House Hacking in Metro Area

[Sam Hatch]

Hey all,

I'm looking to purchase my first property within the next 6-9 months and was researching the possibility of house hacking it. From most of the SFH house hack examples I've seen, it's individuals getting seemingly good deals on 4-5 bd homes, or putting in a little extra rehab upfront, which allows them to have a positive net cash flow after they move out year one. I live in a metro area and would like to stay in this area, if possible, but I'm finding it hard to source any properties, even for example sake, that would allow the property to have a positive cash flow after I move out after the first year. Many 4-5 bd homes are going for 400-500k, while the rent for those are around 2.5-3k/month, leaving the mortgage + expenses to be higher than any potential rent from a single family. It seems like to make a majority of these instances work I'd have to continue to rent out room-by-room after year one, which seems like a tall task.

Wondering if anyone has had success in metro areas, and if so what you looked for when purchasing the home, and how you were able to maintain a positive cash flow after year one. Or if you're focused primarily on a positive net worth return, in which case I could see losing a few hundred dollars a month in exchange for loan repayment and appreciation worth it in your book. Thanks!

[Michael Dumler]

@Sam Hatch, the above responses from Ben and Laura are flawless and is how every house hack investor needs to think given current market conditions. Needless to say, the concept of house hacking is to limit living expenses. It's always extremely frustrating hearing expectations from newer investors that their house hack deal has to cash flow from day one upon move-in. Metro Atlanta and surrounding in-town neighborhoods are some of the most high-demand markets in the nation at the moment. It's simply unrealistic to receive positive cash flow for a house hack deal in Atlanta. With that being said, what does your current living situation look like? Are you renting at the moment? Several house hack strategies that I have seen work well include, rent-by-the-room, LT/STR in-law suite, LTR/STR basement unit conversion, etc. To be upfront, house hacking a small multifamily property is extremely difficult to acquire. Most small multifamily deals are still seeing aggressive buyer sentiment from investors who can afford to pay well over asking. I don't advise competing with those types of buyers, nine times out of ten you'll be outbid.

Now, addressing your exit strategy, why do you plan to leave the property after a year? As noted by Laura, if you enjoy the area, then remain in the home. Nevertheless, if you do decide to move out after a year, you have multiple investment strategies to explore. As you mentioned, rent-by-the-room is a viable option. There are companies such as PadSplit, HomeRoom, Bungalow, and Alcove that will assist in marketing your property, screening/placing tenants, and collecting rent. You certainly assume more risk with this strategy, however, if managed properly, the cash flow can be high yield compared to traditional LTRs. Moreover, while it is entirely speculative, you can account for an average annual rent growth rate of about 3%-4%, thus increasing future rent projections if you decide to hold the property as a traditional LTR. Lastly, holding the property as an STR is a viable option as well, however, you need to ensure that the County District and the City have not implemented any new rules/regulations regarding STRs (this is the risk you'll need to weigh). At the end of the day, this all depends on the rate you can lock in and how the market will play out over the next one to two years.

As an investor-focused real estate agent who has serviced multiple house hack clients, if you have any questions regarding investment strategies or the market in general, please shoot me an email or text to connect (contact info is listed in my bio).