Your thoughts on house hacking?

20 Replies

Just wondering what everyone’s thoughts are on house hacking. I have a few friends that tried it out and it worked really well for them. If someone was to do this should they shoot for a duplex or Quadplex? Is it worth it?

There are lots of ways to house hack @Lane Cooper

In a few months I'm going to have a 2600 sqft house to myself, almost. 
I fully intend to rent out several of the rooms, possibly in a Short Term situation through AirBnB type sites, some rooms to what I hope to be my daughters college friends that have Mom & Dad to foot the bill for them :) 
Aside from that using a small MultiFamily is a great idea as well as even doing a live in fix and flip, these are all ways to house hack and unless you just can't stomach having "roommates" or living next door to your tenants then I just can't see a downside. 

Hi @Lane Cooper I am currently in the process of house hacking! I did a ton of research on different areas near where I am working and after looking at many many properties I came across one that met all of my marks. It's a large duplex in a good school district but needed a little work to make it look less dated. I am renting one side to a nice family who lives in the area to get their kids into those good schools. On my side I am also renting one of my extra bedrooms to a co-worker and I am looking for a second person to fill my other spare room. 

From my perspective house hacking takes some work especially if you plan to manage the property. However, when you pay the mortgage and none of the money is coming from your own account that is a really good feeling. In addition to that the money that I am saving from previously paying rent, electric, internet etc... I am now setting aside to look for another investment property. 

Duplex, triplex, quadplex is really going to be up to you and what your market has to offer and what income each "door" provides you with. It might sometimes make more sense to go with a smaller unit with a lower price or better margins. 

Good Luck!

Thabk you @Joe Miller that was very helpful I’m currently located in bardstown, Kentucky, which is a small town. There’s maybe a total of 30 (duplexes, triplexes, and quadplexes) mostly everything out here is town homes or apartment complexes. If you don’t mind telling me what’s was the process of getting into it for you? I’m more the type to have everything paid for in full. But House hacking is completely different. I’m looking a decent duplex right now about 10 miles out of bardstown in a good neighborhood. It’s a little more than what I wanted to spend but also It’s a great home.

@Lane Cooper House hacking is great but requires a certain level of patience and screening for the right tenants. In your case, it might be harder due to the small market size. 

I would start with something small that you can afford (even without house hacking) and proceed from there. In bigger cities even though the prices are higher you also have a higher chance of finding tenants to alleviate the higher mortgage payments.

@Lane Cooper For my duplex I used an FHA loan which was perfect because it required very little money down and allowed me to keep cash liquid as I search for another deal. Like Omar mentioned above my monthly payments are a bit higher because of the loan and the associated PMI however the rent that I take in is high enough that it offsets that difference. Also like Omar mentioned you'll want to screen your tenants to make sure they will be reliable and you won't end up out of luck when it comes time to pay your mortgage.

Regarding the duplex you are looking at. If the duplex is vacant at the moment determine what you can rent each unit for. I like to run my numbers as though both sides are occupied since I won't be living there forever! Then determine what you can pay for it! Depending on the cost of the home hopefully the rent from one side covers the entire mortgage if not more!

@Lane Cooper Here is the key to your comment, "I have a few friends that tried it out and it worked really well for them." House hacking is great if you are ok with living next to your tenants. By far it can be the best way to get into REI.

One of the biggest pros to house hacking is the amount of leverage it provides you with. Because most people house hack so that they only need to come up with 3.5% down, they are able to get into properties with less money up front. Although this is great for a whole number of reasons, you always need to be mindful about over leverage. A couple of "simple" ways to help mitigate this problem is to make sure that you 1) find and buy a deal well below actual market value and 2) have ample cash reserves. Of course, this is true in most scenarios, but it is particularly important when house hacking. Depending on fluctuations in your market, it is a lot easier to owe more than your house is worth when you are putting 3.5% down in comparison to the 20% down on conventional loans.  

I love all of this information within this discussion. I'm looking at buying a duplex at the end of the year and this will be my first real estate purchase. Now if I can find and build a relationship with an awesome realtor who has experience with this, I'd be lucky! 

Originally posted by @Joe Miller :

@Lane Cooper For my duplex I used an FHA loan which was perfect because it required very little money down and allowed me to keep cash liquid as I search for another deal. Like Omar mentioned above my monthly payments are a bit higher because of the loan and the associated PMI however the rent that I take in is high enough that it offsets that difference. Also like Omar mentioned you'll want to screen your tenants to make sure they will be reliable and you won't end up out of luck when it comes time to pay your mortgage.

Regarding the duplex you are looking at. If the duplex is vacant at the moment determine what you can rent each unit for. I like to run my numbers as though both sides are occupied since I won't be living there forever! Then determine what you can pay for it! Depending on the cost of the home hopefully the rent from one side covers the entire mortgage if not more!

Can you share with me a little bit more about your experience using FHA? How long did your process take? I'm also looking at that option. Also, in the event that the property needs work, I have an approved and experienced contractor if I need the 203k rehab loan option.

@Felicia Richardson I just went through the FHA duplex purchase process (closed about a week ago) and if you work with a lender experienced in FHA's it's not that difficult, really doesn't take much longer than a traditional mortgage. You do have to sign extra paperwork at closing stating your intentions to live in the property, the property have to be in livable condition (i.e. things the appraiser notes as issues will have to be fixed before closing, woodrot being the biggest issue), and you are required to be living in the property within 60 days of purchase (not sure that is true for 203k FHA's). The one issue I ran into that you may not if you go the 203k rehab route is that sellers are often much less likely to choose a FHA offer over a traditional mortgage or all cash offer due to the extra requirements of livability that FHA's have. In the end I had to find an off-market deal in order to get a duplex in the area I wanted as every time I made an offer on an already listed property I was passed over due to using FHA.

Originally posted by @Kevin S. :

@Felicia Richardson I just went through the FHA duplex purchase process (closed about a week ago) and if you work with a lender experienced in FHA's it's not that difficult, really doesn't take much longer than a traditional mortgage. You do have to sign extra paperwork at closing stating your intentions to live in the property, the property have to be in livable condition (i.e. things the appraiser notes as issues will have to be fixed before closing, woodrot being the biggest issue), and you are required to be living in the property within 60 days of purchase (not sure that is true for 203k FHA's). The one issue I ran into that you may not if you go the 203k rehab route is that sellers are often much less likely to choose a FHA offer over a traditional mortgage or all cash offer due to the extra requirements of livability that FHA's have. In the end I had to find an off-market deal in order to get a duplex in the area I wanted as every time I made an offer on an already listed property I was passed over due to using FHA.

 Thanks so much for this info! I thought about the certainly thought about the possible rejections. If you don't mind me asking, what method(s) did you use to find an off-market deal? 

@Felicia Richardson I basically just found neighborhoods with duplexes that I felt matched my criteria (safe, in reasonable shape, strong rents in areas that were either growing or would remain stable), used Zillow/Google Maps to help get the addresses for all duplexes those neighborhoods, and then typed the addresses into the county assessors website (not sure if your county will have a site that allows you to search properties by address, but ours does). This gave me the owner's names and mailing addresses for all the properties I was interested in. I then just typed up a quick note saying I was interested in buying, and mailed the letters out. A bit time consuming (you could probably pay a virtual temp to do the legwork) but all told just cost me some time and $100 on stamps and envelopes. All that being said, I lucked out because of the 120 or so letters I sent I only got 2 replies, one from the company that sold me the duplex I now have and one saying basically to leave her alone. Good luck on your search.

Originally posted by @Kevin S. :

@Felicia Richardson I basically just found neighborhoods with duplexes that I felt matched my criteria (safe, in reasonable shape, strong rents in areas that were either growing or would remain stable), used Zillow/Google Maps to help get the addresses for all duplexes those neighborhoods, and then typed the addresses into the county assessors website (not sure if your county will have a site that allows you to search properties by address, but ours does). This gave me the owner's names and mailing addresses for all the properties I was interested in. I then just typed up a quick note saying I was interested in buying, and mailed the letters out. A bit time consuming (you could probably pay a virtual temp to do the legwork) but all told just cost me some time and $100 on stamps and envelopes. All that being said, I lucked out because of the 120 or so letters I sent I only got 2 replies, one from the company that sold me the duplex I now have and one saying basically to leave her alone. Good luck on your search.

 Oh wow, you definitely put in some work!  I live in Fulton county (Atlanta), and we do have a website with that information. Thanks for sharing your experiences and I'm definitely making notes.

Hi all, we're in the process of starting our first multi-family house hack with a duplex in Gulfport, FL, and although we don't have any real world experience yet, we're learning fast. We also had our eye on a quad in Madeira Beach, but the additional cost and need for some financing steered us back to the duplex. You probably already know that it makes sense to start an LLC before proceeding (which is what we're doing), and if so, I'd like to point out one thing I think is worth considering. If you're doing property/investment analyses beforehand (and you should be), factor in that you will be paying rent (and possibly some or all of the utilities) to the LLC, and that the LLC should be paying you for managing the property. I know this might seem redundant, since it's all your money anyway, but it gives you a clearer picture of the LLC's actual profit and reduces your personal tax burden (disclaimer...not a CPA!). I put together an Excel analysis spreadsheet that adds those factors to the calculations, so if you'd like a copy, I'd be happy to send it to you. Best of luck, and if anyone else would like to weigh in on this strategy, feel free!

Updated almost 3 years ago

Also, don't forget to adjust your live-in scenario to include the homestead exemption on your property taxes, if that's available!

Updated almost 3 years ago

Wait a minute...never mind. If the LLC owns it, I guess you don't get to use the homestead exemption. Bummer!

@Lane Cooper You can totally do it with a multi-family house. I've house hacked a condo and a single family house that me and my family were living in.. I do NOT recommend it. Its really tough living in a construction zone, but the end results made it ok. I'm trying to convince my wife to do it again on a duplex, but those discussions are still ongoing. You save a bunch of money

@Lane Cooper - In terms of relatively low risk vs. high reward, I have yet to find a single better investment than doing a house hack. 

Here are the benefits:

1. Low down payment - you can get into a property for 3.5% down. Because of this your cash on cash returns can get close to 100%! 

2. Living for Free - If I had to guess, housing is likely one of your biggest expenses. With house hacking you either drastically reduce or completely eliminate this expense. You may even be able to cash flow off of your living situation. 

3. Equity Build Up - You are building equity in your home through your tenants paying down your mortgage and your property appreciating. 

4. Tax Benefits - I'm not an accountant, but depreciation against your top line income usually causes a net loss which can then be transferred over to your W2 income should you make less than $150k per year. 

There are also more than just one way to house hack. It doesn't need to be a duplex, triplex, or quadplex. I also made a video about the different ways to House Hack. Check it out here!

Hope this can help! 

@Lane Cooper I house hacked with my duplex in Cleveland and I cannot recommend it enough. Besides the tax benefits, rent income, etc., you will gain real experience in how to manage a property. This experience is priceless. I had absolutely no experience and made a few mistakes for the 1.5 years I lived there, but learned so much. I went through an eviction (going all the way to court), how to handle late payments, how to screen better (after my eviction), what kind of complaints you get, etc. You might find out later that being a landlord isn't for you and hire a PM company. But the knowledge you'll get will be very useful in your real estate career.

Good luck!

Originally posted by @Lane Cooper :
Just wondering what everyone’s thoughts are on house hacking. I have a few friends that tried it out and it worked really well for them. If someone was to do this should they shoot for a duplex or Quadplex? Is it worth it?

 Primary residence is your best financing. The money is cheap and plentiful, provided you qualify.

The approach should be different, since you are going to live there. I recommend that you like the area and want to live in the building. Otherwise it could be a very long road. While the owner occupied commitment is one year, it is almost impossible to get out that quickly: new mortgage, find a place, move and so on.

The numbers will also look different. Forget all of the metrics you see on BP. It is unlikely you will be at 1% or any of the other popular measures. The better neighborhoods are harder to make money. You should treat yourself as a tenant in looking at the profitability of the building. If you can cash flow, even a little, it will be a solid investment. Depreciation on the parts that you do not live in, mortgage interest and principle pay down will in increase your return.

The key to it all is the low down payment. You can get 3.5% FHA and there is a Fannie Product that is similar. Some of the credit unions off 0% down.