House hacking a vacation rental?

Question

Hi all. I was laying there in bed at about 12:30 last night when I thought about something and was wondering if this is possible.

I was thinking about FHA 3% down on a duplex-4plex. Wife and I are in our primary res, which will be paid off in a couple months. Buying the rental prop as my primary residence (house hack), and moving into one of the units, rehabbing, then renting it out on VRBO or AirBnB. As tenants leave, rehab the next unit, rent it out, or of the vacation rental plays out well a second vacation rental. Then appraise, and raise rents based on higher capex.

I don't think I would refi except to remove the mortgage insurance.

1. Could a married couple split primary residences? (I have an LLC being set up this week) and we currently file joint, but that might have to change.

2. Could I get into trouble renting out the "whole house" that is my primary on a vacation rental?

3. Could anyone answer the tax implications of the income from vacation rental in AZ? (I know I should talk to my CPA, who's also setting up my LLC) but was trying to get a ballpark on this.

4. Anyone have a maid service or the likes that handles AirBnB type cleaning? What do they usually run a month? (I thought about doing this myself part time as it wouldn't be hard but check in time is an hour before when I would have to get my daughter from school.)

5. Is the house hack even worth it if I don't plan on flipping? Investment rates I'm getting are currently 4.75% but 25% down vs 3%.

Shelby Pracht · Answer

We house hacked part of our primary residence as an Airbnb for awhile and my CPA did not mention any issues with that at all. In California at least, he just did a schedule E and counted it as regular rental income even though it was our primary residence. We have a Fannie Mae owner-occupied loan and didn't hear of any issues with that either (Obviously not a CPA, just letting you know my experience!)

I pay for cleaning by each time the maid comes, not by month. Your fees could be all over the board depending on the going rate and how big each unit is. I pay $40-50/time that she cleans in a tiny 1 bedroom condo.

Good luck figuring out the rest of your questions! Hope that helps a tiny bit!

Sean Walton · Answer

There are a lot of questions there so I'll just pick the ones I have some knowledge on.

2. You can get into trouble renting out the whole house full time right away. Usually loans have certain rules about how long you must live in the place before you turn it into a full time rental. But if you are airbnbing from time to time when you go on vacation I doubt they will care (I'm not a lawyer this is not legal advice).

3. I'm not a CPA so always check with them, but generally I think it is treated the same way as any rental income the only difference is most cities or counties have a hotel or transient occupancy tax. Some explicitly state you need to collect it and send it to them. Some cities make airbnb collect it. Some have no policy and may start collecting it, and in rare cases, retroactively go after host to get back taxes. So I would do some research and make sure it cashflows even if they add a 14% tax later.

5. The definition I usually hear with house hacking doesn't have to do with flipping. You buy a place and rent out units or rooms within your place in order to live for free or close to it. If your numbers work you are house hacking. If your exit strategy is to sell it down the road try and wait 2 years to get long term as opposed to short term capital gains tax.

House hacking a vacation rental?

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