What Are the Key Expenses in a House Hack?

23 Replies

Hello everyone! My fiance and I will be doing a house hack by summer 2022, we have been saving cash since July 2021. What are the major monthly expenses in a house hack? (Assuming we will be putting less than 20% down).

Hey AJ,

My wife and I are currently on our second house hack. The key expenses are the same expenses you will get with a regular rental property. Here are some of the big ones to name a few:

* Principal Interest Taxes and Insurance (PITI) - This will be your largest expense, obviously
* CapEx Repairs - As I learned as a newbie, CapEx is the secret killer of cash flow. Make sure when purchasing a property, you take into account when you will need to take care of CapEx items such as furnaces, roof, siding, cutting down trees, window replacements and other major items. Try to avoid purchasing an older property with lots of upcoming CapEx repairs unless you are getting it at a discount, able to build those repairs into your loan or getting money back from the seller.
* Turn Over - Another secret killer of cash flow for a newbie. If you purchase a building with apartments that are occupied but need renovation for a new tenant, turn over could cost can be relatively expensive. If a tenant left, will it need new floors, paint, appliances and etc. This is all stuff to keep in mind.
* General Repairs - There will always be something minor going on at the property, set aside a little big of your gross rents for monthly repairs, I go with 5%.
* Repeat Expenses - You will have a set of expenses that are relatively fixed amounts every month. Some of them include, landscaping/snow plowing, owner's electric, water/sewer, and a few others. 

One of the great things about house hacking is you can slip up, make a few mistakes and still recover relatively easily. You will learn a lot which will set you up to be a wiser investor as you start to pick up more investment properties. 

If you ever need any other tips or have questions about house hacking, feel free to reach out to me directly. 

Good luck on your journey and smart move going after the house hack!

Brandon summarized it very nicely, but your questions suggests that you are expecting hidden surprises. I'd like to put you at ease: if you buy a quality building in good repair, the worst house hack deal beats what everyone else is doing (renting or buying a SF) by a long shot!

Make sure you buy in a desireable neighborhood and a large enough unit to get strong rents; your insinct will be to save on both to reduce perceived risks, but its actually quite the opposite. The more attractive and bigger, the lower vacancies and the higher rents!

@Brandon Rush Thank you so much!! My fiancé and I have been educating ourselves on real estate for a little over a year now by mid 2020 have a good chunk of a down payment for an investment property. From what I've learned I really like the idea of a house hack because of a tenant paying down the mortgage, essentially allowing us to live free, or at a discount. Then once we are ready, leave that unit and then have two tenants in the duplex!

We have been doing sooo much research to prepare so I wanted to make sure I have the major points nailed down. I would love to reach out to you just to get some further tips and pointers as we get closer in the process. Thanks again!

@Marcus Auerbach Yes, your assumption about my question is about correct lol. I have been doing a lot of research on house hacking (real estate investing in general) and I will honestly admit all of the expenses to account for like vacancy, repairs, capex, PITI, etc can definitely be intimidating!! Not to mention living in such a high priced market like Atlanta. Pardon me for my very beginner questions, but the answers provided are very much appreciated and helpful

@AJ Satcher

Just checked the fha website it Looks like the loan limits in Atlanta are 600-700k+ which is good news. Expect your cash to close to be around 8.5% so if you saved around 60k you could house hack a luxury high end multi family that your fiance would feel safe in, you could charge higher rents and have a higher quality tenant with lower turnover and theyll take better care of it.

@AJ Satcher the list that @Brandon Rush provided is pretty thorough. I would only add cleaning expenses. If you are sharing common areas like kitchen and bathroom, you will want those spaces cleaned more often then if you just lived with your fiancé. I would hire a cleaning person, but you can also do it yourself. You can put together a "chore list" for tenants to clean, but that will yield mixed results. One will help out more than another and it will just build animosity between tenants. It is better to offer common area cleaning as a service. Just make it clear that "cleaning" doesn't include spills or other tenant made messes. 

I would also recommend making a "House Rules" document that is very thorough, so everyone understands what is expected. Have them review before signing a lease. Better to have someone pass, then being stuck with someone that doesn't like the way you run your household. 

@Bradley Dosch We wouldn't consider doing a SFH, just our preference. But interestingly enough, her and I were just talking about the utilities situation in a duplex. We could try and have the tenant pay their share of utilities or maybe we just take care of utilities and then just increase the rent?

Originally posted by @AJ Satcher :

@Joe Splitrock That likely won't be the case for us because we look to do a multifamily home house hack, so we shouldn't have common areas

 Sorry when I hear house hack, I assume renting rooms. I think you are smart to not share personal space with tenants. Privacy is worth a few bucks in my opinion.

The only common area in this case may be the yard maintenance or snow removal. You basically split that cost, so if you live in a duplex, you charge half as an expense to the property. Usually in small multifamily the tenants pay the utilities. Sometimes garbage, water or gas is shared between units. In that case you just split the expense between business and personal.

Also be aware that you will depreciate the portion of the property you are renting and a expense a portion of interest. These two expenses will shield most of your income from taxes. Work with a good tax accountant to get setup. They will tell you how to track expenses and what you can or cannot claim.

@AJ Satcher

Another major expense was that 6 month’s after purchasing our 4 unit house hack, we had a sewer backup, rented a snake from Home Depot, and ran 75 feet through 3 times, didn’t clear. Ended up calling a plumber and found there was more then I bargained for! Had to get a 0% interest for 12 months construction loan to sleeve the line and add a clean out but a good plumber with a camera can scoop out issues and pinpoint for repairs, so on our second house hack we hired a plumper to camera the line for 200 bucks during do diligence period of escrow. We did a lot of the work for the plumber which saved us 15k, which is a benefit of house hacking in my opinion when starting out with very little money, gotta get that sweat equity!

Most duplex in my area need major renovation. New paint, new floor, sometime also need new cabinet and redo some plumbing. Doing inspection will be the easiest way to tell what will be your major expense. Your inspector will let you know what need immediate attention what not. Good luck ! 

Thanks for everyone's responses! I think now the toughest part for me is trying to find a good deal duplex in this Atlanta, GA market, which appears to be extremely tough here. I am meeting with a couple agents that I reached out to on the agent finder via Bigger Pockets, so I'm hoping they will be knowledgeable in this area!

Hey @AJ Satcher , welcome to the BP community!

Sounds like you have already gotten more than enough info on costs related to house hacking. At the end of the day, they'll be basically the same as any other rental. The differences are more related to the income side of things. 

You do bring up a great point regarding duplexes in Atlanta. There are not many legitimate duplexes here and what is here is often traded off-market. This means that what does make it to market is in incredibly short supply, which drives up the prices. I quickly found during my house hack search that this was a lost cause, unless I wanted to move to the outskirts of the MSA or put the work in to find something off-market. Instead, the answer for myself was to purchase a SFH that had a mother-in-law suite. Functionally, it feels like we live in one unit of a duplex, but it is technically still a SFH. We have met the same end goal of offsetting PITI 100% with the rental income from the other side and we have a space that is 100% our own (even have our own half of the backyard). Obviously, I am not assuming this strategy will work for you but just wanted to present it as a creative alternative in the Atlanta market.

Happy to answer any questions or chat further on the subject if you'd like. Shoot me a message anytime!

@Brenden Mitchum I was afraid I might hear that, but I didn't want to rule them out until I had an experienced agent tell me the same thing, that there is unlikely a legitimate duplex! But I figure this may be the inevitable reality. I guess my goal here is to in some way do a house hack that doesn't involve my tenants in my acutal living space! But looks like I definitely will have to tap into some creativity once I get a really good understanding of whats going on around here

@AJ Satcher

There is no reason to not at least have a search set up on Zillow for small MF or even to keep an eye out for an agent that specializes in this space. However, understanding your market and what's available is important so that you waste as little time as possible. Atlanta is one of those markets that you can easily spend 12+ months looking for something that's very hard to find. Instead, focus your time and energy on attaining your goals in creative ways that provide a higher likelihood for success. That was my only point - Find a way to go around the competition rather than through it..

I have to 100% ditto what @Brendan Mitchum said.  It's expensive and hard enough to buy a decently priced single-family home in Atlanta, and buyers will fall all over themselves for listed small-multifamily (they're kinda like unicorns). Look for properties with space that can be converted into a MIL suite if there's not one listed, like maybe an enclosed carport with separate entrance, or a walk-out basement. Also look at the parking available, which is also important. Off-street will rent for more.  As long as you don't put in a real stove, you're not even dodging regulations -- like AirBnbs that have a microwave and an installed two-burner "hotplate" in the countertop and a frozen-pizza sized toaster oven. In a good location, an efficiency apartment will still rent quickly, and if you've got busy young professionals, they don't want to cook in an oven anyway.