Cash flow house hack

Member since 2021 · 43 posts · 28 votes

Hey I heard from someone before that they said that your first house hack usually won't cash flow. I was thinking that in order to cash flow for my first deal since it will be highly unlikely is to get at least a three bedroom house and rent out all the bedrooms which means I will be sleeping on a pull out couch that turns into a bed. I was also thinking of hoping to get a house that comes with a garage so I can post on facebook marketplace and see if anyone wants to rent out my garage for let's say $250 a month. So with all this said lets say I rent out each bedroom for $700 a month and the garage for 250 a month that is $2,350 coming in each month. I feel like once you factor in all those income streams I should most definitely be able to cash flow a little bit. What do you guys think?

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Nicholas L.Pro Member

Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes

@Justin Brown

that's not the right way to think about it, since we don't know anything about the expenses that come with the property you're referencing. the right way to think about it is - how does it compare to renting?

if your rent would be $1200 a month, renting some random place, but you could house hack instead, and on that house hack, your mortgage is $2000 a month, but you're offsetting it with $1200 in rent, you're ahead - even though you're still paying net $800 ($2000 minus $1200.)

you're ahead for 2 reasons - 1, it's slightly less than renting, and 2, you're building equity. building equity is more important. equity is wealth.

make sense?

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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
2y
@Justin Brown
that's not the right way to think about it, since we don't know anything about the expenses that come with the property you're referencing. the right way to think about it is - how does it compare to renting?
if your rent would be $1200 a month, renting some random place, but you could house hack instead, and on that house hack, your mortgage is $2000 a month, but you're offsetting it with $1200 in rent, you're ahead - even though you're still paying net $800 ($2000 minus $1200.)
you're ahead for 2 reasons - 1, it's slightly less than renting, and 2, you're building equity. building equity is more important. equity is wealth.
make sense?
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Vitaliy VolpovPro Member
Investor · Albany, NY · Member since 2015 · 134 posts · 132 votes
2y
I agree with @Nicholas L.
I would also add this and ask: does your area have any small multi-family properties that you can afford to buy as a house hack? If so, it may be easier to cash flow (and more comfortable to live in) if you buy a 4-unit rental property with an FHA loan at 3.5% down or a conventional loan at 5% down (btw the 5% down payment just became available today 11/18/23 and will start being rolled out by lenders next week) instead of a single family. I've always preferred multi-family house hacks over single family ones, but that's just me.
Again, I don't know what market you're in and how the prices on multi-family properties and expenses compare to rents, but in my market, it is possible to buy a 4-unit like that, live in one of the units, rent out the other three and earn a small amount of cash flow every month or at the very least break even, live for free, take the tax write-offs, let the property appreciate, and have the tenants pay down the mortgage.
Vitaliy
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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
2y
@Justin Brown I mean, I guess if you rented out each bedroom to 12 people and the garage and the living room...and so forth...eventually you would cashflow. But that's not the right way to think about house hacking. House Hacking allows us to afford a home easier. Right now affordability is a really big issue. It's very hard for many Americans to even afford a home. So, what if you could purchase a home within your price range and only have 1/2 the costs of affording the home? That's the benefit to house hacking. It REDUCES the cost of homeownership.

I house hacked my first home. Rented out each room. My costs of homeownership were next to nothing. That's a great benefit to anyone who can do it.

Hope that makes sense how I am describing it.

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Ryan ThomsonBusiness Member
Real Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
2y
@Justin Brown you have to pay to live somewhere! Buy real estate and wait, don't wait to buy.

I wonder if your criteria may be a little unrealistic for the current market.

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

If you are paying close to what you pay in rent to cover PITI and expenses then owning a house is a much better financial decision than renting.
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Ryan ThomsonBusiness Member
Real Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
2y
@Justin Brown the way you said "I feel like once you factor in all those income streams I should most definitely be able to cash flow a little bit. What do you guys think?"
makes me think you don't have a good way to run the numbers yourself. When I meet with clients in Colorado Springs this is one of the first things we do. It is really something you should take the time to figure out how to do. I have a great calculator for house hacking. DM me and I'll send it to you.
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