Newbie looking to house hacking a small multifamily in Austin, TX
Most Popular Reply
Grant ShipmanPro Member
Rental Property Investor · Estes Park, CO · Member since 2017 · 283 posts · 1k+ votes@Ben Kagel you explained your plan well. I lived in ATX for 8 years and loved it. I'd suggest looking at Round Rock, Cedar Park, Budda, Huddo, etc. Currently the ATX market is overpriced according to economics, which means in the coming years it could slow or drop in value (inflation adjusted that is). That said, ATX & surrounding is a strong MSA, which is my metric for recession-proofing. Maybe some of the surrounding ATX areas would qualify for a USDA 0% down loan.
Two thoughts:
1) Consider using a renovation FHA loan, so you can wrap your improvement costs into your loan and save your cash?
2) Consider using Beyond House Hacking with a single family house. This would give you your best chance at cash flowing, and having negative cash-flow is a sinister ship to sail. The more cash flow the more cushion to absorb your learning curve and future economic surprises.
21 Replies
- Investor · Omaha, NE · Member since 2021 · 244 posts · 163 votes3y
@Ben Kagel As long as the property is in a good location and satisfies your primary home criteria, it won't be a bad idea to house hack it even if it doesn't cash flow as-is. If you're putting in sweat equity/forced appreciation into the deal, you most likely will be fine
It may be worthwhile having it as an AirBnb after you move out to boost your cash flows if that is something you'd be interested in
I bought my first SFH house hack even though it didn't cash flow fulled rented as-is. I put a good amount of sweat equity into it and that resulted in it being a cash-flowing rental down the line
- 3yGrant ShipmanPro MemberRental Property Investor · Estes Park, CO · Member since 2017 · 283 posts · 1k+ votes
@Ben Kagel you explained your plan well. I lived in ATX for 8 years and loved it. I'd suggest looking at Round Rock, Cedar Park, Budda, Huddo, etc. Currently the ATX market is overpriced according to economics, which means in the coming years it could slow or drop in value (inflation adjusted that is). That said, ATX & surrounding is a strong MSA, which is my metric for recession-proofing. Maybe some of the surrounding ATX areas would qualify for a USDA 0% down loan.
Two thoughts:
1) Consider using a renovation FHA loan, so you can wrap your improvement costs into your loan and save your cash?
2) Consider using Beyond House Hacking with a single family house. This would give you your best chance at cash flowing, and having negative cash-flow is a sinister ship to sail. The more cash flow the more cushion to absorb your learning curve and future economic surprises.
- Rental Property Investor · Columbus, OH · Member since 2021 · 231 posts · 188 votes3y
Hey Ben,
I'm a new investor as well having just purchased my first duplex to house-hack in October 2022. My opinion is to not overthink it on your first property. The main thing is to get started. However, due to the current market that we are in, and with a lot of uncertainty, I would definitely stay conservative. Look for something in a nice neighborhood, that might not cash flow from the very start, but has a great chance to cash-flow in the near future once you move out and raise rents. Buying in the right area is key if you're looking to hold long-term.
Chances are in a market like Austin, it is going to be hard to cash-flow at the beginning with an FHA loan (due to the lower down payment), and better neighborhoods usually cash-flow less but appreciate more. Interest rates are not certain to fall within the next year and may stay about the same or even increase a tiny bit more. I would definitely pad any rehab estimates and budget for more than you think they will come out to. Using an FHA 203k loan may be an option for you as it allows you to pair the rehab costs with the first-time home buyer loan (though it can be a tricky process).
Make sure you are also negotiating on your purchase. Buyers now have the power to offer less and put in more contingencies like inspections. Some sellers are still trying to sell their properties at peak 2021/2022 prices. Offer knowing that the market could slide a bit and make sure you have a cushion for yourself. One of the things I negotiated that helped a lot was for the seller to pay all closing costs. If you can get this done, it also leaves you with more capital to use towards any necessary renovations, or to pay the full mortgage on your own until you can get a tenant in there.
I wish you the best of luck and I hope everything works out for you, happy investing!
- Rental Property Investor · Columbus, OH · Member since 2021 · 231 posts · 188 votes3y
Quote from @Thomas O'Donnell:
Hey Ben,
I'm a new investor as well having just purchased my first duplex to house-hack in October 2022. My opinion is to not overthink it on your first property. The main thing is to get started. However, due to the current market that we are in, and with a lot of uncertainty, I would definitely stay conservative. Look for something in a nice neighborhood, that might not cash flow from the very start, but has a great chance to cash-flow in the near future once you move out and raise rents. Buying in the right area is key if you're looking to hold long-term.
Chances are in a market like Austin, it is going to be hard to cash-flow at the beginning with an FHA loan (due to the lower down payment), and better neighborhoods usually cash-flow less but appreciate more. Interest rates are not certain to fall within the next year and may stay about the same or even increase a tiny bit more. I would definitely pad any rehab estimates and budget for more than you think they will come out to. Using an FHA 203k loan may be an option for you as it allows you to pair the rehab costs with the first-time home buyer loan (though it can be a tricky process).
Make sure you are also negotiating on your purchase. Buyers now have the power to offer less and put in more contingencies like inspections. Some sellers are still trying to sell their properties at peak 2021/2022 prices. Offer knowing that the market could slide a bit and make sure you have a cushion for yourself. One of the things I negotiated that helped a lot was for the seller to pay all closing costs. If you can get this done, it also leaves you with more capital to use towards any necessary renovations, or to pay the full mortgage on your own until you can get a tenant in there.
I wish you the best of luck and I hope everything works out for you, happy investing!
P.S. I was born and raised in Santa Clara, and moved out to Columbus, OH to begin my investing journey.
Quote from @Sanat Bhandari:
@Ben Kagel As long as the property is in a good location and satisfies your primary home criteria, it won't be a bad idea to house hack it even if it doesn't cash flow as-is. If you're putting in sweat equity/forced appreciation into the deal, you most likely will be fine
It may be worthwhile having it as an AirBnb after you move out to boost your cash flows if that is something you'd be interested in
I bought my first SFH house hack even though it didn't cash flow fulled rented as-is. I put a good amount of sweat equity into it and that resulted in it being a cash-flowing rental down the line
@Sanat Bhandari That's good to hear. How did you get comfortable enough to go through with a deal that didn't cash flow at first? Did you run the numbers on the sweat equity for future years? Or just figure it was good enough for now? I'm trying to avoid analysis paralysis but also don't want to get myself into a bind down the line.
Quote from @Grant Shipman:
@Ben Kagel you explained your plan well. I lived in ATX for 8 years and loved it. I'd suggest looking at Round Rock, Cedar Park, Budda, Huddo, etc. Currently the ATX market is overpriced according to economics, which means in the coming years it could slow or drop in value (inflation adjusted that is). That said, ATX & surrounding is a strong MSA, which is my metric for recession-proofing. Maybe some of the surrounding ATX areas would qualify for a USDA 0% down loan.
Two thoughts:
1) Consider using a renovation FHA loan, so you can wrap your improvement costs into your loan and save your cash?
2) Consider using Beyond House Hacking with a single family house. This would give you your best chance at cash flowing, and having negative cash-flow is a sinister ship to sail. The more cash flow the more cushion to absorb your learning curve and future economic surprises.
@Grant Shipman I'll look into the 203k loan. What is Beyond House Hacking? I'd prefer not to rent rooms in a SFH while I live there (my S.O. will veto that idea but she's on board for a duplex).
Quote from @Thomas O'Donnell:
Hey Ben,
I'm a new investor as well having just purchased my first duplex to house-hack in October 2022. My opinion is to not overthink it on your first property. The main thing is to get started. However, due to the current market that we are in, and with a lot of uncertainty, I would definitely stay conservative. Look for something in a nice neighborhood, that might not cash flow from the very start, but has a great chance to cash-flow in the near future once you move out and raise rents. Buying in the right area is key if you're looking to hold long-term.
Chances are in a market like Austin, it is going to be hard to cash-flow at the beginning with an FHA loan (due to the lower down payment), and better neighborhoods usually cash-flow less but appreciate more. Interest rates are not certain to fall within the next year and may stay about the same or even increase a tiny bit more. I would definitely pad any rehab estimates and budget for more than you think they will come out to. Using an FHA 203k loan may be an option for you as it allows you to pair the rehab costs with the first-time home buyer loan (though it can be a tricky process).
Make sure you are also negotiating on your purchase. Buyers now have the power to offer less and put in more contingencies like inspections. Some sellers are still trying to sell their properties at peak 2021/2022 prices. Offer knowing that the market could slide a bit and make sure you have a cushion for yourself. One of the things I negotiated that helped a lot was for the seller to pay all closing costs. If you can get this done, it also leaves you with more capital to use towards any necessary renovations, or to pay the full mortgage on your own until you can get a tenant in there.
I wish you the best of luck and I hope everything works out for you, happy investing!
@Thomas O'Donnell Wow, Santa Clara to Columbus is a huge change! But you probably understand why I want to leave here... soooo expensive! It's comforting to hear that you recently pulled off a similar strategy. I'm planning to target the nicer neighborhoods anyway, since I want to make sure I'll be happy living there. I'll definitely look into the 203k loan - I understand the basics but haven't dug into the details on it. The Austin market has cooled, and I'm seeing longer days on market and price reductions, so hopefully I can negotiate an even better deal in the coming months.
- New to Real Estate · Sunnyvale CA and Maplewood, NJ · Member since 2022 · 257 posts · 161 votes3yI think you should treat negative cash flow as a serious concern if you think it's likely you'd move out that soon. Forced appreciation and the other ideas mentioned of a short-term rental strategy and negotiating the purchase price are all solid ways to try to prevent negative cash flow. Do you have the option of staying in the house hack longer than a year if the numbers aren't looking good to move out? As you say, counting on appreciation or a change in interest rates amounts to gambling. Yes, it's more important to get in the game and learn than to hit a home run on your first property, but having to subsidize your first property from your W-2 income for a couple years if the gambling doesn't work out is tough. I would try as hard as you can to avoid that.
Quote from @Ben Kagel:
Is it too risky to execute on a deal that won't cash flow after I move out likely after a year? I'd probably be gambling on appreciation, refi after a decrease in interest rates, or forced appreciation / rent increase via doing a rehab the first year.
“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” -- Benjamin Graham - Investor · Omaha, NE · Member since 2021 · 244 posts · 163 votes3y
Quote from @Ben Kagel:
Quote from @Sanat Bhandari:
@Ben Kagel As long as the property is in a good location and satisfies your primary home criteria, it won't be a bad idea to house hack it even if it doesn't cash flow as-is. If you're putting in sweat equity/forced appreciation into the deal, you most likely will be fine
It may be worthwhile having it as an AirBnb after you move out to boost your cash flows if that is something you'd be interested in
I bought my first SFH house hack even though it didn't cash flow fulled rented as-is. I put a good amount of sweat equity into it and that resulted in it being a cash-flowing rental down the line
@Sanat Bhandari That's good to hear. How did you get comfortable enough to go through with a deal that didn't cash flow at first? Did you run the numbers on the sweat equity for future years? Or just figure it was good enough for now? I'm trying to avoid analysis paralysis but also don't want to get myself into a bind down the line.
When I started out, it was with the intention to have the rent cover the PITI without much consideration for cash flows down the line since it was a primary. I did run the numbers on sweat equity and realized that I could potentially cash flow down the line
Here's something to consider, as a house hacker, it's really hard to go belly up. The beauty of being a homeowner vs investor is that you can afford to pay more than investors by the virtue of better financing and the fact that you're buying a consumer product, not an investment. House hacking just combines the benefits of the two, investment returns + homeowner financing
This might be an unpopular opinion here but when it comes to a house hack, I always recommend getting started and thinking about investment returns as a secondary thought
- 3yRyan KellyBusiness MemberReal Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
@Ben Kagel I've helped numerous clients make the move to Austin and purchase house hacks, both SFH and multifamily. There is a lot to consider and happy to chat in more detail about the market. Austin is a tough market to cash flow, even with a healthy down payment, so househacking gives you the option of getting into a more expensive market (although not as expensive as yours) and reducing your living expenses. Shoot me a DM if you want to connect!
Ryan Kelly Group - Keller Williams5112 Reviews Quote from @Sanat Bhandari:
Quote from @Ben Kagel:
Quote from @Sanat Bhandari:
@Ben Kagel As long as the property is in a good location and satisfies your primary home criteria, it won't be a bad idea to house hack it even if it doesn't cash flow as-is. If you're putting in sweat equity/forced appreciation into the deal, you most likely will be fine
It may be worthwhile having it as an AirBnb after you move out to boost your cash flows if that is something you'd be interested in
I bought my first SFH house hack even though it didn't cash flow fulled rented as-is. I put a good amount of sweat equity into it and that resulted in it being a cash-flowing rental down the line
@Sanat Bhandari That's good to hear. How did you get comfortable enough to go through with a deal that didn't cash flow at first? Did you run the numbers on the sweat equity for future years? Or just figure it was good enough for now? I'm trying to avoid analysis paralysis but also don't want to get myself into a bind down the line.
When I started out, it was with the intention to have the rent cover the PITI without much consideration for cash flows down the line since it was a primary. I did run the numbers on sweat equity and realized that I could potentially cash flow down the line
Here's something to consider, as a house hacker, it's really hard to go belly up. The beauty of being a homeowner vs investor is that you can afford to pay more than investors by the virtue of better financing and the fact that you're buying a consumer product, not an investment. House hacking just combines the benefits of the two, investment returns + homeowner financing
This might be an unpopular opinion here but when it comes to a house hack, I always recommend getting started and thinking about investment returns as a secondary thought
@Sanat Bhandari Makes sense. That’s what drew me to consider HH as my first deal. Plus I’ll get the added benefit of reducing my living expenses by moving out of the Bay Area.
Quote from @Nathan A.:
I think you should treat negative cash flow as a serious concern if you think it's likely you'd move out that soon. Forced appreciation and the other ideas mentioned of a short-term rental strategy and negotiating the purchase price are all solid ways to try to prevent negative cash flow. Do you have the option of staying in the house hack longer than a year if the numbers aren't looking good to move out? As you say, counting on appreciation or a change in interest rates amounts to gambling. Yes, it's more important to get in the game and learn than to hit a home run on your first property, but having to subsidize your first property from your W-2 income for a couple years if the gambling doesn't work out is tough. I would try as hard as you can to avoid that.Quote from @Ben Kagel:
Is it too risky to execute on a deal that won't cash flow after I move out likely after a year? I'd probably be gambling on appreciation, refi after a decrease in interest rates, or forced appreciation / rent increase via doing a rehab the first year.
“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” -- Benjamin Graham@Nathan A. I absolutely want to avoid negative cash flow, but in the current climate I’m learning it may be extremely hard to avoid at least first. I’ll consider living in it longer than a year if that makes the most sense at the time. I’m just trying to figure out if negative cash flow in Y1 or even Y2-3 should be a non-starter.
Quote from @Ryan Kelly:
@Ben Kagel I've helped numerous clients make the move to Austin and purchase house hacks, both SFH and multifamily. There is a lot to consider and happy to chat in more detail about the market. Austin is a tough market to cash flow, even with a healthy down payment, so househacking gives you the option of getting into a more expensive market (although not as expensive as yours) and reducing your living expenses. Shoot me a DM if you want to connect!
@Ryan Kelly Would love to chat!
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
Correct, not much will cash flow. Welcome to Austin, I invest in the outskirts.
- 3yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
Here are some other benefits to consider:
- Reduce or eliminate your housing cost: When done correctly, house hacking can help reduce your housing expense or even eliminate it. Although a multi-unit property will have a higher upfront cost, renting out the other units means someone else can pay your mortgage for you. According to Edith Reads, a professional investment writer, stock trader, and personal finance coach, “For one, it’s a great way to live rent-free or for very cheap. Additionally, it forces you to be resourceful and learn valuable skills like home repairs and gardening”.
- Gain flexibility: House hacking provides flexibility for those with an evolving lifestyle. For instance, if your company suddenly transfers you to a new city, you can rent out your unit and continue earning your rental income. You even have the option of converting the property into a single-family home for when your family grows.
- Ease into your rental property career: When living on-site and near tenants, you will learn how to be a landlord quickly. Your personal involvement in the living community will provide you with the valuable skills needed to manage properties and perform regular maintenance. Get acquainted with the various tax benefits available to rental property owners, such as depreciation benefits or business-related tax deductions.
- Grow your wealth through passive income: The extra cash flow earned through house hacking gives you the option to pay down your mortgage quickly and save up toward your next investment property. Learn more about how you can pursue both of these options using the debt snowball method.
- Mitigate Risk: According to Daniel Sperling-Horowitz, the CEO of OfferMarket, house hacking is a great way to mitigate risk. "House hacking de-risks the home purchase because you subsidize your monthly costs of homeownership (principal, interest, taxes, and insurance (aka PITI) and maintenance). This is not only a great way to build equity instead of spending money on rent, it's also a great way to dramatically reduce your overall housing costs, which allows increased savings and investment," according to Sperling-Horowitz.
All the best!
NETWORTH BUILDERS5236 Reviews Thanks, @Wale Lawal! All great points that motivate me to HH.
Quote from @Eliott Elias:
Correct, not much will cash flow. Welcome to Austin, I invest in the outskirts.
@Eliott Elias Are you avoiding the city entirely until the market cools more? By outskirts, are you still investing in Austin MSA (Round Rock, Cedar Park, etc.)? Since I plan to HH, I prefer to live in the city. Eventually I could expand out to better cash flowing properties in the greater MSA though. I know Austin was one of, if not THE, hottest market in 2020-21, but now it appears to be in a correction. I’m hoping to get in on the downtrend because long-term I don’t see Austin losing its appeal.
- 3yGrant ShipmanPro MemberRental Property Investor · Estes Park, CO · Member since 2017 · 283 posts · 1k+ votes
Quote from @Ben Kagel:
Quote from @Grant Shipman:
@Ben Kagel you explained your plan well. I lived in ATX for 8 years and loved it. I'd suggest looking at Round Rock, Cedar Park, Budda, Huddo, etc. Currently the ATX market is overpriced according to economics, which means in the coming years it could slow or drop in value (inflation adjusted that is). That said, ATX & surrounding is a strong MSA, which is my metric for recession-proofing. Maybe some of the surrounding ATX areas would qualify for a USDA 0% down loan.
Two thoughts:
1) Consider using a renovation FHA loan, so you can wrap your improvement costs into your loan and save your cash?
2) Consider using Beyond House Hacking with a single family house. This would give you your best chance at cash flowing, and having negative cash-flow is a sinister ship to sail. The more cash flow the more cushion to absorb your learning curve and future economic surprises.
@Grant Shipman I'll look into the 203k loan. What is Beyond House Hacking? I'd prefer not to rent rooms in a SFH while I live there (my S.O. will veto that idea but she's on board for a duplex).
It's great you are factoring in your SO. I am hooked on the idea of not only getting my goals BUT enjoying the path to each goal. You can grab a duplex- that's true, but duplex's put you into directly competing with other investors which has pros/cons.
You can keep considering SFR's and the pro's those come with b/c many SFR's are out there with either:
1) completely separate built-in mother-in-law suite (say like one of my BHH investors lived in the apartment above the garage) or,
2) a detached unit on the same lot (I did BHH deal with a small 2nd house in the back yard and the two houses even had separate yards & driveways).
That said, I'd also challenge you to have some serious chats w/yourself & your SO b/c while it's true that you want to live on our own right now (which is fine), but this path also includes not getting to live our day dreams as soon. For example, if we give up certain specifics now, we could GAIN more and GAIN faster. So I encourage you and your SO to consider if you want to live your day dreams in 2-3 years with a sacrifices on the front end, OR to wait to live your day dreams for 4-6 years. Either options limits us in certain ways and liberates us in a way, and it's good to make these decisions together with our SO with our eyes open.
Keep on this path Ben and stay aligned w/your SO. Keep executing and keep reaching out when you need support. Go live your day dreams!
- 3yGrant ShipmanPro MemberRental Property Investor · Estes Park, CO · Member since 2017 · 283 posts · 1k+ votes
@Ben Kagel- sorry missed your question about what Beyond House Hacking is. It's like HH on 'roids. More specifically: getting multiple HH each year (no limit), use none of your own money, get 2X rents, continue to get 2X+ rents even after the first year, and offer the most IN-DEMAND rental unit. The good news is that BHH totally fits the ATX & surrounding ethos and needs. I have a good friend who does this in Austin (now he's moved to trailer & rv parks).
- 3yJay ThomasPro MemberReal Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
Sweat equity is a great way to make your house hack profitable even if it doesn't cash flow as-is. Real estate can be a great investment, and investing in the right property with some sweat equity can pay off in the long run! Consider renting out the space on AirBnb or similar services after you move out for an added boost to your profits. With a bit of hard work, you can create an amazing real estate investment that will give you returns for years to come.
Good luck on your house hack!
- 3yJordan MoorheadBusiness MemberReal Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
@Ben Kagel I've done 3 2 unit househacks here in Austin and highly recommend it! I bought my last 2 with an FHA loan too. We're finding creative strategies to boost cashflow and in some cases double it with not a lot more work.
Be patient and analyze a lot of deals!
The Moorhead Team5140 Reviews
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