Paying Off House Hacks

Member since 2021 · 19 posts · 11 votes

Hello All,

I'm leaning towards the strategy of house hacking and focusing on paying off the mortgage of the house within 5-10 years. I'll be paying it off with my wife. We are 28 and on buying in about 3-4 years (we are saving right now). We are thinking of house hacking and only purchasing a property that could potentially cashflow $1000 or more each month. Then we'll do another house hack and use the cash flow from the paid off property and some of our income to pay off the second house hack - rinse and repeat - until we don't want to anymore. Our goals are to have a house or two to pass down to our children that is paid off and make some passive income on the side that will allow one for one or both of us to work part time rather than full time. I'm wondering if anyone here has taken this path or currently on it. Would love to hear insight. We'll mostly house hack in the nj area and be working in nyc. Thank you in advance for feedback.

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Scott E.

Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes

This is a good strategy in concept. But the 2 biggest issues I see are...

1. You're going to have a hard time finding an entry level home that cashflows $1,000 per month or more. Even if you're talking about buying a fourplex, it'll be hard to find a property that cash flows half that right now with where interest rates are at.

2. Even though this strategy feels right today, 10 years is a long time. It's going to take a lot to stay disciplined with putting all of your extra cash every month into this house for that long. And who knows what your mindset will be in 10 years. You might move out of state. You might hit the lottery. You might change your investment objectives. You might have a really bad experience with a tenant and want out of the rental business. You might get divorced. You get my point... it's really hard to plan that far ahead.

Again I want to reiterate that in concept this is a great financial plan. And it very well may work out for you. But if I were in your shoes I'd take this long term plan and break it into shorter term goals (what do you want to achieve in the next 2-3 years?)

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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
3y
One thing to think about is what gives you the best return and your comfort level? If you have room in your debt to income ratio to borrow and your current mortgage interest rates are low, I'd put the extra money towards a new property. Paying off a mortgage with a 2-3% interest rate and getting another mortgage for the next property at 5-6% doesn't make sense.
People invest differently. Some pull all of the equity out of their properties and use it for other things, others let the tenants pay down the mortgage and keep the equity as their goal is to have the mortgage paid for and in 20 years (for example) have higher cash flow on the rental so they can use that money for retirement or whatever. I'm in the latter group as it fits with my plans and what I am comfortable with.
3 Reply
Scott E.
Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
3y
This is a good strategy in concept. But the 2 biggest issues I see are...

1. You're going to have a hard time finding an entry level home that cashflows $1,000 per month or more. Even if you're talking about buying a fourplex, it'll be hard to find a property that cash flows half that right now with where interest rates are at.

2. Even though this strategy feels right today, 10 years is a long time. It's going to take a lot to stay disciplined with putting all of your extra cash every month into this house for that long. And who knows what your mindset will be in 10 years. You might move out of state. You might hit the lottery. You might change your investment objectives. You might have a really bad experience with a tenant and want out of the rental business. You might get divorced. You get my point... it's really hard to plan that far ahead.

Again I want to reiterate that in concept this is a great financial plan. And it very well may work out for you. But if I were in your shoes I'd take this long term plan and break it into shorter term goals (what do you want to achieve in the next 2-3 years?)
6 Reply
Luke Stewart
Investor · Member since 2022 · 112 posts · 150 votes
3y
Hey there,
I just closed on a house hack in February. Right now it doesn't cashflow but after a year when I move out it will cash flow over $1000 a month. I think this should be your bigger goal at the moment. I have to cover 40% of all the expenses after the rent from the other half. Then after a year I will rent both and be in a better situation. Rates are higher right now and prices havent dropped much, this makes a cashflowing house hack pretty tricky right now. That being said, I have no intention to pay off the home quickly. I did an FHA loan with 3.5% down so I want to pay it off until I get to 20% to refinance out of PMI when the rates make sense, but after that I am gonna let it sit as even a 5.6% loan is cheap if its cashflowing. If you feel better about having it paid off then thas your perogative but I think having cheap debt is a good trade of to use my cash to buy more properties. You really have to find what makes you comfortable, nothign is worth sleepless nights from being unsure about your decisions.
1 Reply
Kevin Sobilo
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
3y
@Khalid Haynes, with so few units and no plans to acquire even a modest number of units in the near future this sounds like a wishful thinking type idea.
When you tell this narrative to a lay person it makes relative sense and sounds nice and feels comfortable. However, when you don't scale up to even several units you will likely have more UPS and DOWNs. You won't get enough experience to learn to manage the properties well and obviously property management is expensive.
With few units when things are going ok, you will barely notice and when things go badly it will be ALL YOU CAN THINK ABOUT.
Being a landlord isn't easy and passive. It requires some grit and determination and a lot of commitment.
1 Reply
Paul De Luca
Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes
3y
@Khalid Haynes

I agree with @Scott E.. The only way I see you getting a house hack that eventually cash flows $1k/mo is if you do a large rehab, and even then it seems like a long shot although I'm not an expert on your market. I like that your plan is to be aggressive (debt snowball) but considering you're still saving and planning for your first purchase 3-4 years out I think you should be focused on acquiring more properties rather than trying to pay them down. It also depends on when you want to pass these properties down to your kids. Cash flow is also harder to find with higher interest rates and heightened competition and if you decided to do a 15 year mortgage cash flow would be even more difficult to get.
I know Chad Carson wrote about this exact strategy in his book so maybe consider reading that to gauge the viability of your plan.
1 Reply
Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
3y
@Khalid Haynes Life is not predictable like you described.

The majority of investors will tell you to aim for a "target" and keep shooting at it. You're going to miss a few times but keep inching forward. This is why you buy real estate and wait. Don't wait to buy real estate. You also said you want to buy in 3-4 years... why? Do everything you can today to shorten that time frame. Go all "Dave Ramsey beans and rice" or something similar your family can handle. The longer you wait the more opportunities pass you by. You'll buy a leased out duplex because a FSBO sign in yard catches your eye. You'll sell something when the value and increased and rents have not. You'll become a landlord and hate it.
Life is full of surprises just like investing.
0 Reply
Account Closed
Columbus, OH · Member since 2023 · 427 posts · 254 votes
3y
Realistically, it is highly unlike you will find your first deal cash flowing $12,000 annually. I don't fully know your financial goals/situation, but paying off a home in 10 years has few benefits when you think of the other REI opportunities you could pursue with those funds. All your negative cash flow will be upfront at once, when you could space it out over years and still walk away with cash flow every month. At only 28, you have plenty of time to pay these mortgages and still leave them for your children. Paying off mortgages is more of an exit plan for an REI's portfolio, just my opinion.
0 Reply
Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
3y
if your interest rate is reasonable, don't spend that cash paying down the mortgage.
and, as others have said, you won't be netting $1000 a month anywhere. you might not even break even.
but that's not the goal, the goal is simply to be less out of pocket than renting. so if you can rent for $1200 a month, or house hack for $-147 a month, house hack for $-147 a month, and build equity.
1 Reply
Khalid Haynes
OP
Member since 2021 · 19 posts · 11 votes
3y
Quote from @Theresa Harris:

One thing to think about is what gives you the best return and your comfort level? If you have room in your debt to income ratio to borrow and your current mortgage interest rates are low, I'd put the extra money towards a new property. Paying off a mortgage with a 2-3% interest rate and getting another mortgage for the next property at 5-6% doesn't make sense.
People invest differently. Some pull all of the equity out of their properties and use it for other things, others let the tenants pay down the mortgage and keep the equity as their goal is to have the mortgage paid for and in 20 years (for example) have higher cash flow on the rental so they can use that money for retirement or whatever. I'm in the latter group as it fits with my plans and what I am comfortable with.
We’re thinking along the lines of using the cashflow from the tenants after reserves are set aside plus some of our extra money from biweekly checks to accelerate the paying off process to then do another house hack at a low interest rate.
0 Reply
Khalid Haynes
OP
Member since 2021 · 19 posts · 11 votes
3y
Quote from @Scott E.:

This is a good strategy in concept. But the 2 biggest issues I see are...

1. You're going to have a hard time finding an entry level home that cashflows $1,000 per month or more. Even if you're talking about buying a fourplex, it'll be hard to find a property that cash flows half that right now with where interest rates are at.

2. Even though this strategy feels right today, 10 years is a long time. It's going to take a lot to stay disciplined with putting all of your extra cash every month into this house for that long. And who knows what your mindset will be in 10 years. You might move out of state. You might hit the lottery. You might change your investment objectives. You might have a really bad experience with a tenant and want out of the rental business. You might get divorced. You get my point... it's really hard to plan that far ahead.

Again I want to reiterate that in concept this is a great financial plan. And it very well may work out for you. But if I were in your shoes I'd take this long term plan and break it into shorter term goals (what do you want to achieve in the next 2-3 years?)
Thank you for the reply. Hmm in 3 years we should have a minimum of 50K saved up and that’s only factoring how much I save per check and not my wife. But we think 50K should be enough to have on to close at 5% on house in nj they are around 325-475K range that we’ve been looking plus have money to rehab and have money for potential vacancy during rehab.

That’s a good point that’s it hard to plan for future and things could change. We would already be moving out of state from nyc to nj…hitting the lotto doesn’t sound bad in this scenario lol…if we change our investment objective then we can just stop paying extra towards mortgage and do the high debt leverage strategy ( which we don’t really like the idea of having so much in debt and have to be dependent on tenants). I do get your point it is hard to plan ahead though that’s why I’m here trying to figure it out
2 Reply
Khalid Haynes
OP
Member since 2021 · 19 posts · 11 votes
3y
Quote from @Luke Stewart:

Hey there,
I just closed on a house hack in February. Right now it doesn't cashflow but after a year when I move out it will cash flow over $1000 a month. I think this should be your bigger goal at the moment. I have to cover 40% of all the expenses after the rent from the other half. Then after a year I will rent both and be in a better situation. Rates are higher right now and prices havent dropped much, this makes a cashflowing house hack pretty tricky right now. That being said, I have no intention to pay off the home quickly. I did an FHA loan with 3.5% down so I want to pay it off until I get to 20% to refinance out of PMI when the rates make sense, but after that I am gonna let it sit as even a 5.6% loan is cheap if its cashflowing. If you feel better about having it paid off then thas your perogative but I think having cheap debt is a good trade of to use my cash to buy more properties. You really have to find what makes you comfortable, nothign is worth sleepless nights from being unsure about your decisions.

thank you for the reply Yeah we’re on the edge about having 3,4,5 mortgages out at a time. We’re just more worried about what if the tenants stop paying for whatever reason then what??

I do like how your journey is going for you congrats! Are you going to house hack again when you move? Moving one year after house hacking for us might be tricky as we are also trying to settle and grow a fam so moving often might not be in the cards but something to think about! That’s why we were thinking just pay it off and then move.

0 Reply
Khalid Haynes
OP
Member since 2021 · 19 posts · 11 votes
3y
Quote from @Kevin Sobilo:

@Khalid Haynes, with so few units and no plans to acquire even a modest number of units in the near future this sounds like a wishful thinking type idea.
When you tell this narrative to a lay person it makes relative sense and sounds nice and feels comfortable. However, when you don't scale up to even several units you will likely have more UPS and DOWNs. You won't get enough experience to learn to manage the properties well and obviously property management is expensive.
With few units when things are going ok, you will barely notice and when things go badly it will be ALL YOU CAN THINK ABOUT.
Being a landlord isn't easy and passive. It requires some grit and determination and a lot of commitment.
I was thinking house hack with a property manager in place since we’re both very busy staff in healthcare. Scaling up I’m thinking 3- 5 paid off rentals properties in my lifetime is a nice accomplishment for me pass that on to my kin to keep the ball rolling. However we’re worried about having a bunch of mortgages out at once. Feels very risky
0 Reply
Khalid Haynes
OP
Member since 2021 · 19 posts · 11 votes
3y
Quote from @Paul De Luca:

@Khalid Haynes

I agree with @Scott E.. The only way I see you getting a house hack that eventually cash flows $1k/mo is if you do a large rehab, and even then it seems like a long shot although I'm not an expert on your market. I like that your plan is to be aggressive (debt snowball) but considering you're still saving and planning for your first purchase 3-4 years out I think you should be focused on acquiring more properties rather than trying to pay them down. It also depends on when you want to pass these properties down to your kids. Cash flow is also harder to find with higher interest rates and heightened competition and if you decided to do a 15 year mortgage cash flow would be even more difficult to get.
I know Chad Carson wrote about this exact strategy in his book so maybe consider reading that to gauge the viability of your plan.
Hmmm I’ll give chad Carson a google search! Even if we don’t cash flow while house hacking I think we’ll be happy just paying under market rent but getting the help of paying down the house to then free up our funds for cash flows to then go into the debt snowball.. I like that. I feel like I just need one or two properties to pay off and then the snowball effect will be very fast. Plus my wife and I both expect our incomes to grow
1 Reply
Khalid Haynes
OP
Member since 2021 · 19 posts · 11 votes
3y
Quote from @Jaron Walling:

@Khalid Haynes Life is not predictable like you described.

The majority of investors will tell you to aim for a "target" and keep shooting at it. You're going to miss a few times but keep inching forward. This is why you buy real estate and wait. Don't wait to buy real estate. You also said you want to buy in 3-4 years... why? Do everything you can today to shorten that time frame. Go all "Dave Ramsey beans and rice" or something similar your family can handle. The longer you wait the more opportunities pass you by. You'll buy a leased out duplex because a FSBO sign in yard catches your eye. You'll sell something when the value and increased and rents have not. You'll become a landlord and hate it.
Life is full of surprises just like investing.
Thanks your for reply this one was very motivating I think we can shorten this time frame
1 Reply
Paul De Luca
Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes
3y
Quote from @Khalid Haynes:

Quote from @Paul De Luca:

@Khalid Haynes

I agree with @Scott E.. The only way I see you getting a house hack that eventually cash flows $1k/mo is if you do a large rehab, and even then it seems like a long shot although I'm not an expert on your market. I like that your plan is to be aggressive (debt snowball) but considering you're still saving and planning for your first purchase 3-4 years out I think you should be focused on acquiring more properties rather than trying to pay them down. It also depends on when you want to pass these properties down to your kids. Cash flow is also harder to find with higher interest rates and heightened competition and if you decided to do a 15 year mortgage cash flow would be even more difficult to get.
I know Chad Carson wrote about this exact strategy in his book so maybe consider reading that to gauge the viability of your plan.
Hmmm I’ll give chad Carson a google search! Even if we don’t cash flow while house hacking I think we’ll be happy just paying under market rent but getting the help of paying down the house to then free up our funds for cash flows to then go into the debt snowball.. I like that. I feel like I just need one or two properties to pay off and then the snowball effect will be very fast. Plus my wife and I both expect our incomes to grow

Here's an article from his blog explaining it - https://www.coachcarson.com/de...
It's an interesting plan and it sounds like that's what you're trying to do so I hope this helpful.
1 Reply
Ryan ThomsonBusiness Member
Real Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
3y
@Khalid Haynes if your goal is scaling and growing your net worth I may suggest that paying off the properties first will significantly slow down your ability to scale.
I've scaled to 5 house hacks in 5 years in Colorado Springs. If I had tried to pay off the first one I would still be sitting at one home.
I like the goals, but the path to get there may be easier reached by not focusing on paying of the mortgage more quickly. Paying off the mortgage quickly also really hurts your ROI and your ROE.
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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
3y
Quote from @Khalid Haynes:

Quote from @Theresa Harris:

One thing to think about is what gives you the best return and your comfort level? If you have room in your debt to income ratio to borrow and your current mortgage interest rates are low, I'd put the extra money towards a new property. Paying off a mortgage with a 2-3% interest rate and getting another mortgage for the next property at 5-6% doesn't make sense.
People invest differently. Some pull all of the equity out of their properties and use it for other things, others let the tenants pay down the mortgage and keep the equity as their goal is to have the mortgage paid for and in 20 years (for example) have higher cash flow on the rental so they can use that money for retirement or whatever. I'm in the latter group as it fits with my plans and what I am comfortable with.
We’re thinking along the lines of using the cashflow from the tenants after reserves are set aside plus some of our extra money from biweekly checks to accelerate the paying off process to then do another house hack at a low interest rate.

I don't know about the US, but the interest rates we've been getting in Canada for the last 10+ years are a thing of the past. Not sure rates will go that low again. Find out what rates you can get and compare it to the current rate.
0 Reply
Khalid Haynes
OP
Member since 2021 · 19 posts · 11 votes
3y
Quote from @Account Closed:

Realistically, it is highly unlike you will find your first deal cash flowing $12,000 annually. I don't fully know your financial goals/situation, but paying off a home in 10 years has few benefits when you think of the other REI opportunities you could pursue with those funds. All your negative cash flow will be upfront at once, when you could space it out over years and still walk away with cash flow every month. At only 28, you have plenty of time to pay these mortgages and still leave them for your children. Paying off mortgages is more of an exit plan for an REI's portfolio, just my opinion.
I’m thinking about paying them off more to reduce risk
0 Reply
Khalid Haynes
OP
Member since 2021 · 19 posts · 11 votes
3y
Quote from @Ryan Thomson:

@Khalid Haynes if your goal is scaling and growing your net worth I may suggest that paying off the properties first will significantly slow down your ability to scale.
I've scaled to 5 house hacks in 5 years in Colorado Springs. If I had tried to pay off the first one I would still be sitting at one home.
I like the goals, but the path to get there may be easier reached by not focusing on paying ofthe mortgage more quickly. Paying off the mortgage quickly also really hurts your ROI and your ROE.
Fair enough how does it work if there’s ever a period when a tenant is not able to pay rent how to do you cover yourself? Maybe i I get a better understanding of that my mindset will shift.
1 Reply
Account Closed
Columbus, OH · Member since 2023 · 427 posts · 254 votes
3y
Quote from @Khalid Haynes:

Quote from @Account Closed:

Realistically, it is highly unlike you will find your first deal cash flowing $12,000 annually. I don't fully know your financial goals/situation, but paying off a home in 10 years has few benefits when you think of the other REI opportunities you could pursue with those funds. All your negative cash flow will be upfront at once, when you could space it out over years and still walk away with cash flow every month. At only 28, you have plenty of time to pay these mortgages and still leave them for your children. Paying off mortgages is more of an exit plan for an REI's portfolio, just my opinion.
I’m thinking about paying them off more to reduce risk
The biggest risk you cited above in this forum was vacancy, which is still a possibility if the home is paid off. All the risks of renting to tenants still exist whether your down payment is 5, 10, 20, 50, 100%.
1 Reply
Khalid Haynes
OP
Member since 2021 · 19 posts · 11 votes
3y
Quote from @Account Closed:

Quote from @Khalid Haynes:

Quote from @Account Closed:

Realistically, it is highly unlike you will find your first deal cash flowing $12,000 annually. I don't fully know your financial goals/situation, but paying off a home in 10 years has few benefits when you think of the other REI opportunities you could pursue with those funds. All your negative cash flow will be upfront at once, when you could space it out over years and still walk away with cash flow every month. At only 28, you have plenty of time to pay these mortgages and still leave them for your children. Paying off mortgages is more of an exit plan for an REI's portfolio, just my opinion.
I’m thinking about paying them off more to reduce risk
The biggest risk you cited above in this forum was vacancy, which is still a possibility if the home is paid off. All the risks of renting to tenants still exist whether your down payment is 5, 10, 20, 50, 100%.
Ahhhh goodddd point!
0 Reply
Ryan ThomsonBusiness Member
Real Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
3y
Quote from @Khalid Haynes:

Quote from @Ryan Thomson:

@Khalid Haynes if your goal is scaling and growing your net worth I may suggest that paying off the properties first will significantly slow down your ability to scale.
I've scaled to 5 house hacks in 5 years in Colorado Springs. If I had tried to pay off the first one I would still be sitting at one home.
I like the goals, but the path to get there may be easier reached by not focusing on paying ofthe mortgage more quickly. Paying off the mortgage quickly also really hurts your ROI and your ROE.
Fair enough how does it work if there’s ever a period when a tenant is not able to pay rent how to do you cover yourself? Maybe i I get a better understanding of that my mindset will shift.

I would save 6 months of reserves for the mortgage payment. Another way to mitigate that risk is to screen your tenants really well. Check background, credit, and income.
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1 Reply
Luka Milicevic
Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
3y
To cash flow $1000 in NJ with the highest property taxes in the country you are going to have to find one helluva deal, or put down a massive down payment.
I did this exact plan you're talking about and it worked out really well for me.
With the exception that I never held onto a primary residence due to the tax benefits of selling out weighing holding onto the property.
Your 1k/month cash flow scenario might be a bit of a stretch. You'd really have to find something special to get those numbers on a first time home purchase.
1 Reply
Ben TrageserPro Member
Accountant · Montclair, NJ · Member since 2020 · 218 posts · 104 votes
3y
@Khalid Haynes as someone in the NJ area, it is very hard to find something that cashflows greatly. If you do, there will be a lot of interest. DM me if you are interested in talking about towns and reccomendations. Happy to help in any way I can
[email protected]
0 Reply
Khalid Haynes
OP
Member since 2021 · 19 posts · 11 votes
3y
Quote from @Ben Trageser:

@Khalid Haynes as someone in the NJ area, it is very hard to find something that cashflows greatly. If you do, there will be a lot of interest. DM me if you are interested in talking about towns and reccomendations. Happy to help in any way I can
Thanks will do and I know I actually meant purchase a property that’s cash flows that much after being paid off. We’ll be happy with rent discount while house hacking in nj.
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