Any house hacking opportunities in the current market?

Question

Hello,

Wondering in the current market if anyone has found success house hacking in northern colorado lately? Properties are very pricey currently and even with 20% down owner occupied im finding it difficult \ impossible to make the numbers work. I already own 2 properties in NoCo but I’d really like to get another without having to put a massive down payment down.

if you’ve found an area or strategy that is working for you in this area I’d love to hear it.

Thanks

Laura Shinkle · Answer

Hey Matthew, I'm not familiar with the Colorado market, but just some thoughts:

1. The purpose of househacking is to lower your monthly expenses. It's still househacking if you're paying some money towards your mortgage. Not all areas are able to create cash flow or live for free with househacking. And that doesn't mean you're not doing it.
2. The second purpose of househacking is to be able to buy an asset that is appreciating while also not paying for the whole thing. Even if you're paying $500 of your mortgage, you still aren't paying the whole mortgage, and you have an asset that's growing.
3. Have you looked into different rental strategies? For example, a mid term or short term room rental?
4. What type/price of homes are you looking for? Is there an area that is perhaps a longer commute but less expensive? Are you trying to force something to work in your market that doesn't exist? For example, everyone says how amazing multifamily properties are, but perhaps they're not prevalent in that area, so pivot to a different home type to make it work?

Ryan Thomson · Answer

@Mathew Fuller I'd be curious to know what you mean by "impossible to make the numbers work". I'm guessing you are looking for casfhlow instead of total net worth ROI.

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 is "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.

Any house hacking opportunities in the current market?

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