Monthly Gross Income

[Berkay Talay]

Hello All,

Your expertise is needed here… I am planning to purchase a duplex and I do want to take advantage of house hacking... What should my thought process be concerning monthly gross income receiving for rent? I’m sure it will be depending on the dwelling area, but what is the rule of thumb?

Thanks in advance!

[Joshua Filkill]

When house hacking my goal was to have the PITI covered so that I was living rent free. There could obviously be maintenance expenses that could come up that I would be responsible for, but I found it to be a success by having my mortgage covered.

This isn't always possible in many locations, but depending on your flexibility you should be able to come close to covering your mortgage. For example, I rented out a room in my unit to a friend which helped cover the mortgage but if you're married or just don't want to live with someone else then it can be harder to reach this goal. Some people even cash flow with their house hacks because they're creative with it. 

[Luka Milicevic]

Are you asking what you should charge for rent? 

If that's the case, then you should be looking at existing available, and closed rentals similair to yours. Adjust for size, and condition. 

rentometer is a helpful tool

The MLS is a helpful tool

If you need some help, contact a few property managers and agents to see if you can get comps. 

[Ryan Thomson]

@Berkay Talay I'm a little unclear if you are asking for how to to determine the month rent or if you are asking for advice on how to think through whether the projected gross rent will make it a good house hack. 

[Ryan Thomson]

If you are asking about how to figure out what it will rent for you should be working with a realtor who can help you estimate those rents. You can look at comps or your can call local property managers.

[Ryan Thomson]

If you are asking about how to think through the numbers: 

House hacking is tough to cashflow in year one (with current house price run-ups and interest rates) for a couple of reasons:

1. You are living in one of the rentable units

2. You are only putting 5% down so your loan amount is much larger and therefore your mortgage payment.

I would consider your net worth ROI. What I mean by this is considering how much your down payment returns to your net worth (appreciation, loan paydown, tax benefits, AND rent avoidance). Don't forget to include rent avoidance in your numbers! You have to live somewhere.

You may need to lower your return or cashflow expectations so you can get into a house hack that will allow you to avoid throwing rent money away every month. You know this, but don't forget all the other ways real estate makes you money. Paying down your mortgage and owning an asset that will appreciate over the long term.

Also, whenever running ROI calculations you have to consider the alternative. In this case it may be "throwing your money away on rent every month". What's your ROI on that? It is very negative. When you consider all of these things and start with the assumption that you need a place to live, House Hacking often comes out as a clear winner even if your "cash flow" is actually negative but you are paying less towards a mortgage than what you would be paying towards rent.

[Bob Stevens]

Quote from @Berkay Talay:

Hello All,

Your expertise is needed here… I am planning to purchase a duplex and I do want to take advantage of house hacking... What should my thought process be concerning monthly gross income receiving for rent? I’m sure it will be depending on the dwelling area, but what is the rule of thumb?

Thanks in advance!

 Not really understanding the question ?  Rule of thumb for how much the rent will be? Impossible to answer, 

[Berkay Talay]

Thank you all for your helpful responses. I meant to ask what is the general Rule of thumb for how much the rent is supposed to be. Sounds to me that generating cash flow out of a house hack strategy is not easy especially if the homeowner decides to dwell in there

[Joshua Filkill]

Quote from @Berkay Talay:

Thank you all for your helpful responses. I meant to ask what is the general Rule of thumb for how much the rent is supposed to be. Sounds to me that generating cash flow out of a house hack strategy is not easy especially if the homeowner decides to dwell in there

 There's not really a rule of thumb for the exact amount you can charge in rent. This depends on the market rent for the area. Look up rentals in your area on FB, Zillow, or use Rentometer or the BP rent calculator. 

Generating cash flow is hard when house hacking, but if you get close to covering your mortgage then I consider it a success because you would be paying more to live somewhere else and not have the tax advantages and having your tenants pay down the loan.  

[Matthew Kwan]

HI Berkay,

House hacking is always a good way to start your real estate journey. The house hacking is that it allows you to put minumum down payment 0%-5% depending what loan program you use. Ususally, people would use FHA to invest in multifamily as it only requires you to put as little as 3.5% down payment. However, if it's 3-4 units, FHA has a test called the self sufficiency test where your appraised gross rental income of 75% has to be greater or equal to your monthly mortgage payment. It is definitely achievable in TX.

As for conventional, there is no self sufficiency test but the down payment tends to varies from 5%-20% down payment depending how many units are there. The more unit usually will require more down payment,but lesser mortgage insurance than FHA and no ss test. There is always a tradeoff on both sides

@Carlos Valencia @Albert Bui

[Basit Siddiqi]

Gross income is partially irrelevant and you are more concerned with net income.

Also with a house-hack, your goal is to reduce your monthly living costs.