Even if you’re only an occasional reader on the BiggerPockets blog, I’m confident that you’ve at least heard the term “house hacking.” If you’re familiar with the concept, please skip ahead.

In a nutshell, housing is expensive—it’s usually the most significant portion of a budget. House hacking is a strategy to cut down on your housing expenses by purchasing a multifamily property, often a duplex, and living in one unit while renting out the other(s). By using the rent you receive from the other unit(s) to put towards some, if not all, of your mortgage, you’re essentially living “rent-free.” And by utilizing an FHA loan, you can put down as little as 3.5% to get started. Sounds perfect, right?

Don’t get me wrong. House hacking is an awesome strategy that works for a lot of people. But I’ve decided that it’s not the best option for me and my lifestyle. Here’s how I reached this conclusion.

I moved to Denver, Colorado for a job here at BiggerPockets in mid-March from Des Moines, Iowa. I had approximately ~4 weeks to find a place to live in Denver, and not knowing much about the city, I decided to rent.

Current Housing Costs
Base Rent: $1,380 (includes pet rent and parking spot)
Utilities: ~$140 for water, electric, and internet. I do not have cable.
Total: $1,520/month

My lease is up early next year, and as a real estate investor, I’ve certainly been thinking about purchasing a property in Denver either as a house hack or straight investment. The problem? Property is really, really expensive right now. For example, this 2-bed/1-bath 888 sq. foot duplex recently sold for $410,000 after selling for $210,000 in 2005. Here’s a triplex that sold for $650,000 after selling for $252,200 in 2012. While it’s possible and probable that remodeling could help explain the bump in prices, it’s still really expensive, especially compared to what I’m used to investing in back in Des Moines, Iowa.

House Hacking Costs
One of the considerations for purchasing a house hack is that you have to be willing to live in half of it (it’s a stipulation for a FHA loan.) When I started to look for duplexes or triplexes, I couldn’t find anything listed for less than $450,000 that met the “I’d live here” criteria. For the sake of simplicity, let’s go with a final purchase price of $425,000. (Note: Yes, I know that I could spend more time networking/scouting for a better deal, lower my living standards or be open to other neighborhoods, etc.)

Purchase Price: $425,000
Down Payment: $16,000
Loan Amount: $409,000
Interest Rate: 4.12%
Property Tax: 2.0%
PMI: 0.50%
Insurance: $1,000
Mortgage Payment: $2,985

Now, let’s assume that I rent out the other 1-bed/1-bath unit for $1,600. That leaves $1,385 left to cover the remainder of the mortgage, which is essentially what I’m paying before utilities at my apartment.

Option 2
In either scenario, I do not like having to pay $1,300+ for housing. So I thought of another option. I currently have three rental properties in Des Moines, Iowa and wondered if I might be better off just investing in another property there to offset the high cost of living in Denver. Taking a look at the inventory there, I believe I would be able to purchase a single family home (likely a 3-bed/1 or 2-bath) for ~$130,000 that would bring in $1,200/month in rent.

Purchase Price: $130,000
Down Payment: $32,500 (25% down to keep the rates lower)
Loan Amount: $97,500
Interest Rate: 4.2%
Property Tax: 1.5%
Insurance: $800.00
Mortgage Payment: $700.00

Renting out the house for $1,200 month, I will have $500 to put towards my $1,380 rent, essentially bringing it down to $880.

Keep reading the article “Why I’m Not House Hacking (& the Strategy That Will Cover More of My Rent)” by Julie Kent here:

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