House hacking

16 Replies

BP members,  those of you who have house hacked what was your experience like? I am currently looking for a duplex. Live in one side rent the other. Often I here people say this is a great way to live for free or close to it. Unfortunately in my area it is nearly impossible to live for free. Then rent will pretty much cover the mortgage. However after all expenses it is not living for free or even close to it. I have found deals from 500 to almost a 1k a month that I would still have to pay. I am including all expenses capex, water, sewer etc...However once both units are rented it cash flows nicely. I am just curious to how many others have ran into this situation? Would you be ok with still spending that much each month even while house hacking? Would you consider this still a deal? 

I am in the process of acquiring a triplex right now. I am setting it up with FHA financing and will be living in one of the units. Basically how I calculated it was with me being a regular rentor. I will need to pay rent just like a tenant would into the expense account. However I can deduct the money I calculated for property management and any excess cash flow from the property. Here is the break down for my deal.

Purchase price: 380,000

mortgage including tax/pmi/insurance $2245/m

rent is $1000/m per unit.

Tenants in 2 units pay $2000 in rent 

and I pay 1000 in rent to the expense account.

-300 for property management

-300 cash-flow

I pay 400 into the expense account to keep the property breaking even (but I will probably just pay the whole amount to build it faster).

Once I move out the property will cash flow by itself without me.

hope this helps I can answer any extra questions you have but this will be my first deal so I cannot offer as much knowledge as some other more experienced investors here on BP.

Love the advice @Chris Gibbs just because you can live "Rent free" why not pay off the mortgage sooner, build up equity in the house and use that as another financing option! Have you needed to hire an accountant to figure out the ins and outs of claiming your own rent as profit? I would be interested to see how that works out.

Yes its still a deal. Its better to pay partial, than full.

I'm doing it with a 4 Unit. Living free and still clearing a couple hundred each month. You'd have better luck with more units. Also, as far as paying it down faster, I'm not concerned so much with having equity to borrow against as I am with just getting to 80% LTV so I can refinance to conventional, remove PMI and find another property to get an FHA on! BRRRR...

When you listed $300 for prop mgmt, were you paying yourself, or someone else? Isn't $300 a little high percentage-wise?

Originally posted by @Zachary Lamb :

Love the advice @Chris Gibbs just because you can live "Rent free" why not pay off the mortgage sooner, build up equity in the house and use that as another financing option! Have you needed to hire an accountant to figure out the ins and outs of claiming your own rent as profit? I would be interested to see how that works out.

 I have not talked with a CPA quite yet.  That will be the next step after I get everything settled.  I will not be putting the extra money into the mortgage but saving it for a "rainy day fund" The extra money needs to be there for repairs and maintenance.  After the expense account is healthy I will put less into it and start saving for my next investment.

Originally posted by @Marco Gillezeau :

When you listed $300 for prop mgmt, were you paying yourself, or someone else? Isn't $300 a little high percentage-wise?

 I just planned for a 10% PM fee.  I think 8% is what I could hire it out at.

But yes that was me paying myself.

Thank you all for the comments.

Paying yourself a mgmt fee will cost you more than it saves you. If you pay yourself a property management fee then you report it as a rental expense but you also need to report it as income - and its subject to income tax and also another 15% self employment tax on the bottom line, and thats where you lose.

I am doing it with a triplex.  My cash flow is minimal but I am living for free.  Consider what you are paying in rent currently.  If you find a place that reduces that significantly even with you coming out of pocket a few hundred a month, then it's worth it because you will still be saving money each year.  

One thing to look out for is the deferred maintenance on the property. I've already replaced the roof, hot water tanks, and HVAC.  So be mindful of that before you buy just FYI.  

I have done it with a fixer upper SFH that I set up as a convertible duplex. It did not cash flow in the beginning, but I didn't need it to. I was more interested in getting a normal loan that didn't require 20% down and extra cash for remodeling. Once the whole house was fixed and furnished, I moved out completely and now it cash flows nicely.

So for you, I guess the question is "What is your final goal?".  Is it to live in the duplex rent and expense free forever and ever period?  Then find something you are willing to live in (you may have to look beyond your area and quality of neighborhood) that will still cover all your expenses and don't buy until you do.  If your goal is to eventually move out entirely and have it cash flow nicely, then focus on finding the best property that you can live in for at least a year and a day that will cash flow the best when you move out completely.   If your goal is to buy in a fabulous neighborhood with great schools that you can have some help covering the mortgage by renting some of it out, then do that.  But only if you can cover all expenses on your own as needed.   

Really it's up to your personal situation, finances, and goals.  

I had just submitted and offer today for a 3 flat (triplex) we tend to call them that in chicago lol. Anyway I had that same confusion. I believed I had to cash flow while living in one of the units, but if all goes well and they except offer I'll help pay and cash flow after. @Timothy Cole I'm assuming to get 80 % LTV, loan pay off has to reach the 20%?that's sweet because pmi adds up

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@Alexander Ramos Getting to 80% LTV is going to be accomplished by a combination of two things: the equity pay down you mentioned and also force appreciation by raising rents. Unfortunately I didn't buy significantly below market value but luckily there was a lot of room for rents to grow.

@Alexander Ramos -  I did something similar - I'm positive on the 4 plex I have, but not including all typical expenses (property manager, maint, etc) but once I move out I will be. 

I chose to evaluate it like I would not be living there, as I'm only going to be there a year or so. 

@Timothy Cole, that's a good thing than already having the extra wiggle room helps! I just realized I submitted an offer an a REO and now we have to bid on it but if I throw a higher number than margins become go tight.

@Jeff Fruhwirth ok yeah that makes sense it should be a good property for you beyond you leaving and going forward, technically they still pay for mortgage. No bad!

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