House Hacking has been around for a long damn time. It is hugely powerful to your bottom line and can help create a freeing financial situation for you.
Since I moved to NYC, I’ve had a roommate, my now wife, saving me approximately $105,300 over the course of my 20’s and securing me a drastic amount of financial freedom as a result of the equivalent of a $975/mo rent.
Is this actually a good House Hack? No. But it was the best deal I could figure out for myself at the time. I learned far more from listening to others.
As I’ve learned more and more about how people live in NYC, I’m continually surprised about how people leverage roommates and rent-by-room strategies
What is the rent-by-room strategy? A bedroom you’re renting out or subletting for more than the pro-rata share of the rental property if rent were proportionally allocated represents an efficient rent-by-room strategy.
If you have a $4,000/mo. apartment 4-bedroom apartment, and each apartment is equally sized, you’d be able to charge a minimum of $1,000 a room. However, that’s a terrible deal. A great deal is charting $1,400 a room is a much better situation. Obviously, this is a good thing to get your cash-flow up, but it can also enable you to live in one room and cash-flow $200 a month while you live there!
Considering NYC rents in many areas for a single bedroom run well over $1,500/rm. and you could generate $200/mo from renting other rooms out, you’re technically benefiting $1,700/mo each month. $20,400 a year. $102,000 over 5 years.
If you’ve ever considered that you may be pissing money away renting on your own, after reading this post, I want to ensure you that you most definitely are. The math proves it on almost any rent-by-room deal in any neighborhood on NYC.
Matt The Producer
When I first met Matt he was living in a 4br apartment in the basement apartment deep in Bushwick Brooklyn. So deep, you could walk a block away into Queens. What I didn’t know is that Matt was living a dream.
Matt had landed a relatively low $2,800/mo. rent and established great relationships with his landlord. He filled the other three bedrooms and was living in his room for roughly $400/mo. But it gets better, Matt had a girlfriend and she was living with him, so they were both paying $200/mo. rent. That’s it.
The two of them have been able to thrive in this environment. His girlfriend has been able to pursue a graduate degree while working, loan-free. Matt has been able to work on his passion of producing comedy series.
The two of them barely need to worry about money these days and are now thinking of house hacking outside of the city once they’re in a position to buy.
Brian The Musician
I often sit back and wonder, where is Brian these days?
Brian is a friend from my hometown who I used to play music with. He’s always been a free-spirit and hasn’t wanted to maintain a steady job basically ever. Brian views 6 months somewhere as a career and then it’s time for him to move on to something more interesting.
The last time I talked to Brian, he was in Mexico. The time before that, he was in Amsterdam. Before that Hungary.
Brian makes $300/mo. from an apartment he sublets each room out of when he’s living in NYC. When he’s travelling, he’s renting out his existing room for another $800/mo. and making $1100/mo. when he’s not in NYC. When it comes to house-hacking, Brian is crushing it.
Few actual property owners in NYC could pull off a $1100/mo cash flow from an investment were they to make one in the city right now. Meanwhile, Brian is somewhere wondering the earth doing whatever he pleases because he makes money from his tenants.
Can this work in all cases?
The skinny is that this doesn’t work for all landlords. Landlords will likely keep you as a tenant from performing too many sublets.
Brian’s example is a good one – he’s got a great relationship with his landlord so he’s able to sublet his apartment even when he’s travelling abroad or spending his summers in Montreal. Most leases however, simply stop this from happening, so full occupancy would be required to make this happen.
This also is unlikely to work in almost any coop building you may be renting out of as subletting is not allowed in 90% of cases and even when it is you have to go through the usually slow process of board approval for your tentants.
How do I make this work?
Firstly, you’re going to need some cash. Most landlords won’t even bother renting to you let alone letting you sublet unless you have a decent income and can pay for the apartment yourself or with a roommate that’s also on the lease.
Cash is critical because you need to have usually first and last months rent on hand to make the initial lease.
Make sure your financial documents are in order with proof of income meeting the 40x rule and that you have a minimum credit score of 600. Most landlords use these two rules to ensure they’re not going to get screwed and so should you.
If you don’t have the above, or maybe just come close to it, you may want to have more cash on hand to negotiate with the landlord by providing more up-front cash such as 2 months cash upfront for the least plus last months deposit.
When you get the lease from them to sign, make sure you vet the sublet policy as clearly as possible. Make sure that your landlord hasn’t set terms out that will totally screw you over if you do sublet or how the policy will work for tenants who are not on the least if you rent out the other bedrooms. They’re not going to want someone running an Airbnb out of a rented apartment or having subletters turn over every 30 days either.
Shopping Around for Roommates
We’ve covered how to find roommates extensively in another post, so we won’t get into too many details here, but we will point you to the best sites very quickly.
- Craigslist (the sketchiest option)
Vetting Roommates And Subletters
You’re going to want to make sure that your roommates financials are not totally made up and fraudulent. Vetting roommates is just like vetting a tenant at a real-estate investment property. You don’t want to get totally screwed on your rent and you don’t want someone who has a criminal history or some other eviction history in their past.
You have to be exceptionally disciplined about this in NYC as there are really stringent eviction rules in the city.
Set a bare minimum of the following:
- Proof of income
- Income requirements meeting the 40x rule
- Credit score over 600
- Past landlord or roommate references
This will weed out an enormous amount of potential people looking to sublet for you because they’re broke and don’t hold down a steady job.
The Simple Math
The goal of house-hacking is to drastically reduce your cost of living. It’s possible to do through large (4br) and small apartments (2br) as long as you can again, land the right leasing conditions.
Here’s how we can breakdown a current deal:
Here is a listing for a palatial 5 bedroom, $4k/month apartment in Bushwick.
We know from this listing that we’ll probably need first and last months’ rent upfront bringing upfront costs to $8,000.
Now let’s look at the going rate for rooms in Bushwick on roommates.com and some of the other roommate search sites available.
Padmapper has individual rooms from $930 to $1,300 right near the area of this listing and Roomster shows listings form $840 to $1400.
For our deal math – let’s assume we can get dead even of $1000/roommate in this apartment.
If we’re living there in the 5th bedroom, and renting out the other 4 bedrooms for $1000/each, we’re living for free in NYC. In this case – the rent is not too damn high.
Another detail we can think about here is that rent has been reduced by $200 recently from $4,200 to $4,000 a month, so it may be worthwhile to offer $3,800 a month to make this an even better deal. We we to make this the case, we’d have a $200/mo cash-flowing rent-by-room apartment.
This is incredible math and doesn’t take long to figure out. You can easily run numbers like this on the thousands of NYC apartments available.
House hacking isn’t just for people who can afford homes. If you’re living in NYC, it’s likely that you simply can’t afford to buy and apartment or property to house hack in the first place. Renting house-hacks provide a huge amount of cash-flow for very little money down.
We covered the math of these apartment setups and in some cases you can end up with an enormous return for very little money paid upfront to your landlord in the first place. Usually even less that it would cost in closing fees if you had bought your own property in NYC. That is some insanely great returns.
Do your research and ensure it’s legal and clear in your lease that you can do this. Search for and vet roommates quickly to get yourself setup quickly with medium to long-term subletters.
Once you have your situation in place, you’re going to get some kind of return.
If I’ve learned anything from the people doing these types of house-hacks its that they are usually trying to live a simpler life and avoid the struggles of having to pay $2000+ rents to live on their own in NYC.
You can do this too.
If you have questions on this strategy or just want to get more details, shoot me a comment below.