House Hacking Analysis Negative CoCROI

New to Real Estate · Boston · Member since 2020 · 26 posts · 2 votes

Hey all,

I am currently analyzing multifamily properties(duplexes) in potential markets that I may wish to invest in for a house hack in the future. When I complete my analysis for a house hack, assuming one unit is rented and Im living in the other, the rent just about covers my monthly expenses, but i most frequently am left with a negative CoCROI. Should this be something that I can let pass assuming when I move out I get a positive CoC that fits my criteria? Or should my CoC be positive even when I am house hacking?

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Mark H. Porter

Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes

Think 4-unit - you can still get this as a residential mortgage while 3 units pay the bills instead of 1.

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Joe P.
Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
6y
Nate - do you live rent/mortgage free right now? Consider this -- house hacking is a great way to get started because (assuming the property meets the criteria) you can buy for low money down, have someone cover part or all of your living expenses, have someone cover part or all of your home expenses, and have someone begin to build your equity for you.
If you're analyzing properties and the conditions are met, it's a great way to get your foot in the door. Saving money on your expenses allows you to save money in general -- $1000 you aren't putting down for rent or mortgage can be $1000 towards improving your current property or putting towards a building fund for the next property.
The negative cash flow is something to look at -- personally if I were doing this I'd like to keep my dollars in per month as low (preferably neutral) as possible. So if its negative 10,000 a year, for example, that seems like quite a bit to me.
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Nate Hubley
OP
New to Real Estate · Boston · Member since 2020 · 26 posts · 2 votes
6y
@Joe P. Thank you for the feedback! I currently am a college student living at home, so I am considering a wide range of House Hacking options at the moment.
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Mark H. Porter
Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes
6y
Think 4-unit - you can still get this as a residential mortgage while 3 units pay the bills instead of 1.
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Joe P.
Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
6y
You're in Boston and next to SF/SoCal its probably one of the hottest markets. It's going to be super competitive to find multi-unit properties that are good purchases. That market could change, but I doubt it will anytime soon. The influx of healthcare/pharma companies to the Boston area has jump-started a major property increase in values and dropped inventory.
If you're able to be mobile after college or have good seed money, consider close areas (especially via transportation) that are more advantageous for investors. I like the 1% rule as a good barometer for evaluating success in investing. A 100k house should rent for $1000 so find the areas where that is true (or hopefully better) and it's a great way to approach a house hack.
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Nate Hubley
OP
New to Real Estate · Boston · Member since 2020 · 26 posts · 2 votes
6y
@Mark H. Porter Great idea! Definitely something I’m looking into as well, they just seem harder to come by.
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Nate Hubley
OP
New to Real Estate · Boston · Member since 2020 · 26 posts · 2 votes
6y
@Joe P. Thanks for that advice! The areas surrounding Boston are definitely on my list and something I will consider!
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Mark H. Porter
Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes
6y
Hi Nate - don’t fear places that you may question as to if YOU could live there. This is about making cash flow, not whether you’re in your dream home. Around Boston, simply look for safer areas within walking distance to trendy fun areas. Look at the investors that bought in Charlestown or Southie back when they were going tougher neighborhoods - they’re all living in Florida in their big boats!
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Jonathan BombaciBusiness Member
Real Estate Agent · Lowell, MA · Member since 2019 · 1k+ posts · 1k+ votes
6y
Cashflowing a duplex in Boston or even 20 miles outside of Boston is a tough feat in this market, even if you’re willing to rent to roommates. In order to get the coc returns you’re looking for you’ll need to look at 3-4 families or mixed use residential which is a bit up in the air depending on what the commercial unit(s) are doing.
Run you numbers, stick to your math and when you find an area that works for you from a lifestyle and cashflow perspective dig in deep so you understand what you’re getting into.
I househacker my first 3 family 11 years ago and it was by far the best thing I could have done to setup for a strong financial future.
[email protected]978-710-8611
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Nate Hubley
OP
New to Real Estate · Boston · Member since 2020 · 26 posts · 2 votes
6y
@Mark H. Porter Right! That makes total sense and most definitely something to consider.
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Nate Hubley
OP
New to Real Estate · Boston · Member since 2020 · 26 posts · 2 votes
6y
@Jonathan Bombaci Thanks for the point. I originally wanted to house hack a duplex but in this market a quad looks like the only suitable option.
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Lior RozhanskyBusiness Member
Real Estate Agent · Boston, MA · Member since 2016 · 106 posts · 69 votes
6y
@Nate Hubley If you are going to house hack a 2 fam anywhere around Boston, you will almost certainly have "negative cash flow", though that would just be your housing expense. Even when you run the numbers in the scenario when you move out and rent both units out, you are most likely going to have pretty negligible cash flow (I'm assuming you are going t0 FHA and have a loan of 95% LTV). On a 3 fam you can get close to breaking even when living in one of the units, and on a 4 fam might be possible to get a little cash. But 4 units around Boston (~5 miles) are incredibly expensive (typically starting at 900K), so you'll need to make sure you can qualify for that kind of loan size.
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Nate Hubley
OP
New to Real Estate · Boston · Member since 2020 · 26 posts · 2 votes
6y
@Lior Rozhansky Thanks for the info! I am thinking about also doing a Rent by the room strategy in the Boston area, or perhaps surrounding Boston, maybe even 45 minutes out.
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David QuinnPro Member
Investor · MA · Member since 2020 · 24 posts · 12 votes
5y
Hi Nate, I did this myself in Brighton 15 years ago. I had negative cash flow for a while but after moving out and some sweat equity the property began to cash flow. It has since appreciated a lot (Along with rents) - about double what I paid for it. I also have a quad in Marlborough. This area of “metro-west” is starting to come up a lot and could be your answer. Marlborough, Framingham, Hopkinson, Milford, etc. If you can find a triplex or quad inside the 495 belt, live in one unit (maybe with roommates) and rent the others, you should be able to pull it off and see some good appreciation in the next few years. Rents are coming up a lot. Check out the commuter line of the MBTA or areas easy to get to the Mass Pike. Just be aware most multi’s in the area are pretty old and may be in rough shape. Covid won’t last forever and people will always value a reasonable drive into the city. Good luck!
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