Covid-19 is over and mortgage rates are higher they used to be. Based on Zillow and other real estate brokerages the house prices will remain the same and even increase in next 5 years. Rental prices are at all-time high, and they increase every year for about 2%. There are many options available like Airbnb, Vrbo for people who wants to get extra income in real estate or Toro when they want to rent out their own cars and make money this way.
House hacking with 3-unit properties is one of them. It’s a great way to get started in real estate investing with small risk. By living in one of the units and renting out the other two, you can cover your mortgage and then some, making your investment essentially free. In this blog post, we’ll discuss some of the basics of house hacking with three units and how you can get started.
First, let’s talk about why you would want to house hack with four units. There are a few reasons:
- It’s a great way to get started in real estate investing. If you’re not sure if real estate investing is for you, this is a great way to dip your toe in the water.
- Might be a solution to live for free (or close to it). By living in one of the units and renting out the others, you can cover your mortgage and then some, making your investment essentially free!
- It’s a good way to build equity. Unlike a single-family home, which can take years to appreciate in value, a three-unit property can appreciate much more quickly. This means that you’ll build equity at a faster rate, which can be used to buy more properties or reinvest in other ventures.
Now that we’ve talked about some of the reasons why you might want to house hack with three units, let’s talk about how to do it.
The first step is to find a three-unit property that you can afford. This will likely be a bit more expensive than a single-family home but remember that you’re essentially getting four homes for the price of one! The building needs to be in a good shape, plumbing, electrical need to work. Turnkey houses work best.
You might need to hire an inspector to check everything for you so you are sure you can rent 2 units right after you close on your property.
How To Get Financing For House Hacking With 3-Unit
Once you’ve found a property that you can afford, the next step is to get financing. If you are a first-time home buyer, you’ll need a down payment of only 3,5%, and it’s a good idea to get pre-approved for a loan before making an offer on a property. Make sure you check also FHA limits in your county so you know how much money you can borrower and be protected by a government loan like FHA.
Once you’ve found a property and gotten financing, it’s time to move in! Remember, you’ll be living in one of the units, so make sure you pick one that meets your needs. Once you’re moved in, it’s time to start renting out the other two units. This can be a little bit tricky, as you’ll need to find tenants who are willing to sign a lease and who can afford the rent. However, with a little bit of effort, you should be able to find some great tenants who will help you cover your mortgage and then some. There are two options available. The first one is a short time rental like Airbnb or Vrbo. Second option would be a long-term rental, but before doing so make sure you check background of your future tenants and sign an appropriate lease agreement. You can always switch to short term if you feel that one of the units could be brining more income than the long-term option.
What Are The Expenses Related To House Hacking with 3-units
Finally, let’s talk about the money and how much you should expect to make. As we mentioned earlier, there are a few upfront expenses related to financing but if you do your numbers right than you should have your residual income coming within a month after you close on your property and you should hit your ROI in 6-12 months.
Let’s talk about rough numbers here. You need to hire an experienced realtor who will do a CMA for you and get you a list of 3-units sorted by rental income. You don’t need to pay a dime to do that and realtors on a buyer’s side are getting paid by a seller. After that you need to get financing so for example on $600,000 property you need to spend monthly $3,226 and $21,000 as a down payment. You can calculate your monthly payment here. A realtor can help you to figure out rental prices (how much you can charge per month to rent 2 other units) in your area. Let’s say you can get extra $4,000 per month by renting two units and living in one of them, then you should hit you ROI in 8 months. Above numbers are on average expenses of $3,500 per month to cover your mortgage and with an extra income of $2,500 per month from 2 units (3*2,000 – $3,5000 – $2,000 = $2,500). You need to remember that if you live in one of the units you must add this as income ($2,000) to be able to get your final numbers.
There are plenty of 3-units available for house hacking out there. With FHA loan you can also buy a mixed-used property and put as low as 3,5% down. There is always a backup option to increase income by switching to short term rental or a month-to-month rental. It’s up to you how much time you can invest in and how creative you are. The bottom line is that this is not high-risk investment as soon you have all your number correct. The worst-case scenario is that you should be breaking even by 1st year of doing that. Sooner you start with your first investment, sooner you will achieve your financial freedom and can invest in few more opportunities like that.
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