Determining cash flow while house hacking ?

Question

Hey everyone. I am the owner of a 2 family MF in NJ. My mortgage is 3232.00. I rent the second floor for 2100 which leaves me with the remainder payment of 1132.

Am I generating cash flow since I have approximately 65% of my mortgage covered by the tenants?

Benjamin Carver · Answer

At 1132 out of pocket you are beating rent, paying down your loan, and hopefully appreciating in value too! That's a win in my opinion and many others. When you move out will the other unit rent for 2100 or is it smaller? If it will, then you've got yourself a good $1000k +/- and don't forget to factor for repairs and vacancy, PM. All in all may represent 15-25% of your income depending on age and condition of property and your market.

Drago Stanimirovic · Answer

Hi Brian,

You're on the right track, but to determine if you're truly generating cash flow, it's important to look beyond just your mortgage payment.

Here's what to consider:

• Income: You're receiving $2,100 in rent, which is great.
• Expenses: Besides your $3,232 mortgage, you likely have other expenses like property taxes, insurance, maintenance, utilities (if you cover any), and potential vacancy costs.

If your total rental income exceeds all of these combined costs, then you're generating positive cash flow. However, if you only consider the 65% of your mortgage covered by the tenants, you're not necessarily cash flow positive. You still need to factor in those additional expenses.

If you'd like help diving deeper into the numbers or need any advice on financing options, feel free to reach out!

Best,

Drago

Brian Scott · Answer

The second floor is rented out at 2100. It is completely updated 2 bedroom with all new appliances to include washer and dryer. I had them installed during the remodel up there.

The first floor where my wife and I currently occupy is also recently updated with a new kitchen, all new appliances and is also a 2 bedroom with a fully finished basement. I plan to to rent it for 3500 when the time comes (first floor with basement)

We are currently looking for our next multi family but just need to figure out the best route forward for financing the purchase.

Use our own money, tap into the equity here, refinance here out of our FHA to roll into another one at our new property, go the Fanny Mae route with the 5% down Multi Family home loan program.

We need to find the right fit.

Jake Andronico · Answer

@Brian Scott

Cash flow and house hacking are two different things. When you have a standard rental property (where you do not live), you can calculate cash flow very easily.

When you're also residing somewhere, it completely changes the equation.

@Benjamin Carver has a great explanation.

Cory Vitale · Answer

@Brian Scott don't forget to incorporate the tax savings into your calculations too! It's entirely possible that you can deduct mortgage interest, utilities, property taxes, insurance, repairs and other expenses associated with the portion of your property which is rented to others. There are allocation methods allowable in order to do this. If your expenses associated with the rented portion exceed the income, you may have a tax benefit if you are eligible to deduct passive rental losses from your other sources of income. More details at the link below under "Renting Part of Property."

I did this several times using duplexes and triplexes over the years before I decided to become an accountant. I was able to withhold less from my W-2 income in anticipation of these savings, providing me cash flow in my pocket each time I got my paycheck.

It could be beneficial to engage an accountant to help you assess the cash flow and determine if you are maximizing potential cashflow derived from taxes!

2023 Publication 527 (irs.gov)

Adam Bartomeo · Answer

Does no one know how to help him? The answers are kind of silly...

You have to look at it as having 2 properties, 1. Primary residence, 2. Rental. You have to split the common expenses in 2 - mortgage, taxes, insurance, landscaping, etc. Subtract expenses from rent.

Rent - expenses = cashflow

Based on your numbers $2100 - $1616 ($3232/2) = $484

You are likely missing several expenses, but this should help.

Shawn Mcenteer · Answer

Hi @Brian Scott It sounds like once you move out you'll be cash flowing.  Right now I would say you are living at a low cost.   Sounds like you may have a shot at living for free when you move into your next house hack.

Samuel Diouf · Answer

Hey Brian, you're not cash flowing, but you've significantly cut your living expenses!

Cashflow is when you're able to put money in your pocket after paying your mortgage and all other expenses.

Determining cash flow while house hacking ?

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