House Hacking Calculator

By Robert Leonard •  Updated: 08/17/22 •  28 min read

You shouldn’t buy a house hack if you don’t know whether or not the property you found makes sense financially. You need to analyze the deal using a house hacking calculator to determine that.

The house hack may be the perfect property in a great area, but the financials could be a deal breaker.

In this blog post, you’ll learn how to analyze each part of a house hacking deal, such as the income, expenses, profitability, and the all-important post–house hack analysis (don’t forget this step!) using our house hack calculator.

Before you dive into the rest of this blog post, be sure to grab your free copy of the house hacking calculator. Having the calculator in hand while going through this content will be very helpful for you.

Income Analysis with House Hacking Calculator

In its most simple form, a general income statement—for any business, not just real estate—starts with revenue or income at the top, then lists expenses, and has profit at the bottom. This is the same approach for analyzing a house hack deal.

You start with income, then move on to expenses, and end with income.

Think of it as an upside-down pyramid that is split into three sections horizontally.

The section at the top is the largest, the middle section is the second-largest, and the bottom section, the tip of the pyramid, is the smallest. The top section represents your income, the middle section represents your expenses, and the bottom section represents your profit.

house hacking deal analysis upside down gray pyramid with white text saying income expenses and profit

In a house hack deal, the most common type of revenue is your rental income. Regardless of which strategy you choose, conventional or unconventional, traditional or short-term, entire units or rent-by-the-room, or a strategy in between—your main income source is rental income.

House Hacking Deal Analysis Isn’t Just For House Hacking

One of the major benefits of the house hacking strategy is that it helps prepare you to become a real estate investor outside of just house hacking properties. It teaches you how to make other types of real estate investments, similar to how training wheels help you learn how to ride a bike.

You will be able to take the skills you learn in this blog post—like estimating rent and expenses and analyzing deals—and apply them to other real estate investing strategies you pursue in the future.

Some of the material is house hacking–specific, but much of it is not. Much of it applies to other strategies as well.

For example, when you utilize a house hacking duplex and rent out the second unit you are not living in, that second unit is essentially the same as a traditional rental unit.

You would find and estimate the rent for that unit the same way you would if you had bought the duplex purely as a traditional rental, without living in one of the units. For a duplex as a traditional rental, you would just duplicate the process you went through for the one unit while house hacking for the second unit.

Estimating Rents

Passive Approach

There is both an active, do-it-yourself approach and a passive, professional-based approach to estimating the rent for the rental units in your house hack. Despite its name, the passive approach still does require a bit of work.

The passive, professional-based approach to estimating rent is accomplished by using your network, specifically real estate agents and property managers. With this approach, you would call local real estate agents and property managers in the area to ask their opinions on what your unit would rent for.

Keep a record of what they tell you, and if an estimate is significantly lower or higher than the majority of the others you received, you should probably remove those data points from your list. If four people say $1,200 per month, one says $900, and one says $1,600, then $1,200 per month is probably the best estimate to go with (unless the individuals who gave you the lower and higher estimates had very good reasons to do so).

It is important to speak with real estate agents who have specific experience with rentals. Most people are happy to give you their opinion, even if they don’t have experience. Not all real estate agents have rental knowledge, so be sure to find one who does.

Look at the data you receive from all of the real estate professionals you call and make an educated decision about what you believe is the best estimate based on each person’s input.

Active Approach

The active, do-it-yourself approach means that you do the work and research of the real estate professionals. To conduct this research, you should find reputable online sources that can provide rental data for your local area. These may vary depending on your location and when you are reading this, but three current resources are Rentometer, Zillow, and Facebook Marketplace.

Rentometer is a database of rental data that allows you to enter your property’s address into a search bar and get a list of properties in the area and their rental rates. Rentometer calculates your rental rate based on its data and the properties in the area. This site is a great way to get a general idea of what your rent should be, but don’t use this as your only source.

Go on Zillow and/or Facebook Marketplace to find properties similar to yours that are in your area and listed for rent.

Once you have a list of these properties, take note of the rental rates. In the professional-based approach, you rely on the information you receive from professionals to come to a conclusion. In this do-it-yourself approach, you look up the rental rates yourself.

You should also eliminate any rates that are significantly higher or lower than the rest, and do your best to think critically about what the most likely amount is based on the available data. The more data points you have, the better.

Zillow is just one of many third-party real estate platforms that can provide relevant data. Trulia, Realtor.com, and Redfin are other popular sites. As long as the site is reputable, choose the one you enjoy using the most and move forward with your analysis.

Many of the listings on third-party sites like Zillow and Facebook Marketplace are from reputable real estate agents who have data backing the rental rates they have chosen, but some of the listings are from individuals who can list their properties for any amount they like without any logical reason.

While it is not common for landlords to post inaccurately priced rentals on these sites, it does happen, and you should be aware of how this could impact your estimations.

The data you get out of an analysis is only as good as the data you put in. If you are unknowingly entering inaccurate information into your analysis because of other landlords making up their own rental rates, that would negatively impact your analysis.

If you estimate the rental rate too high for your potential rental unit because of this inaccurate data, it could lead you to purchase a property for a higher price than the numbers truly support. Rather than your house hack reducing your monthly living cost, it could do the opposite.

Combining the Passive and Active Approaches

Just as you can combine multiple house hacking strategies, you can combine the rental rate research methods as well. If you are a new investor, or just a generally skeptical or conservative person, who does not mind doing a bit of extra work, you can combine the passive, professional-based approach with the active, do-it-yourself approach.

If you want to double-check your own analysis, you can start with the do-it-yourself approach and then move on to the professional-based approach to verify what you have found on your own. This can give you the confidence to rely solely on the active, do-it-yourself approach going forward, if you choose.

Using The House Hacking Calculator

Now that you have determined your expected rental income, it is time for you to enter that data into your house hacking calculator.

You can download the house hacking calculator here.

Once you have accessed the calculator, enter your expected rental income in the Monthly Revenue section.

While it is not necessarily common to include other sources of income with house hacking, it is possible. This can include sources like coin-operated laundry, garage access or storage, paid parking, shed storage, and so on. If your house hack provides any opportunities to earn additional revenue each month that is not included in rent, be sure to enter that in the analysis calculator under Other Income in the Monthly Revenue section.

If instead of a long-term strategy you are implementing a short-term rental strategy, you should enter your total expected short-term rental income into the Monthly Revenue section. If you are renting by the room instead of by separate units, you can enter your monthly income per bedroom into the separate cells for units. Unit 1 would be considered Bedroom 1, Unit 2 would be considered Bedroom 2, and so on.

The concept of margin of safety says that you should purchase an asset at a discount to what you think it’s worth to try to cover any mistakes you may have made in your valuation.

Margin of safety is arguably more important when utilizing short-term rentals with your house hack than long-term rentals because the rental income amount is harder to estimate. But, that does not mean you can’t and shouldn’t apply the concept to your long-term rental analysis as well.

If you know you are a bit more risk-averse and conservative, it will serve you well to add a margin of safety to the number you arrived at for your rental income.

When implementing a long-term rental within your house hacking strategy, you can also use the margin of safety concept by using a vacancy rate that is slightly higher than what you actually expect. The vacancy rate will be explained in more detail later.

Similar to how real estate agents and property managers can assist you in determining your rental rates, they can also help you determine your vacancy rates. If they can’t give a specific vacancy rate, you can get an idea by asking questions about how long it takes to rent units like yours during turnovers.

House Hack Calculator Expense Analysis

Arriving at the correct income at the beginning of your analysis is very important, but so is estimating your expenses accurately. If you start your analysis with an inaccurate rental income number, it is going to be hard to correct that as you work your way down the upside-down pyramid.

Acquisition Costs

The first data points that need to be estimated for your expenses are your acquisition costs, which include the purchase price after repair value (ARV) or expected sale value; closing costs; and repair costs.

The house hacking calculator that is a companion to this post includes an area to input the asking price. This allows you to record the difference between the property’s asking price and your purchase price so you can look back on your analysis at a later date. Simply record the asking price for the property and the purchase price for which you expect to get the property.

You can also insert the amount for which you have the property under contract in the Purchase Price area. However, this is not an ideal process, as you should be running your analysis for the property before you have it under contract. Your analysis tells you if it is a good deal and what price you are willing to acquire it at.

The ARV, or expected sale value, is used in a deal analysis to calculate your estimated internal rate of return (IRR) by acting as the price at which you will sell the property in ten years. There are two approaches to determining this value—conservative and aggressive.

In the conservative approach, you would use the value as of today in your analysis. This is estimated by looking at comparable properties in the area to determine the value of the property after you have purchased it and completed renovations, if any. You can ask your real estate agent for assistance in estimating the ARV. This is considered the conservative approach because you are assuming no growth in the value of the property over the next ten years.

The more aggressive approach starts with the same process as the conservative approach. You must first determine the ARV, then apply an annual growth rate to that value to estimate what you think the property will be worth in ten years.

For example, if your property has a value today of $100,000 and you expect the value to increase 2 percent every year, on average, for the next ten years, the amount entered for the expected sale value would be approximately $122,000.

The IRR calculation would use $122,000, net of any remaining mortgage balance, as the final amount in the tenth year.

Financing Costs

The next set of data points you must estimate are in the Financing section; these include your down payment amount, loan interest rate, private mortgage insurance (PMI) percentage, loan term, lender points, and any other financing fees.

If you have already received your preapproval from a lender, you can simply take the information from your preapproval documentation and enter it here. If you have not already received a preapproval, you can estimate here what your expected amounts are for your down payment, interest rate, PMI, loan term, and any fees you may need to pay.

Monthly Expenses

Your next considerations when analyzing with the house hacking calculator are your reserves, which include repairs and maintenance, CAPEX, and vacancy, then property taxes, insurance, utilities, landscaping, HOA fees, and any other monthly or annual fees you may have.

Reserves

When it comes to rental property in real estate, reserves are amounts of money put aside each month to cover future one-time expenses.

At the time of putting the money aside, the reserves are not an expense; you are simply saving the money. In accounting lingo, reserve savings are considered “non-cash expenses.” The items you put money aside for in reserves become actual expenses when you need to use the savings to cover the costs.

The other expenses listed are not considered reserves because they are generally recurring on a set basis and require cash to cover the costs. The three major reserve items are:

  1. Repairs and maintenance refer to small items in your property that need to be fixed or updated due to normal wear and tear.
  2. CAPEX is similar to repairs and maintenance but involves larger items, such as replacing appliances, putting on a new roof, large painting job, and so on.
  3. With rental units, vacancy is the amount of time you expect your units to be unoccupied by a renter.

All three of the reserve categories are expressed as a percentage, which is then applied to your gross rental income to determine the dollar amount you should put aside each month or year to cover those estimated future expenses.

When estimating your reserve amounts, there are three approaches you can follow: (1) conservative, (2) aggressive, or (3) do-it-yourself.

The conservative and aggressive approaches are both general benchmarks used by investors that can simplify your analysis and make it quicker to complete. The do-it-yourself approach requires that you create your own percentages for each of the three reserve items.

Just like when analyzing a real estate market using benchmarks, it is important to remember that benchmarks are just that, benchmarks. They work as good rules and starting points for your analysis, but they do not work in every situation. You may need to adjust these numbers to better fit your situation.

As you gain more analysis experience, you will be able to fine-tune these numbers.

Under the conservative approach, repairs and maintenance are set at 5 percent, CAPEX is set at 10 percent, and the vacancy rate is set at 8 percent. If your rental unit rents for $1,000 per month, based on the conservative benchmarks, you should set aside $50 for repairs and maintenance, $100 for CAPEX, and $80 for vacancy.

Under the aggressive approach, repairs and maintenance are set at 2½ percent, CAPEX is set at 5 percent, and the vacancy rate is set at 4 percent. Based on these benchmarks, assuming the same rental income as in the conservative approach, you should set aside $25 for repairs and maintenance, $50 for CAPEX, and $40 for vacancy.

The do-it-yourself approach can be tailored to your specific situation because it requires you to set your own percentages for each of the reserve items. If you know your property is in an area with very strong rental demand, especially for your unit type, you can use an even lower vacancy rate than what the aggressive approach calls for. It can go the other way as well.

If your area does not have strong rental demand, or if you are being conservative, you could use an even higher vacancy rate than what is used in the conservative approach.

For CAPEX, as well as repairs and maintenance, the percentages can be adjusted based on the age, quality, size, type, and location of your property.

Typically, older properties require more maintenance, in the form of both repairs and CAPEX, unless these items have already been completed by a previous owner. If you are purchasing an older home with common items that need repairs and/or replacing that have not been taken care of—meaning the overall quality is a bit lower than it could be—you should probably increase the percentages you are using for repairs and maintenance and CAPEX, possibly even higher than the conservative amounts. Whereas if you are purchasing a property built in the past decade that has been well maintained, you may be able to use percentages even lower than the aggressive benchmarks.

Considering the size and type of a property when setting reserve percentages is an area of house hacking deal analysis that many investors overlook.

The reason for this is that they do not realize that the cost of certain items is relatively fixed, regardless of property size and type. For example, the cost of replacing a hot water heater (a CAPEX item) does not tend to vary wildly regardless of the size of your property. If you have more than one hot water heater, you would need to take that into consideration, but the cost of replacing a hot water heater on a 750-square-foot property versus a 2,500-square-foot property is not drastically different. The same can be said for other CAPEX items, such as windows.

If your property is a single-family home with ten windows, the cost to replace them is probably not very different than replacing ten windows in a fourplex.

This principle can even be applied to replacing a roof.

Depending on the structure of your buildings, the cost of replacing a roof on a fourplex does not have to be dramatically different than for a single-family house. It may be slightly more, but you might be surprised at the minimal difference.

The reason this is important is that different property sizes and types generate different amounts of rental income, yet each can have similar CAPEX costs, which can have a big impact on the reserve percentages you need to use in your analysis.

For example, if you own a house hack duplex with one rental unit, and you live in the other unit, that produces $1,000 in monthly rental income. Using 10 percent as your CAPEX reserve percentage, you would need to put aside $100 per month.

Now assume that instead of a duplex, you have a fourplex with three rental units. Still, each unit provides $1,000 in monthly rental income. But this rental income total is $3,000 per month, and your CAPEX reserve would be $300 per month.

Did the cost of replacing your roof just triple too?

Most likely not.

In many cases, the cost of replacing a roof on a fourplex is not much more than for a duplex. Of course, it can be more expensive; it depends on the configuration and size of the properties, but just because you have more units, and therefore more income, that doesn’t mean the cost of CAPEX or repair scales equivalently.

The difference in your reserve amounts could cause you to miss a good deal. The difference of a few hundred dollars per month could cause you to not purchase a property that could make for a great house hack, simply because you analyzed it incorrectly.

Profitability Analysis with House Hacking Calculator

It is uncommon to make a true profit when house hacking.

That is, more rental income than the entire mortgage payment and expenses.

However, it is not uncommon to have your tenant’s rent cover more than your portion of the mortgage, which reduces your personal housing costs, and is typically the goal of house hacking.

It is not impossible to have a true profit; people have done it, but it is certainly not the norm.

Profitability analysis in house hacking is when you consider the results of your analysis and determine if the results meet your criteria.

In the companion house hack calculator for this post, you will find a Monthly column and a Year 1 column under the Profit & Loss section. These are the two most common columns investors look at when conducting a profitability analysis.

The first column tells you your numbers on a monthly basis, and the second column shows your numbers on an annual basis.

Starting at the top, you will see your total income, encompassing your rental income and any other secondary income sources.

Below that you will see your all-in mortgage amount and any other expenses you may have.

The all-in mortgage is the total amount you will be required to pay the bank each month for the property. This includes your principal, interest, taxes, insurance, and PMI. Your other expenses typically include water, sewer, electricity, landscaping, HOA fees, and any other miscellaneous expenses you may have.

You should be able to get amounts for the expense items from the owner who is selling the property. If it is a multifamily property and already a traditional rental that you will be turning into a house hack, the previous landlord should have these amounts readily available for you upon request. If it is a single-family property, it may take a bit longer to get the information together, but it should still be possible.

When you subtract all of your costs from your total rental income, you are left with what is considered your living cost.

Living cost is the minimum amount of cash that you will have to pay out of your pocket each month to own the property.

It is very important to note that this amount does not include any money that should be set aside for reserves. Some house hackers choose not to put any money aside each month for reserves and instead deal with the issues out of their own personal savings if and when the problems arise.

This is not the recommended strategy, because if you are buying a house hack for which you can only afford the living cost amount and nothing more, you will not be able to save any money each month, whether it is for reserves or not. If you are not saving money each month, you probably will not have the necessary funds available when something breaks.

Your analysis is not yet complete.

Next, you need to subtract your estimated reserve amounts for repairs and maintenance, CAPEX, and vacancy. The resulting number is what I call your adjusted living cost.

It is called so because you are making an adjustment to your original living cost amount to include your reserve amounts. The adjusted living cost is the total amount you would need to take out of your pocket each month to cover your portion of the mortgage and put money aside for reserves.

Profitability Analysis Example

For this example, assume you did not want to contribute more than $500 per month toward the mortgage, regardless of the total amount. You find the perfect property to house hack—a triplex that crosses off all your qualitative requirements. Then you start to analyze the property to see if it makes sense quantitatively.

You are relatively conservative, so you use the conservative benchmarks in your analysis for the reserve percentages. Once your analysis is done, you discover that you would have to contribute $650 per month toward the mortgage if you chose to house hack this property.

You don’t want to give up on the property because it’s so perfect qualitatively, so you hire a deal analysis coach to double-check your work.

Your coach finds that the percentage you were using for your reserves was too high for a triplex, which caused you to put aside too much each month for reserves. Once the reserve percentages were adjusted to a more accurate number to account for the fact that you were considering a triplex, not a single-family house or duplex, the analysis showed that you only have to contribute $450 per month toward the mortgage!

Instead of missing out on a property you loved because of an inaccurate analysis, you are now able to purchase it and start the house hacking wealth supercharger.

Be As Accurate As Possible

It’s true, you could just arbitrarily change the numbers in your analysis to make it work. You could increase your expected rental income, reduce some of your expenses, or change your reserve percentages, even if the changes were inaccurate, just to make it work on paper.

However, that will not do you any good. You live in reality, not in the paper of your analysis. Just because you wish for the numbers to be a certain way does not mean they will turn out that way. It is in your best interest to make your analysis as accurate as possible.

This process works very similarly for analyzing traditional rental properties.

Instead of the result having to be less than the amount you want to contribute toward the mortgage, you would analyze to determine if the property makes enough profit to satisfy your requirements.

With a house hack, you may be willing to pay $500 per month toward the mortgage, but with a traditional rental, you may require $200 per month in profit per unit. The house hacking analysis skills you just learned are transferable to traditional rental analysis and can help you determine if you are missing out on a potentially good rental property by using the wrong reserve percentages.

Review

The last part of your house hacking calculator and of your profitability analysis to review is the equity accrued, the reserves saved, and the percentage of mortgage paid.

The equity accrued amount is the amount the principal is expected to be paid down in a given year.

Reserves saved are the total amount of reserves that are expected to be put aside in that year if the monthly amounts are put aside each month.

The percentage of mortgage paid is a metric that shows you how much of the mortgage you are personally paying yourself—the lower the better.

Post–House Hack Analysis

You just learned that many investors do not scale their reserve percentages correctly when analyzing properties with different characteristics using the house hack calculator. The other most common mistake investors make when analyzing house hack deals is that they do not consider what the numbers will be for the property after they are done house hacking it.

If you are planning to sell the property and move on to a new one when you are done house hacking it, then you do not need to do a post–house hack analysis.

However, if you are planning on turning your house hack into a traditional rental property once you move out, which is the best approach, it is very important to conduct this analysis before purchasing the property, in addition to the house hack analysis you just learned.

It is important to conduct both analyses before purchasing a property because a property may make sense in one scenario but not another. It could be a great house hack property but be a subpar rental, or vice versa.

If your main goal is to buy a good rental with a low down payment amount, you may be okay with a mediocre or even subpar house hack on the front end of the deal, as long as it’s a great rental on the back end when you move out.

Other people may require a much better house hack deal on the front end and accept a lower-quality rental on the back end in exchange. As with many aspects of house hacking, there is no right or wrong here; it is up to you to decide what is right for you and your situation.

As an example, let’s assume that one of your house hack requirements is not having to pay more than $500 per month toward the mortgage, and you want to earn at least $300 per month per unit in net cash flow when you move out and turn the property into a traditional rental.

You conduct the house hack analysis for a potential property and determine you would only have to pay $400 per month toward the mortgage.

This is even better than your requirement when house hacking, so you decide to move forward with the purchase.

After a few months of being in the property, you start to think about your exit strategy.

You run a post–house hack analysis and realize the property barely breaks even each month. Never mind meeting your requirement for net cash flow; the property is barely going to be profitable at all.

Now you are left with a tough decision.

This issue could have been avoided by conducting a post–house hack analysis before acquiring the property.

You could accidentally be drawn into purchasing a property that meets your house hacking requirement but not your rental requirement if you do not conduct both a house hack analysis and a post–house hack analysis.

I’m a bit hesitant to tell you this because I don’t want you to skip the post-house hacking analysis, but a saving grace for some investors is that, if you can purchase a great house hack deal, it often makes for a good rental as well. The more you have to pay toward the mortgage each month, the less likely it is to be a good rental, and vice versa.

That said, the post-house hacking analysis is still very important. Don’t forget to use the house hacking calculator to understand the deal’s full picture.

Frequently Asked Questions About A House Hacking Calculator and Deal Analysis

Is house hacking profitable?

We do a profitability analysis, but house hacking generally doesn’t provide a true profit (which is where the rental income covers all of the property’s expenses). It is possible and does happen, it’s just uncommon. Instead of providing a true profit, house hacking’s goal is to reduce your housing costs.

What is the 2% rule in real estate?

The 2% rule in real estate says that a property’s monthly rental income should be at least 2% of the purchase price as a general rule of thumb for determining a good deal. However, this has recently become the 1% rule as it’s very difficult to find 2% deals these days.

What is the 1 rule for rental property?

The 1 rule for rental property (1% rule) says that a property’s monthly rental income should be at least 1% of the purchase price as a general rule of thumb for determining a good deal. This used to be known as the 2% rule, but has shrunken to the 1 rule for rental property as property values have increased significantly.

What is the 50% rule in real estate?

The 50% rule in real estate says that you should expect a property’s expenses to be approximately 50% of its rental income. This is just a general rule of thumb for quickly analyzing deals and should not be used as your only analysis method.

What are typical operating expenses for a rental property?

Typical operating expenses for a rental property include repairs and maintenance, landscaping, utilities, trash removal, property taxes, mortgage principal, and interest. These operating expenses are often estimated at 50% of a property’s rental income.

Robert Leonard

I am the founder of Everything House Hacking, author of The Everything Guide to House Hacking, a real estate investor, and host of two top 1% business podcasts — Real Estate 101 and Millennial Investing.

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