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House Hacking: Using Rent from Units to Offset Mortgage Payments

House Hacking: Using Rent from Units to Offset Mortgage Payments

We cohosted a “House Hacking” seminar earlier in the year where we illuminated the many advantages of buying multiple units with rental income, as opposed to buying a single family residence.

I was one speaker along with a seasoned agent, a property manager, a tax planner, and a financial planner.

The advantages of buying units are many but the most significant is the ability to offset a housing payment with rental income from the same property.

This is particularly the case for first time buyers b/c they can use FHA financing to buy multiple units (up to 4) with only 3.5% down.

Below are three examples from three of our primary markets: Dallas, TX; Austin, TX; and Oakland, CA. All three use FHA financing with “no points” loans for comparison purposes.

  1. Plano, Texas (Dallas Metro): Two houses on one a lot (considered a “duplex”) for $450,000. Both houses have 3 bedrooms and 1 bath.
    • Estimated total housing payment with 3.5% down, FHA financing at 3.25%: $3,225 per month
    • Estimated market rental income from one unit: $1,850
    • Net housing payment (net of rental income): $1,375 
  2. Austin, Texas: Standard duplex for $445,000. One unit is a 3 bedroom, 2 bath, and the other is a 2/2.
    • Estimated total housing payment with 4.7% down (to get down to the area’s FHA loan limit), FHA financing at 3.25%: $3,160 per month
    •  Estimated market rental income from the smaller unit: $1,300
    • Net housing payment (net of rental income): $1,860 
  3. Oakland, CA: Triplex for $730,000. All three units are 2/1s.
    • Estimated total housing payment with 3.5% down, FHA financing at 3.375%: $4,750 per month
    •  Estimated market rental income from two units: $3,500
    • Net housing payment (net of rental income): $1,250

NOTES:

  1. Triplexes and fourplexes clearly offset much more of the total housing payment than do duplexes, as illustrated by the Oakland triplex example above.
  2. If properties have more than four units, they are deemed “commercial” in nature and not eligible for FHA or conventional financing, and they typically require much larger down payments, more stringent qualification standards, and higher rates.
  3. “Border income” or income from rooms within a particular unit (as opposed to income from a separate legal unit) is not allowed for qualification purposes in most cases.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167