Mother-in-law suite house hacking?

Question

Hello everyone, I am trying to get into my first house hack and have been looking for multi family properties for over 6 months now in my area to no avail. Recently we switched our search to single family homes with a mother in law suite because there are more options. My question is if it’s a good investment if the rent from the in law suite only covers half the rent? Really want to get into a property but don’t know if it’s better to wait and keep looking for a multi family? Thanks in advance!

Vitaliy Volpov · Answer

Hey Account Closed,

Here are my thoughts on your question.  If you really don't have any other options and you think that it will be a long time before a multi-family house hack comes on the market in your area and that there will likely be a ton of competition for it, a single family with an in-law apartment is not a terrible choice.  Like @Josh Young said, for most people, the goal of house hacking is to reduce their own living expenses, benefit from the favorable financing that owner-occupied properties allow, and build some wealth through equity growth.

However, if you plan on trying to use the house hacking strategy to buy more than one property and if you want to try to build a small rental portfolio using it, I would try to do everything I could to get into small multi-family properties rather than just settling for single families.  It's likely that you won't be able to get more than 4-5 owner occupied loans (if that many).  So, if your goal/plan is to try to house hack one property a year for 4-5 years and build up a bit of a portfolio, you really want to try to do it with multi-fmaily properties rather than single family properties.

All things being equal, 10 multi-family units is better than 4 single-family units.  This is of course market dependent, but I find that single-family properties are much harder to cash flow than multi-family properties.  Yes, single family properties will typically appreciate faster and tenants will stay longer, but you're not going to get much by way of cash flow and might even lose money month-over-month.

Personally, I prefer to try to get the best of both worlds, I buy multi-family properties that will cash flow and will have a reasonable chance of appreciating in value over time.  It does require a lot more effort to find them and I usually don't buy them off the MLS.

If there is nothing on the MLS in your market, consider doing some off market prospecting.  Things that have worked really well for me and my business partner have been direct mail (letters/postcards) to owners of the types of properties in our area that we wanted to get and also cold-calling those owners after skip tracing their phone numbers.  There are tons of resources out there on Biggerpockets and YouTube on how to do this.  So, I would encourage you to look into it before you just settle for a property that doesn't really meet your goals simply because you can't find one on market that does.

Hope this helps!  Feel free to send me a direct message if you have any follow up questions.

Vitaliy

Josh Young · Answer

Account Closed as long as the mortgage payment isn't much higher than it would be on a normal SFH with no in-law suite then it makes sense.  The whole point of house hacking is to subsidize your living expenses, so you can save money (and you have to live somewhere). You will be saving money, learning to be a landlord, you will own real estate and your mortgage will be getting paid down. In my experience you can always find a reason to not buy a deal, you can always wait for a better deal, but the best advice I was ever given is: do your due diligence and if the numbers make sense, pull the trigger.

Benjamin Sulka · Answer

Payton,

This is absolutely a feasible option.

Like Josh said above, it's all good if you're paying money out of pocket each month. Just compare this to what you would be paying for rent. How do the numbers look once you move out of the main unit and turn it into a full time rental?

Definitely try some of the off-market strategies that Vitaliy mentioned above for MFHs. This could allow you to find someone more motivated to sell their property. Definitely going to take more work that searching the MLS however.

Something that i'm going to try to do is build a relationship with somebody at a local property management company to try to find distressed or out of state landlords.

You got this man!

Mother-in-law suite house hacking?

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