Unlock Home Ownership: How Landlording Can Be Your Smartest House Hack

Joe Christiano was eager to assist when his sister decided to live with her partner. In their area, the Bay Area, housing prices are extremely high, with the siblings once considering $800,000 homes that had significant structural issues.

The property search seemed endless until Christiano reconnected with an old friend from high school. “He mentioned he was running a workshop on co-buying,” Christiano remembered. “It seemed like a good opportunity to possibly join forces.”

Christiano’s high school friend, Niles Lichtenstein, had started a company called Nestment, which assists prospective homeowners who are priced out of the market by offering alternative purchasing solutions. Nestment provides the necessary resources—like legal agreements and financing options—to facilitate these unconventional buying arrangements.

Many of Nestment’s clients opt to purchase multifamily homes, living in one unit while renting out the other, or they choose to co-buy, sharing the cost of the home with friends, family, or both.

In the end, Christiano’s family found a solution that ticked all the boxes. They purchased a duplex with tenants already in place. Christiano’s sister and her partner took the upstairs unit, sharing the mortgage payments with Christiano and his wife.

“Owning a rental property isn’t suitable for everyone, but it always intrigued me as a pathway to build generational wealth,” Christiano explained.

Lichtenstein credits his mother, a widowed immigrant who hosted international graduate students to help with expenses, as the inspiration behind Nestment. With rental and purchase options remaining out of reach for many, industry observers suggest revisiting these traditional strategies for acquiring property.

“But you also benefit from having your mortgage, property taxes, and other costs heavily subsidized by the rental income,” he pointed out. “This creates a viable pathway to homeownership. I truly believe this is the best approach for anyone who finds single-family homes unaffordable.”

Encouraging Homeownership

It’s not only tech startups in Silicon Valley that recognize the benefits of facilitating house hacks. Across the U.S., there are roughly 800 down payment assistance programs, mostly sponsored by local or state governments, aimed at encouraging multifamily property purchases.

“Supporting homeownership is a priority, especially for first-time buyers,” said Sean Moss, executive vice president of product and operations at Down Payment Resource, based in Atlanta, which monitors such programs.

“A duplex doesn’t cost twice as much as a single unit, and a triplex doesn’t cost three times as much,” Moss explained. “This can be a substantial benefit for a buyer.”

Maria Calkins, director of home services at Neighborhood Housing Services of New Britain in Connecticut, noted that many clients initially aim for a single-family home but find it challenging on their budget. “They then consider taking a landlord class to understand what they’re getting into,” she said.

Moss added that in a tight housing market, it’s wise for potential buyers to explore all available options.

Landlord Challenges

While promoting homeownership is one goal, encouraging the right candidates to become landlords is another, according to Moss. Often, financial assistance programs include mandatory landlord training.

Neighborhood Housing Services of New Britain not only connects buyers with financing but also provides guidance for new landlords. “Some realize through these resources that being a landlord isn’t for them,” Calkins remarked.

For many, the economic upheaval from the COVID-19 pandemic was a wake-up call, leading to temporary widespread unemployment and stringent tenant protections that some property owners found overly restrictive, she noted.

Handling the daily responsibilities of property management, often called “tenants and toilets,” can be demanding, though Christiano finds it rewarding. He and his sister didn’t originally plan to become landlords, but they take their roles seriously.

“We look forward to building a good relationship with our tenants, both as neighbors and as landlords committed to the community,” he said.

Understanding Cash Flow

While organizations like Nestment or housing counselors aren’t essential for buying an investment property, Christiano appreciated the financial insights they provided.

The key question often is whether rental income can be considered in the mortgage qualification process, which varies by loan type. Some loans recognize rental history, while others might count a percentage of potential income, regardless of history. Experienced professionals can help match buyers with suitable loan programs.

However, Christiano also learned from Nestment that in places like Berkeley, rental income alone might not cover mortgage and other expenses. His mortgage costs about $5,000 monthly, with tenants covering about half through rent, plus another $1,500 going towards property taxes, not to mention the ongoing comparison of property insurance options.

“I can envision a future where they live there for the next 30 years, with stable tenants, perhaps refinancing and slightly raising the rent annually to eventually achieve positive cash flow,” he speculated. Alternatively, the couple could move, allowing him to rent out both units. Either scenario suggests the property’s value will increase, and for now, Christiano enjoys managing it.

“Receiving timely rent payments makes the effort worthwhile. Every time I see the notification from Zelle, it’s a great feeling,” he concluded.