I just moved into a tiny two bedroom apartment with my wife and daughter. It’s manhattan, and in manhattan, one lives in tiny apartments. It’s something the locals call “normal.” We made a few concessions, like no dishwasher or in unit laundry, deciding to rent this place because of the comparatively low rent. I say “comparatively” because if you compare this rent to the national average it’s insane.

Forgive me, I’m from New Jersey and part of me still cringes at the ridiculous rent prices New Yorkers pay while getting less amenities and space.

The benefits of living in New York, however, are innumerable. What I enjoy the most boils down to the convenient access to work and play for myself and family.

Ultimately, I want the best of both worlds—to affordably get the amenities and space of New Jersey while enjoying the convenience of living in New York.

How can I make that happen? Well, “house hacking” might be a solution.

Intro to House hacking

I first came across the term “house hacking” when I discussed home ownership with a close friend. I told him that I eventually want to buy a multifamily house, live in one unit, and rent the others. He explained that’s what house hacking is— an owner occupied property with tenants (shout out to C-money for introducing me to the term). Ideally your tenants’ rent would pay for your mortgage and expenses, leaving you to live without any monthly payments.

House hacking would solve my insane-NYC-rent problem but would it solve my amenities and small living space problems? Yes, if I buy a property that has all the space and amenities I want or I renovate after buying. Either way it’s a possibility, at least.

Can I make it work? 

In doing research into house hacking I’ve uncovered several roadblocks that might hinder my progress. I’ve listed them below with possible solutions. I can’t say for certain that these solutions will work but knowing the options available to me is half way there.

Why it won’t work

Problem 1: High cost of entry

As I mentioned before, New York is one of the most expensive places to live in the country. Multi family homes that need renovations start at 1.5M.  Move-in ready homes start at 2M.

Solutions to high cost of entry

1. Get pre-approved for a loan: this isn’t a solution but I need to know how much I can get. 
2. FHA / 203k loan – These loan types only require 3.5% down payment as opposed to a 20% down payment. 
3. Get a partner: I can find another investor with more money with whom I can split the profits. (This option requires profit)
4. BRRR: I can (B)uy a property that needs a lot of work with private/hard money loans, (R)ehab the property, (R)ent it out then, finally, (R)efinance to pay back the loans. This option has a lot of moving pieces and potential pitfalls. 

Problem 2: High cost of ownership

In addition to mortgage, owners have to pay for taxes, water, sewage, management, insurance, and maintenance. There’s also a mental space tax I have to pay in time and energy with the added responsibility of owning a home.

Solutions to high cost of ownership

1. Hire a property manager to help ease the management burden. 
2. Factor the cost of ownership into my financing plan to cover it, i.e., get nearly accurate costs for all of the above and create a financial model of estimated month-to-month cash flow for each property I consider buying.

Problem 3: Limited options

There are not many listings for multi-family homes in my area. Even if I had unlimited funds, it’s hard finding the properties that match my criteria. In my perfunctory search on realtor.com (disclosure: realtor.com is a former employer of mine) I saw one or two properties that I’d consider. I’m not completely sure but I’d want to have at least a handful of options.

Solutions to having limited options

1. Get an agent to send me email alerts for any listing that match my criteria as soon as it goes on the market. 
2. Walk around my neighborhood and find vacant-looking properties and reach out to the owner directly to see if they are interested in selling.
3. Send direct mail letters to homeowners in the area and make an offer to buy their house. 

Problem 4: Unknown unknowns

Since this will be my first* go at real estate investing, I don’t know what I don’t know. And it’s difficult to prepare for something you don’t know about.

Solutions to having unknown unknowns

1. Confidence in my ability to overcome any randomness that comes my way. 
2. Find an experienced investor in my market and learn from them.

Next steps

Admittedly, I only have an intellectual understanding of the solutions I’ve listed above. Before I can know whether they’ll work for me I need to act.

At this point I am most unclear about how the financial solutions can be implemented. So I’ll start there.

If you have any advice for me, I’d be happy to hear it in the comments below.

*I’ve actually foolishly bought a property about 10 years ago which now is no longer mine. I count that experience as practice 🙂