Are my reserves too high for a house hack deal?

[Benjamin Sulka]

Hey house hacking community, 

I've been active on these forums for a while and finally getting ready to purchase my first house hack within the next 3 months. 

My goal is to save on my living expenses and pay less than I am renting right now (my fiance and I pay $1,450 and split it). 

Since I'm relatively versed in general real estate investing knowledge, I'm aware of all of the line items to account for when analyzing a property. Being conservative with my reserves is causing a lot of deals to look bad on paper (after moving out of the property). I'm not expecting a property to cash flow with 3.5-5% down and 6.5-7% interest, but I'd like to see it at least get close to breaking after moving out. 

Here is what I'm taking for reserves (outside of location specific expenses like home insurance, utilties, taxes etc.)

- 10% for future property management 

-10% for vacancy

-10% for CapEx

-5% for repairs and maintenance

-5% for lawn and grounds keeping

-0.5% of purchase price for PMI based on my credit score

For a house hack, is this too conservative? Am I passing up on potentially lucrative house hack deals because I'm taking too much out? Despite the book being written in 2019, Craig Curelop's house hacking book describes the seemingly low reserves that he takes of $300-600 per month.

Would love a sanity check from some fellow house hackers! 

Thanks so much for your time. 

-Ben, aspiring multifamily house hacker

[Marcus Auerbach]

Yes, you are too conservative. 

Even for a regular investment property. It is easy to prove every deal to be not good enough by just going a little higher in every category. 

For a house-hack you are definitely too conservative. Remember: the worst house hack in town still beats every single family financially.

I have been an investor for 15 years and my team works with a lot of house hackers in Milwaukee buying duplxes. Here is what I know: almost every client who bought a cheaper duplex for their first house hack will buy 100k higher for their second one. 

The biggest mistake I see is to worry too much about the cost of things like lawn mowing and water bill and the exact percentage for vacancies, but not being enough aware of the general condition of the property - resulting in 20k, 50k or more in capex a few years down the road.

My advice: look for a quality property that has all the big-ticket items already done. Newer windows, roof, kitchens, bathrooms, HVAC etc. And you want to be in a good location. Both condition and location will allow you to attract better tenants and better long-term financial performance. And since you live there, better quality of life. 

That is way more important than cash flow math. Your future self will thank you.