What is house hacking?

House hacking is the term used to describe the process of purchasing a property with the intention of living in one unit and renting out the others. It’s a great way to offset the costs of homeownership, as long as you’re prepared to be a landlord.

House hacking can take many forms. But the question this article will address specifically is, can you house hack a 5 unit building?

Read on to find out.

Can You House Hack a 5 Unit Building?

So what if you want to go big and hack a 5 unit building? Is that even possible?

As it turns out, yes, it is. While it might not be the easiest thing in the world, house hacking a 5 unit building can certainly be done. The key is to find a property that’s well below market value and has good potential for rent growth. Once you have that, it’s just a matter of doing your due diligence and making sure you can actually make the numbers work.

But don’t get too excited yet. There are several downsides to this scheme, which make it much less appealing. The first is that, often on, your financing options may be limited.

You might limit your financing options

Let’s review some of the downsides of house hacking a 5 unit building.

For starters, you’ll likely be dealing with higher interest rates for most buildings over four units. While the exact reason for this is debatable, there are some likely theories. One is that lenders see these properties as riskier investments, since they can be more difficult to rent out or sell. Another possibility is that lenders simply don’t have as much experience with larger properties, and so they are more conservative when it comes to lending. Whatever the reason, it’s important to be aware of this potential obstacle if you’re hoping to finance a larger investment property.

Another thing to consider is higher down payment requirements that will lock up more of your cash. Lenders typically require a higher down payment for buildings with more than four units. This is because these types of properties are considered to be riskier investments, and therefore require a larger financial commitment from buyers.

Unfortunately, the bad news doesn’t stop here. Maintaining the house hack itself will likely be more expensive than if it were a smaller building or home.

Let’s review why.

It will likely be more expensive

House hacking a five unit building is more expensive than doing so with a smaller building or house. There are a couple reasons for this, and many of them are obvious.

You’ll have to pay for upkeep and repairs on the entire property, which is larger. And a bigger property implies bigger upfront and maintenance costs.

You also have to think about things like insurance and taxes, which can be higher for a larger property. And finally, it’s important to consider the time and effort required to manage a larger property. After all, in a house hack you are the on-site landlord and property manager.

All of these factors add up to make house hacking a five unit building more expensive than a smaller one. But, even still, for some people, the benefits of being able to live for free (or close to it) in a great investment that’s in a great location outweigh the costs.

And if you’re one of those people who I haven’t convinced against house hacking a 5 unit building yet, maybe I will in this next section.

Taxes may be significantly higher

It’s important to be aware that taxes will be more expensive when house hacking a 5 unit building.

The reason for this is that the assessed value of the property will be higher, and, therefore, the tax bill will be higher too. Also, if you house hack a 5 unit building and then later decide to sell, you’ll have to pay capital gains taxes on the sale.

Conclusion: Does house hacking work for 5 unit properties?

While it can be done, my advice would be that the downsides outweigh the benefits of house hacking a 5 unit building.

The combination of limited financing options, higher upfront costs, and higher taxes means that you’ll be dealing with more headaches than rewards. Your money and time is better spent house hacking a smaller, more manageable building or house.