Note · real estate

What house hacking actually is

Buy a two-to-four-unit property, live in one unit, rent out the others. The financing advantage is real: owner-occupant loans apply to small multifamily properties as long as you occupy one unit — FHA at 3.5% down, conventional at 5% down — versus 20–25% down for investor financing. That is the entire strategy: you trade a year of living in a duplex for an order-of-magnitude lower entry cost. The catch nobody leads with: occupancy is a loan condition, not a suggestion. You have to actually live there, typically for a year, and renting out a unit while claiming owner-occupancy on a loan application is mortgage fraud.

Number 1: the full monthly payment, not the mortgage quote

Write out PITI — principal, interest, taxes, insurance — plus HOA dues if there are any. Then add mortgage insurance: FHA charges 1.75% of the loan amount up front and roughly 0.55–0.85% of the balance every year, paid monthly. That last line is where the “the rent covers the mortgage” math quietly dies. A $300,000 duplex is not a $1,900 payment; it is a $2,200+ payment once MIP, taxes, and insurance are in. Run the real number, not the Zillow estimate.

Number 2: realistic rent for the units you are not living in

Not the listing’s claim. Pull comparable rents for similar units within a few blocks — same bedroom count, same condition, listed in the last 90 days. If the seller says “rents $1,500” and the comps say $1,150, underwrite $1,150. If a unit is empty at closing, underwrite $0 for the first month or two of marketing time. The spreadsheet should survive the pessimistic number, because the pessimistic number is what happens when you inherit a bad tenant or a slow market.

Number 3: vacancy and repairs, because they are real

Take at least 5% off projected rents for vacancy and turnover, and budget roughly 1% of the property value per year for maintenance and repairs. These are not pessimistic; they are the industry’s long-run averages. The moment a house hack fails is the moment the owner treats vacancy and a broken furnace as surprises. They are not surprises. They are line items.

Number 4: cash left after closing

Down payment, closing costs, and then reserves. If closing empties your savings account, one vacancy or one HVAC failure becomes a forced sale or a credit-card spiral. A defensible floor: after closing, keep three to six months of total housing costs in cash. That cushion is what lets you hold through a turnover instead of panic-selling in month four.

Number 5: the coverage test — one line

Write it out and be honest about each piece:

(projected rents − vacancy) − (PITI + mortgage insurance + utilities you pay + maintenance budget)

Positive means the tenants are genuinely offsetting your housing cost. Zero means you are living rent-free on paper and paying in labor. Negative means you are paying to be a landlord — which can still be a fine long-term bet if you planned it, and a brutal one if you did not. Decide which of those three you are buying before you sign.

The traps that are not in the thumbnails

• Occupancy fraud. Buying a “duplex to live in” with no intention of living there to get the low down payment is mortgage fraud. Lenders verify; neighbors talk.
• Local rules. ADUs, short-term rentals, and even renting rooms can be blocked by zoning or an HOA. Confirm in writing with the city before underwriting any income line.
• Management cost. If you outsource property management, budget 8–10% of collected rent — that line alone can flip the coverage test negative.
• The 1% rule as gospel. “Monthly rent should be 1% of purchase price” is a screening tool, not a guarantee. It ignores interest rates, taxes, and your actual market.

The checklist before you make an offer

• Comparable rents for every unit you will not live in, with addresses and dates.
• PITI plus mortgage insurance written out as one monthly number.
• 5% vacancy and 1% repairs line items in the same spreadsheet.
• Cash remaining after closing, against a three-to-six-month reserve target.
• A lender who confirms the owner-occupant loan program on the letterhead.
• City and HOA rules checked in writing for rental use.

House hacking is a legitimate way to buy your first place with less cash — not a machine that prints money. If the coverage test works with the pessimistic numbers, the strategy is doing its job. If it only works with the listing’s numbers, the listing is doing its job.

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