · Answer

Mohammad,

Without knowing the taxes and insurance it seems like a good deal on paper. Even with a 5% down payment you are looking at a $2,494.00 a month principal and interest. You could always put more down but you do get a slightly lower rate when you have PMI.

Great thing about going into a 4 plex or multifamily first is your creating passive income from the first purchase. Once you move out in 6-12 month you now have 4 units debt servicing the mortgage and cash flow.

Wale Lawal · Answer

@Mohammad Murad

House hacking is a strategy to reduce living expenses and build property equity. If a deal shows a negative Cash on Cash Return on Investment (CoC ROI), analyze key factors like operating expenses, financing, NOI, debt service, and cash flow. To improve the deal, consider increasing rents, negotiating the purchase price, improving financing terms, reducing expenses, considering long-term appreciation, or house hacking fully.

Good luck!

Alecia Loveless · Answer

@Mohammad Murad With a house hack you typically have negative cash flow and negative ROI while you’re living there. The idea is to HELP offset your cost of living, not totally replace it. Replacing your cost of living will be almost impossible in most markets currently due to high prices and higher interest rates.

I’d look at how long you plan to live there first as the longer you live there typically the higher you can raise rents organically due to inflation and the overall cost of living increasing every year.

I’d also analyze the deal based on if the numbers will return to the positive side once you move out.

Another thing to take into consideration is that your tenants will be paying down the mortgage every year building you equity in the property.

Consider the potential for tax breaks based on your interest payments and any expenses you may incur for the building that you can write off.

The last thing to consider which isn’t guaranteed or exact science is the amount of appreciation you may get year over year. (Some markets have higher appreciation than others. If you have any questions on this you might contact a few local realtors to ask about annual appreciation over the past few years.)

If after considering all these things you still feel the property will be a loss you should look for a different property.

Robert Rixer · Answer

It's tough to find a property that positively cashflows these days even with all units paying rent. Take 25% income off that and it's near impossible.

Having said that you're nearly hitting the "1% rule" on this one, which is better than most.

Justin Moy · Answer

In most markets people are seeing negative cash flow on house hacks.

You can test out mid term or short term rentals on one or a few of the units to offset that, or you can accept that you're drastically lowering your living expenses and building equity.

I'd see how the property performs if you were to move out, does it cash flow then?

Is a fourplex right for me as a first home buyer?

Is a fourplex right for me as a first home buyer?

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