House Hack Numbers Not Working (after I move out in 12 months)
Cleveland, OH · Member since 2022 · 826 posts · 578 votes
House Hack Numbers Not Working (after I move out in 12 months)
Most Popular Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesif 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.
39 Replies
- Cleveland, OH · Member since 2022 · 826 posts · 578 votes2y
Quote from @Alejandro B Yoon:
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.
I appreciate it, Alejandro! Definitely considering many of the other benefits of house hacking.
Like you said, just trying to find something that doesn't strangle me every month. I'm totally okay with some negative cashflow for a couple of years as long as it isn't so drastic that I can't hit my reserve numbers.
- Cleveland, OH · Member since 2022 · 826 posts · 578 votes2y
Quote from @Chris Seveney:
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.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
The solution is try and find a deal off market or time. Hold periods need to be adjusted.Haha, not sassy at all! I appreciate real advice so I'm grateful for your response.
- Cleveland, OH · Member since 2022 · 826 posts · 578 votes2y
Quote from @Michael K Gallagher:
@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.
Michael,
Thanks so much for your response and definitely considering these other benefits to my personal financial situation by house hacking.
The duplexes in the markets that I'm looking at are all 90-100 years old hence the conservative numbers. Most places built in 1920s but at the same time selling on the MLS for 250-400k. - Cleveland, OH · Member since 2022 · 826 posts · 578 votes2y
Quote from @JD Martin:
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.
JD,
Really appreciate the insightful response.
1 or 2 are both situations that I'm okay with. Definitely trying to put as little into the deal as I can (probably 5% conventional instead of 3.5% FHA) so in a high interest rate environment, any immediate cashflow is basically impossible. Trying to consider all of the other benefits here :)
- Cleveland, OH · Member since 2022 · 826 posts · 578 votes2y
Quote from @Dave Kush:
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.
Dave,
Thanks for the response! That is a fantastic quote and I can say that I'm definitely looking to get into real estate for the long term and not as a get rich quick scheme.
I love what I do on the day to day for my job and other side hustles so looking to earn income there to buy more long term real estate. - Cleveland, OH · Member since 2022 · 826 posts · 578 votes2y
Quote from @V.G Jason:
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.
Thanks for the realistic advice, V.G!
- Cleveland, OH · Member since 2022 · 826 posts · 578 votes2y
Quote from @Brie Schmidt:
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.
Brie,
Thanks so much for response and loved your BP podcast. Since more money down isn't an option for me, I understand with high rates, high LTV, etc. that any immediate cash flow is impossible.
Trying to consider all of the other benefits to house hacking like loan paydown, long term wealth building through real estate, learning to be an investor and landlord by getting on site experience, etc. to help me make the best decision. - Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes2y
@Benjamin Sulka - Oh wow! I can't believe people still listen to the old episodes, that was almost 10 years ago. Right after that came out I started my own brokerage firm and have been working with house hackers ever since. I can tell you this... the biggest factor making things difficult today are interest rates. I just had a call with a client who bought about 2 years ago and is looking for another property, we ran some numbers and their payment would be $2100 more today because of the interest rate. The cap rate we are seeing have been about the same the last few years so the overall ROI is the same.
For the last 10 years I have seen prices increase steadily and cap rates have only gone down. Back in 2015/2016 you could find a 8% cap rate then in 2017/2018 it was a 7% and 2019/2020 it was 6% and the only reason it has been steady is because rents have seen increases along with pricesSo I tell my clients they have a few options:
Buy now on cap rate and refi when rates go down. I am not expert but I do believe we will see rates at 5.75%-6.25% in the next two years
Wait till rates go down and buy then but risk buying at a lower cap rate because of market fluctuations.
When rates started to increase about half my buyers decided to sit out, now they are coming back to get back in the game
Second City Real Estate4.821 Reviews - 2yChristopher SpearPro MemberContractor · Cleveland, OH · Member since 2020 · 33 posts · 25 votes
@Benjamin Sulka
Hi Ben,
I’m an investor here in CLE. As you probably know by now, our area is known for value, not appreciation. My questions to you are: are you handy, and are you willing and able to get your hands dirty? I have found success by buying off-market value-add properties. Because of my skillset, I buy slightly larger multifamily/mixed use properties in need of major renovation. However if you find the right multi family building (let’s assume a 2-4 unit, which will still qualify for a conventional 30yr mortgage) buy at a discount and are willing to put in some sweat, you should be able to gain 10%-20% immediate equity through cosmetic improvements, such as paint, carpeting, lighting, etc. This should solve your post-move-out cash flow problem. And you could theoretically rent one or more suites out (which will pay some or all of your monthly mortgage and expenses) while you fix up the other suite(s). Just one alternative way to look at it.
- 2yMarc RiceBusiness MemberReal Estate Agent · Columbus Cleveland Dayton, OH · Member since 2018 · 2k+ posts · 1k+ votes
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
Sounds like you're being over conservative when you don't even know what you can self manage a property for. For your 1st 10 deals, if you want to own in good areas, just self manage and bite the bullet. The hopes are in a few years they'll rent for more and then you can hire a PM then if you need.
Just find something as close to the 1% rule as possible (analyzed at when you move out and have it fully rented) and it should cash flow or break even.
If you're running absurdly conservative numbers, then sounds like you shouldn't buy any real estate and should stick to a low risk savings plan like a CD, money market, or 401k where things are less volatile.
Marc Rice | Investor Friendly Agent at Reafco Tailwind Team574 Reviews - Cleveland, OH · Member since 2022 · 826 posts · 578 votes2y
Quote from @Brie Schmidt:
@Benjamin Sulka - Oh wow! I can't believe people still listen to the old episodes, that was almost 10 years ago. Right after that came out I started my own brokerage firm and have been working with house hackers ever since. I can tell you this... the biggest factor making things difficult today are interest rates. I just had a call with a client who bought about 2 years ago and is looking for another property, we ran some numbers and their payment would be $2100 more today because of the interest rate. The cap rate we are seeing have been about the same the last few years so the overall ROI is the same.
For the last 10 years I have seen prices increase steadily and cap rates have only gone down. Back in 2015/2016 you could find a 8% cap rate then in 2017/2018 it was a 7% and 2019/2020 it was 6% and the only reason it has been steady is because rents have seen increases along with pricesSo I tell my clients they have a few options:
Buy now on cap rate and refi when rates go down. I am not expert but I do believe we will see rates at 5.75%-6.25% in the next two years
Wait till rates go down and buy then but risk buying at a lower cap rate because of market fluctuations.
When rates started to increase about half my buyers decided to sit out, now they are coming back to get back in the game
Brie,
Super grateful for the in-depth response and so happy to hear about your continued success.
My goal is to buy now and then refi when rates go down. Opportunity cost is a big factor for me and I'm trying to prioritize 1) My learning 2) Time in the market
Trying to use this first deal to inform my second deal and so on and so forth. Going to be diligent and cautious but I'm really just trying to get into the game when I see something that fits my criteria and goals with real estate.
Thanks again for taking the time to respond to my post!!
All the best,Ben
- Cleveland, OH · Member since 2022 · 826 posts · 578 votes2y
Quote from @Marc Rice:
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
Sounds like you're being over conservative when you don't even know what you can self manage a property for. For your 1st 10 deals, if you want to own in good areas, just self manage and bite the bullet. The hopes are in a few years they'll rent for more and then you can hire a PM then if you need.
Just find something as close to the 1% rule as possible (analyzed at when you move out and have it fully rented) and it should cash flow or break even.
If you're running absurdly conservative numbers, then sounds like you shouldn't buy any real estate and should stick to a low risk savings plan like a CD, money market, or 401k where things are less volatile.
Marc,
Thanks so much for the response!
Running conservative numbers because I would plan on delegating things like PM down the line and my reserves are going to be relatively low for this first investment. I'm not risk averse per se but I'm just trying not to get wiped out.
- Cleveland, OH · Member since 2022 · 826 posts · 578 votes2y
Quote from @Matt Pine:
@Benjamin Sulka
If the duplex saves you money each month over renting, I think you’ve made a solid investment. You can moving out if/when you have a better opportunity.
Absolutely. I think that would be a win
Join the conversationCreate a free account to reply, vote on answers and follow this thread.