House Hacking
House hacking means buying a duplex, triplex, or fourplex, living in one unit, and renting out the others. With an FHA loan, you can do it with as little as 3.5% down, and the rent from the other units helps pay your mortgage.
It's one of the best ways to buy your first investment property in Kansas City. It's also how a lot of my buyers get started: on a recent portfolio of duplexes I sold in Kansas City, Missouri, Belton, and Independence, all but one went to a buyer who planned to live in one side and rent the other.
The catch is that a property can be a good place to live and a bad investment at the same time. This guide covers how the loan works, where house hacking works best in Kansas City, and how to check the numbers before you buy.
FHA loans aren't just for single-family homes. You can use one on a property with up to four units, as long as you live in one of them.
Conventional loans also allow as little as 5% down on an owner-occupied 2–4 unit property. Depending on your credit, that can mean lower mortgage insurance, so it's worth asking a lender to compare both.
On a triplex or fourplex, FHA adds a rule called the self-sufficiency test. The property has to be able to pay for itself: 75% of the expected rent from all the units, including the one you'll live in, has to cover the full monthly payment, including taxes and insurance.
This trips up a lot of buyers. For example, a $400,000 fourplex with each unit renting for about $1,000 brings in $4,000 a month. Seventy-five percent of that is $3,000, but the full FHA payment would be about $3,300. That property fails the test, no matter how good your income is.
Duplexes don't have to pass this test, which is one reason duplexes are the most common house hack.
For most house hackers, I look at four parts of the metro: Independence, Belton, Lee's Summit, and Johnson County. A decent duplex in those areas usually runs about $275,000 to $400,000. That fits what most FHA buyers can afford, and these are places people actually want to live, which matters when you're one of the tenants.
Most first-time house hackers only ask one question: will the rent from the other unit make my payment affordable? That's important, but it's not enough. You won't live there forever. The better question is whether the property still pays for itself once you move out and rent every unit.
Here's a hypothetical duplex in the price range I see most, using an FHA loan at about 6.5%. The numbers are for illustration, not a specific listing.
Living there for about $1,310 a month might feel like a great deal, and compared with renting, it may be. But once you move out, this property loses about $580 a month. That's a nice place to live, not a good investment.
Before you make an offer, run both versions. If the move-out numbers don't work, the fix is a lower price, higher rents you can realistically get, or a different property. My duplex example post walks through how I check a deal step by step, and my red flags post covers what to watch for on older buildings.
House hacking means buying a small multifamily property, such as a duplex, triplex, or fourplex, living in one unit, and renting out the others. The rent from the other units helps cover your mortgage, and the property can become a full rental when you move out.
Yes. FHA loans can be used on properties with up to four units as long as you live in one of them. Triplexes and fourplexes also have to pass FHA's self-sufficiency test: 75% of the expected rent from all the units has to cover the full monthly mortgage payment.
FHA generally allows 3.5% down for borrowers with a credit score of 580 or higher. On a $325,000 duplex, that is about $11,400, plus closing costs. Conventional loans also allow as little as 5% down on owner-occupied 2–4 unit properties, which can be worth comparing.
FHA requires the property to be your primary residence. You generally have to move in within 60 days of closing and plan to live there for at least a year.
For most house hackers, I look at Independence, Belton, Lee's Summit, and Johnson County. Decent duplexes in those areas usually run about $275,000 to $400,000, which fits FHA buyers, and they're places people actually want to live, not just rent.
Not checking whether the property works as an investment. Most house hackers only ask whether the rent from the other unit makes their own payment affordable. The better question is whether the property still covers its costs once you move out and rent every unit.
Loan rules change, and your situation may differ. Confirm the details with a lender who regularly closes FHA loans on 2–4 unit properties, and ask whether they've closed FHA triplexes and fourplexes before.
Send me a duplex you're looking at and I'll run the numbers both ways: while you live there, and after you move out.