House Hack Numbers Not Working (after I move out in 12 months)

Cleveland, Ohio
Real Estate Deal Analysis & Advice
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House Hack Numbers Not Working (after I move out in 12 months)

Benjamin Sulka
Cleveland, OH · Member since 2022 · 826 posts · 578 votes

Hey BP, 

I'm in the market to buy my first multifamily house hack within the next few months. I got pre-approved for $300k but I'm having a lot of trouble finding properties. 

Nothing on-market makes sense as expected. But even at my ideal purchase price, I'm having trouble making the numbers work. I'm taking the most conservative percentages for all of my monthly reserves but I'm not budging on these because I'll never skimp on my numbers to make something work. 

House hacking makes sense to me as long as I'm paying less than I would renting while I'm living there. The problem that I'm having is that I can't get anything even close to breaking even AFTER I move out. 

Would love to hear from anyone's personal experiences on how to navigate this. Should I further expand the radius that I'm looking? I'm trying to stay within 25-30 mins of Cleveland due to work considerations. 

Thanks for any comments!
 

-Ben, aspiring multifamily house hacker 

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
2y

if your doing fha va then your basically 95% leveraged and you should not expect positive cash flow until rents rise a tad.. have small negative cash flow on a highly levered deal is not a bad thing I you have a quality property and you believe rents and values will rise over time.

Virtually every investor for instance that invests in the SF bay area is negative the first 2 to 5years but then they kill it on appreciation.. I mean life changing appreciation.

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  • Samuel DioufBusiness Member
    Real Estate Agent · Columbus & Cleveland, OH · Member since 2023 · 1k+ posts · 1k+ votes
    2y

    You could start looking off-market. My friend bought a really nice duplex in Dublin, Ohio way below market price by writing hand written personalized letters explaining what he was trying to do. If you don't have time to do that you should try working with an investor friendly agent that sources good deals. 

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  • Sarita ScherpereelBusiness Member
    Real Estate Agent · Chicago, IL · Member since 2018 · 659 posts · 376 votes
    2y

    Every market is different, and I won't speak to Cleveland specifically, but for my clients in Chicago, a house hacking strategy is often more about appreciation. It also usually comes with the bonus of lowering their monthly expenses over what they were paying in rent, but immediate cash flow is not always possible given the purchase prices in the areas most of my clients want to buy. It's often pretty modest those first years after moving using FHA or 5% down. This has still benefited my clients when they sell, but it isn't the same strategy as looking for a property that will have big cash flow the second you leave.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y

    if your doing fha va then your basically 95% leveraged and you should not expect positive cash flow until rents rise a tad.. have small negative cash flow on a highly levered deal is not a bad thing I you have a quality property and you believe rents and values will rise over time.

    Virtually every investor for instance that invests in the SF bay area is negative the first 2 to 5years but then they kill it on appreciation.. I mean life changing appreciation.

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  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    2y

    Yes, in many markets home 1-4 unit home prices have gone up so much that they will not produce positive cash flow. If you're just looking to start in real estate you might try to look off market or just wait a few years until prices have corrected.

    2Reply
  • Daniel Brown
    Investor · Springfield MO · Member since 2023 · 30 posts · 21 votes
    2y

    If you provide us with some details we might be able to better help, what did the last one look like? Purchase price, rent, what exp % you using, and self-manager or property manager? With these items, we may be better to help, also like someone else said a house hack at 95% LTV might be tough depending on rents/PP.

    2Reply
  • Brandon GoldsmithBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2020 · 1k+ posts · 1k+ votes
    2y

    For my first House Hack, I added value as I lived there so was able to get the property a little bit cheaper and start to get higher rents upon moving out. I still recommend buying in a nicer area since its once of few times you can buy a nicer multifamily with such little money out of pocket. @Benjamin Sulka

    [email protected]614-963-3340
    3Reply
  • Jessie Dillon
    Investor · Hopedale, MA · Member since 2021 · 321 posts · 212 votes
    2y

    can you use the MTR or STR strategies to boost cashflow? this could be a good solution but you should still at least break even with LTRs as a backup plan. note that even a breakeven deal is only breakeven for a short time. rents go up, mortgage goes down. you could also start looking offmarket! i know an agent out there - granolagirlsinvest on IG. she might be a good plug!

    1Reply
  • John Clark
    Member since 2018 · 1k+ posts · 1k+ votes
    2y
    Quote from @Benjamin Sulka:

    Hey BP, 

    I'm in the market to buy my first multifamily house hack within the next few months. I got pre-approved for $300k but I'm having a lot of trouble finding properties. 

    Nothing on-market makes sense as expected. But even at my ideal purchase price, I'm having trouble making the numbers work. I'm taking the most conservative percentages for all of my monthly reserves but I'm not budging on these because I'll never skimp on my numbers to make something work. 

    House hacking makes sense to me as long as I'm paying less than I would renting while I'm living there. The problem that I'm having is that I can't get anything even close to breaking even AFTER I move out. 

    Would love to hear from anyone's personal experiences on how to navigate this. Should I further expand the radius that I'm looking? I'm trying to stay within 25-30 mins of Cleveland due to work considerations. 

    Thanks for any comments!
     

    -Ben, aspiring multifamily house hacker 

    Why MUST you move out after 1 year? I know you want to buy another and start leveraging, but as long as you are paying less than you would for rent, save the difference and wait for an investment opportunity. It may take two or three years to find the right "next place."
    2Reply
  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    2y

    Similar to what @Sarita Scherpereel says, a house hack will mostly be about the equity you make and total return after moving in low down as well as hopefully lower cost of living while you are owner occupying it. You can get cashflow up by doing cosmetic updates and atleast here in Chicago the 4 units tend to have the highest rent to purchase ratios so those are what I guide clients who want cashflow towards. The rents also go up with inflation while the mortgage stays the same, this can help as a nice kicker if do owner occupy it for a few years your cashflow will likely be a bit higher on the exit but depends how long plan to actually stay. 

    1Reply
  • Michael K GallagherBusiness Member
    Real Estate Agent · Columbus OH · Member since 2018 · 1k+ posts · 1k+ votes
    2y

    @Benjamin Sulka If i'm understanding you correctly, you are not liking the numbers of a duplex after you move out and have to rent both sides.

    I obviously don't know your numbers or what you are accounting for but if the building is generally newer and in better condition it is ok to dial back the capex and repairs budget in my mind.

    Additionally we pulled the trigger on our house hack really without considering what would happen when we left.  Perhaps this was short sided, but the real benefit to us was that it cut our living costs by almost 50%.  so really I didn't care what it looked like after I left, because the immediate benefit to my personal finances and wealth happened while I was living there.

    Two years later we had an opportunity to move to another area of town that came up unexpectedly and at that point I ran the numbers and the rent appreciations made it easy for us to make that move.  

    Just as you talked about "not skimping on your numbers" to make something work, you can also be inflating your numbers to make it not work out of fear or who knows.  But the power of a house hack is not from the cashflow after you leave, its in the immediate reduction of living costs you get while living there and the incredibly low down payment options you can use.  

    If your having issues getting a duplex to work have you tried a 4 unit?  more units mean more income and generally not 2X the price.

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    2Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    2y

    This strategy mostly works in one of three ways:

    1. You buy a dump ("value-add"), live in the worst side, rent out the nice side, fix up your side so you can then rent it at market rates;

    2. You stay there long enough for rising rents and appreciation to make it make sense to move and do it again;

    3. You bring enough cash into the deal that you still earn a reasonable, steady return when you move out.

    For most people - the ones who have to "house hack" in the first place, they're going to be aiming for one or two here. If you bought cheap enough, three might be a possibility but unlikely. What you want to do is supercharge this thing and move out in a year and do it all over again. That's going to be tough in a high price, higher interest marketplace. Real estate is not a get rich quick scheme. If you really want to do that, you're going to have to really beat the bushes to find your next deal, and the one after that, etc. 

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  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y

    This is why people that keep preaching house hacking need to realize that it does not work like the yesteryears. You need to something different; put down 10% but closer to 15%. Live there for 3-7 years, then move out.

    This isn't be 95% leveraged @ 7% and it'll be intrinsic in 12 months. Just doesn't work that way anymore. You need a new playbook.

    4Reply
  • Dave KushPro Member
    Frankfort, IL · Member since 2022 · 204 posts · 132 votes
    2y

    Tons of good advice here. My only addition comes from Warren buffett, and I think this is even on the signs that Jimmy John's: if you are not willing to own it for 10 years, don't own it for 10 minutes." Especially in real estate, there are situations where you might own something for a short period of time, but I think the main point of this statement is to make sure that you buy right in a way that is consistent with your end goal. Don't budge. Go off market. There's always a deal to be had somewhere.

    The point above about house hacking when you're highly leveraged being a more long-run game makes sense to me.  Given the recent inflation in real estate prices, a 5-year window for the house hack might be more reasonable, if you can stay that long.

    2Reply
  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    2y
    Quote from @Benjamin Sulka:

    Hey BP, 

    I'm in the market to buy my first multifamily house hack within the next few months. I got pre-approved for $300k but I'm having a lot of trouble finding properties. 

    Nothing on-market makes sense as expected. But even at my ideal purchase price, I'm having trouble making the numbers work. I'm taking the most conservative percentages for all of my monthly reserves but I'm not budging on these because I'll never skimp on my numbers to make something work. 

    House hacking makes sense to me as long as I'm paying less than I would renting while I'm living there. The problem that I'm having is that I can't get anything even close to breaking even AFTER I move out. 

    Would love to hear from anyone's personal experiences on how to navigate this. Should I further expand the radius that I'm looking? I'm trying to stay within 25-30 mins of Cleveland due to work considerations. 

    Thanks for any comments!
     

    -Ben, aspiring multifamily house hacker 


     Then put more money down.  With rates today you will not break even when you move out on any low money down program.

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  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    2y

    @Benjamin Sulka what are you running as part of your numbers for when you move out? You have had tons of experienced folks comment on here. If you are running PM fees, 10% vacancy, big expenses or things like that then you will never find a 2-4 unit that makes sense. Make sure you aren't dramatically overestimating (which can be just as dangerous as underestimating) expenses. 

    2Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y
    Quote from @Benjamin Sulka:

    Hey BP, 

    I'm in the market to buy my first multifamily house hack within the next few months. I got pre-approved for $300k but I'm having a lot of trouble finding properties. 

    Nothing on-market makes sense as expected. But even at my ideal purchase price, I'm having trouble making the numbers work. I'm taking the most conservative percentages for all of my monthly reserves but I'm not budging on these because I'll never skimp on my numbers to make something work. 

    House hacking makes sense to me as long as I'm paying less than I would renting while I'm living there. The problem that I'm having is that I can't get anything even close to breaking even AFTER I move out. 

    Would love to hear from anyone's personal experiences on how to navigate this. Should I further expand the radius that I'm looking? I'm trying to stay within 25-30 mins of Cleveland due to work considerations. 

    Thanks for any comments!
     

    -Ben, aspiring multifamily house hacker 

    Welcome to what real estate is historically like. Not meant to be sassy but the last five years of real estate were a joke with ability to make money. Real estate historically has been a long term play. I saw a chart the other day on the 4% appreciation curve of real estate and how we are slightly above that, but that is more or less where real estate falls into. When paying 6-8% in closing costs real estate will not be profitable after the first year and is typically not profitable for the first five years. This is why you are seeing your numbers not really work. 

    The solution is try and find a deal off market or time. Hold periods need to be adjusted. 
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  • Ned J.Pro Member
    Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
    2y

    I recommend you post up your numbers to help clarify what you are working with

    1Reply
  • Alejandro B Yoon
    Investor · Austin, TX · Member since 2022 · 50 posts · 45 votes
    2y

    You need to be more creative to make your numbers work if you are buying on the MLS. Rent one side of the home by the room, STR, MTR, build an additional room to increase rent, store an RV in the backyard, etc. These will all increase cashflow, but will require more management by you.

    It's very difficult to find home runs with current rates and prices. As others said, it isn't a bad thing to be cashflow negative for a year or two while rents continue rising. You still get principal paydown, tax benefits, and appreciation. Just be calculated and make sure you don't strangle yourself.

    Otherwise buying off market will be your best option, but buyer beware and you need some more money to take over a decent sub-to deal or utilize a hard money lender. My recent sub-to deal blows my Househack MLS deal out of the water. Keep us updated! Big progress seeing you are prequalified.

    1Reply
  • Benjamin Sulka
    OP
    Cleveland, OH · Member since 2022 · 826 posts · 578 votes
    2y
    Quote from @Samuel Diouf:

    You could start looking off-market. My friend bought a really nice duplex in Dublin, Ohio way below market price by writing hand written personalized letters explaining what he was trying to do. If you don't have time to do that you should try working with an investor friendly agent that sources good deals. 


     I like the idea of personalized letters. Thanks for the response! 

    1Reply
  • Benjamin Sulka
    OP
    Cleveland, OH · Member since 2022 · 826 posts · 578 votes
    2y
    Quote from @Sarita Scherpereel:

    Every market is different, and I won't speak to Cleveland specifically, but for my clients in Chicago, a house hacking strategy is often more about appreciation. It also usually comes with the bonus of lowering their monthly expenses over what they were paying in rent, but immediate cash flow is not always possible given the purchase prices in the areas most of my clients want to buy. It's often pretty modest those first years after moving using FHA or 5% down. This has still benefited my clients when they sell, but it isn't the same strategy as looking for a property that will have big cash flow the second you leave.


     Sarita, totally on the same page with you here. We aren't worried about the cashflow because we want to use real estate as a long-term wealth building strategy. It's just tough finding anything that has negative cash flow of less than several hundred dollars. 

    0Reply
  • Benjamin Sulka
    OP
    Cleveland, OH · Member since 2022 · 826 posts · 578 votes
    2y
    Quote from @Jay Hinrichs:

    if your doing fha va then your basically 95% leveraged and you should not expect positive cash flow until rents rise a tad.. have small negative cash flow on a highly levered deal is not a bad thing I you have a quality property and you believe rents and values will rise over time.

    Virtually every investor for instance that invests in the SF bay area is negative the first 2 to 5years but then they kill it on appreciation.. I mean life changing appreciation.


     Jay, thanks for your response. Your BP podcast from several years ago was legendary. 

    I'm totally fine with negative cash flow given our purpose for investing in real estate but appreciation in many neighborhoods that I'm looking at seems unlikely. There are some neighborhoods that have a higher likelihood of appreciation but are out of price range. 

    0Reply
  • Benjamin Sulka
    OP
    Cleveland, OH · Member since 2022 · 826 posts · 578 votes
    2y
    Quote from @Daniel Brown:

    If you provide us with some details we might be able to better help, what did the last one look like? Purchase price, rent, what exp % you using, and self-manager or property manager? With these items, we may be better to help, also like someone else said a house hack at 95% LTV might be tough depending on rents/PP.


    Purchase prices tend to be between $250-300 for $1200 per unit rent. I'm taking all of the expense percentages like 10% capex, 10% pm, 5% repairs and maintenance, 10% vacancy, $100 ish for home insurance based on my area, 0.7% for PMI based on my credit score, and then standard amounts for utilities, lawncare, and WiFi.

    Totally understand that 95% LTV and 7% interest isn't exactly favorable for cash flow. 100% okay with negative cashflow but don't want to be bled totally dry each month.

    1Reply
  • Benjamin Sulka
    OP
    Cleveland, OH · Member since 2022 · 826 posts · 578 votes
    2y
    Quote from @Brandon Goldsmith:

    For my first House Hack, I added value as I lived there so was able to get the property a little bit cheaper and start to get higher rents upon moving out. I still recommend buying in a nicer area since its once of few times you can buy a nicer multifamily with such little money out of pocket. @Benjamin Sulka


     Brandon,

    Totally agreed. We are trying to focus on some nicer areas which makes any positive cashflow impossible. In this for the long term wealth building but don't want to bleed $500-1000 in negative cashflow every month. 

    The search continues! 

    0Reply
  • Benjamin Sulka
    OP
    Cleveland, OH · Member since 2022 · 826 posts · 578 votes
    2y
    Quote from @John Clark:
    Quote from @Benjamin Sulka:

    Hey BP, 

    I'm in the market to buy my first multifamily house hack within the next few months. I got pre-approved for $300k but I'm having a lot of trouble finding properties. 

    Nothing on-market makes sense as expected. But even at my ideal purchase price, I'm having trouble making the numbers work. I'm taking the most conservative percentages for all of my monthly reserves but I'm not budging on these because I'll never skimp on my numbers to make something work. 

    House hacking makes sense to me as long as I'm paying less than I would renting while I'm living there. The problem that I'm having is that I can't get anything even close to breaking even AFTER I move out. 

    Would love to hear from anyone's personal experiences on how to navigate this. Should I further expand the radius that I'm looking? I'm trying to stay within 25-30 mins of Cleveland due to work considerations. 

    Thanks for any comments!
     

    -Ben, aspiring multifamily house hacker 

    Why MUST you move out after 1 year? I know you want to buy another and start leveraging, but as long as you are paying less than you would for rent, save the difference and wait for an investment opportunity. It may take two or three years to find the right "next place."

     Hey John, thanks so much for your response. 

    I don't absolutely have to move out in one year. I think it's a great perspective to look at all of the other benefits as well for the long term. Anything that would be less than I'm paying in rent right now would be a win. Just don't want the property to cash flow so negatively that I can't afford a big maintenance item if it comes up. 

    0Reply
  • Benjamin Sulka
    OP
    Cleveland, OH · Member since 2022 · 826 posts · 578 votes
    2y
    Quote from @Henry Lazerow:

    Similar to what @Sarita Scherpereel says, a house hack will mostly be about the equity you make and total return after moving in low down as well as hopefully lower cost of living while you are owner occupying it. You can get cashflow up by doing cosmetic updates and atleast here in Chicago the 4 units tend to have the highest rent to purchase ratios so those are what I guide clients who want cashflow towards. The rents also go up with inflation while the mortgage stays the same, this can help as a nice kicker if do owner occupy it for a few years your cashflow will likely be a bit higher on the exit but depends how long plan to actually stay. 


     Thanks for your response, Henry! Very helpful 

    0Reply
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