The number one reason why residential multifamily house hack is that you are not sharing immediate space with the tenant. Secondly, there is a higher opportunity for growth compared to single-family for leading to financial freedom.
The concept is straight forward: buy a residential multifamily (2-4 unit building) and live in one unit and rent out the other to generate income. The ultimate goal would be to cover all housing expenses and at a minimum would be your mortgage or at least offset most of your expenses.
1. Having Your Own Space
Everyone enjoys privacy and having your own entire apartment comes with those joys of not sharing any common spaces such as kitchens, bathrooms etc. Of course, other than your family members and friends you would be living with. Most residential multifamily the outside premises are shared. However, it is encouraged to section off the outside spaces of what is yours and what is the other tenants. An example is if there is a deck write in the lease who uses the deck and same with a patio. Some House Hackers allow the tenant to get the whole back yard and they get the front yard for leisure activities. This is all unique to each property and how it is designed.
2. Opportunity For Growth
Most towns when they zone residential multi-families you can have up to 4 units on the property. Therefore, buying a duplex will allow you to build 2 more units on the property to total 4. Adding on more units to a property whether it is finishing a basement, finishing an attic or an entirely separate building on the property can increase the ROI of the income and the cash on cash return.
Adding on more units to a property (or simply finishing vacant rooms) whether it is finishing a basement, finishing an attic or an entirely separate building on the property can increase the ROI of the income and the cash on cash return.
3. Financing Options
There are some great financing options to allow you to get into a property with a low down payment for residential multi-families. Some instances can be as low as 3.5%-5% (be sure to ask your mortgage lender what are your best options). Depending on what suits your needs doing a low down payment might not make sense. Low down payments are used for aggressive growth strategies or for first home buyers with a sensitive budget. Ultimately, putting down a low down payment makes your mortgage (principal and Interest) higher on a monthly basis. It is recommended to do a 25% downpayment for higher monthly cash flow and to get the property paid off quicker.
4. Housing Costs
This should be the top reason, except in comparison to all the other house hack types some might be better than others. Furthermore, Housing costs is more of a reason for house hacking in general and not so much that ranks multifamily house hack over a single family house hack.
No matter the house hack type housing costs will be dramatically reduced either if just the mortgage, or just the mortgage, taxes and insurance or making money off of your rental – all is a positive outcome rather than renting or not doing the primary residence house rental strategy (aka house hacking).
Example of Running Numbers
It is good to run numbers for when you are living in the rental and when you are not living in the rental since you do not know what the future has to bring.
EXAMPLE: Let’s take a duplex in northern NJ that is a 4 bed 3 bath (1 unit is a 2 bed 1 bath on the second floor and the first floor is a 2 bed and 2 baths). Purchase price $422,000 with 25% down.
Income:
- Unit 1 = rental getting $2,200 per month (with water, sewer, garbage, gas, electric, and lawn maintenance included)
- Unit 2 = live in
Expenses:
- PITI (mortgage principle, mortgage interest, Taxes, and Insurance) = $2,300
- Utilities, Lawn Care, general maintenance = $300-$500
- TOTAL EXPENSES = $2,600-$2,800
Total out of pocket monthly costs is only about $400-$700 (Potential to be less if desiring to rent out part of the 2 car garage). When compared to renting and owning an appreciating asset this is a greater worthwhile place to put money.
Click here to view our House Hacking Calculator page to learn more about crunching numbers for knowing your ROI (you get the calculator when you subscribe to our email newsletter).
5. Always Going To Sell
Residential mutli-family houses do not stay on the market long if they are somewhat decent houses. There will always be 3 groups of buyers looking at these types of houses making high demand for what is usually a low supply in the market. There are the house hackers like you in me that want to live in one unit and live in the other. Then there are the multi-generation of families living in the whole house. Lastly, there is, of course, the group of investors that throw money in 100% rental properties off the beginning. After holding for a couple of years there will always be an easy exit strategy to sell if that is your game plan.
In Conclusion
Residential multifamily is the smartest financial investment you can make for building wealth, able to sell quickly if needed, save a great amount on housing expenses compared to renting, and not sharing the same unit with strangers.
Subscribe to our weekly newsletter to stay on top of the house hacking trends for multi families for growing your wealth.
