Intro

"House Hacking" is one of the best ways to get started in real estate investing. Buy a property, live in part of it, rent out the rest, and let your tenants help pay your mortgage.

I'm currently living through my own house hacking experience, and I wanted to share what it actually looks like. I'll try and be as transparent as possible about the numbers, the challenges, what I've learned so far, and where I plan to go from here.

Why am I making this post? Because i'd love to hear what other investors think about the deal.

The Property and Strategy

I purchased a duplex in Morris County for $266,000 in 2021. At purchase, the property consisted of two identical side-by-side units, 2 floors, and a basement 1 bed and 1 bath, ~784 sq. ft. each. The house was severely outdated and wasn't being utilized to its maximum potential so going in I knew I was going to do extensive renovations so it was going to be a mix of BRRRR and House Hacking. I was going to live in one side while I renovate the other, then move into the renovated side, and renovate the side I had been living in. Once both sides were renovated I would refinance to recoup my renovation costs, live in one side and rent out the other.

The BRRRR

Purchase to refinance took 38 months, mainly due to an inherited, uncooperative tenant needing to be evicted while the courts were still extremely backed up because of Covid. I gutted each unit down to the studs and updated absolutely everything, insulation, plumbing, electrical, HVAC, kitchen cabinets, countertops, appliances, etc. Any work that didn't require permits or licenses like plumbing or electrical, I did myself. The most expensive upgrade was definitely the kitchen, I updated the layout which allowed for more cabinets and countertop space. Used RTA shaker cabinets from Home Depot which were full plywood with soft close hinges at a fraction of what pre-assembled ones would cost, installed a full quartz backsplash and countertops, and all new stainless steel appliances. The biggest increase to the value of the house though came from finishing out the basements though and turning them into bedrooms by building a closet under the stairs. They were walk out basements so the egress exit requirement for bedrooms already existed, but this increased square footage per unit from ~784 sq. ft. each to ~1,170 sq. ft. and made each unit a 2 bed 1 bath apartment increasing potential rents from $1,800/month to $2,500/month.

Numbers

Here's the financial breakdown:

Purchase

• Price: $266,000 (August 2021)

• Down payment: $19,950 (7.5%)

• Interest rate: 2.75%

• Monthly mortgage (principal and interest): $1,066.25

• Property taxes and insurance: $1,077.95

• Total monthly housing payment: $2,144.20

• Monthly rental income: $2,500

• Renovation Costs: $110,000

• Cash Outlay: $129,950

Refinance

• Appraisal: $500,000 (October 2024)

• Down payment: $100,000 (20%)

• Interest rate: 5.75%

• Monthly mortgage (principal and interest): $2,375.14

• Property taxes and insurance: $1,194.13

• Total monthly housing payment: $3,569.27

• Monthly rental income: $2,500

• Cash Out Refi: $153,950

So I put out $129,950 for acquisition and renovations, and ended up cashing out $153,950 from the refinance, netting me $24,000 in cash, $124,000 in appreciation (234,000 (appreciation) - 110,000 (renovation costs), and $2,500/month in rental revenue, so I would consider the BRRRR portion a success!

The House Hacking

So with a fully renovated duplex, I am living in one unit and renting out the other for $2,500/month. My mortgage payment with escrow for taxes and insurance is $3,569.27/month.

So, I'm essentially only paying $1,069.27/month on a property that was appraised for $500,000 (although I have a bone to pick with bank refinancing appraisers since I think the actual value is closer $575,000, but I digress.) The benefits don't end there though as my principal and interest payments will stay the same, monthly rental will eventually increase, making this a better deal as time goes on, with the ultimate goal of the keeping the property until the mortgage is paid off and the rental income from only 1 unit should be able to cover the costs!

The icing on the cake for me though is that when I decide to move, I will be able to rent out the unit I am currently living in for another $2,500/month bringing total rental revenue to $5,000/month. After principal, interest, taxes, and insurance, that would bring the cashflow to $1,430.73. This is of course not factoring in putting money away for maintenance, CapEx, and utilities, but since I fully gut renovated the property, those ongoing costs are minimal, along with utilities being paid by the tenants.

I have also had no vacancies renting out the unit for a little over 2 years, I was able to get initial tenants just before renovations were completed, and then when they moved out a year later (due to work placement in a different state) I was able to get the unit rented out again before the initial tenants moved out.

What the Numbers Don't Tell You

The numbers may make things seem like everything is great about house hacking, but there definitely are some downsides to it. For example, privacy/noise. While not too much of an annoyance since I get along great with my tenants and we are respectful of each other, I am still able to hear them at times walking around, or when they have guests over and are playing music a little louder than usual. This would be no different from renting an apartment, but if you're deciding to buy a single family home vs. house hacking, this is definitely something to keep in mind.

Also, since it's a mix of personal and business, it makes it a bit harder to treat each separately as such. What I mean by this is it makes things a bit more difficult to treat the business side of your home as strictly business and the personal side of your home as strictly personal. That's probably been my biggest learning experience so far. When you look at a property strictly as an investment, you can focus on the numbers. But when it's also your primary residence, every property-related decision affects your everyday life. And sometimes the option that makes the most financial sense isn't necessarily the one that makes the most sense for your quality of life. A couple examples, if this were just my primary residence, I would have spent more money on a nicer siding, like Hardi board, but since it's still an investment and I want it to be profitable, I went with vinyl instead. On the other hand, I could've had the driveways repaved with asphalt to save time and money, but since I really like paver stones, I used them instead. This might be easier to navigate for others, but for me it definitely "muddies the water".

Would I Do It Again?

At this stage, I would say absolutely. I would do things differently, like treating it more of an investment and spending less on the renovations, or disputing the refinance appraisal more, but all in all, this combined BRRRR and House Hack has set me up quite comfortably financially by providing some cash, reducing my expenses, and being a great long term asset.

My first deal was strictly a BRRRR, and my second deal was strictly a house hack, so naturally I would combine what I've learned on those deals to my third deal lol. I got married and welcomed my first child while house hacking so I will forever be grateful to the strategy and recommend it to anyone buying their first home. With that being said, this will be my last house hacking deal. While great and financially beneficial, the next step for me is a single family home for myself and my family.

Ask Me Anything!

I don't want to just yap into the void here lol so let me know what you think and ask me anything! Whether about my deal, or a deal you have and just want to chat about. I love real estate and want to meet and discuss with like minded people, that's the main reason for this post. So answer in the poll below if you would do this deal or not and let me know why/why not!