First-time House Hacking a SMF in Fresno, CA

[Shaun Collins]

Hey all,

Would love to hear everyone's advice on my current situation. I recently went under contract for a 4-unit multifamily property in Fresno, CA (C-Class neighborhood, 93726 AC for those familiar) for 385k with the intention of house hacking. Each unit is an identical side-by-side 2br/1ba w/ 1 car garages, surrounding market rents going at 900-950 or so for nicer units. Loan is an FHA 3.5 down. I'll give a brief summary of each of the units "A-D":

Unit A: Prior tenant got bought out with cash for keys and left pretty much everything, place is a total dump and could use a good amount of work on the inside. Old hardwood needs to be sanded or replaced, walls need patching, swamp cooler and venting needs fixing, kitchen and bathroom brought up to livable standards. This was the unit I was planning on living in, and was going to use a month or so of the 60 allowable days the FHA gives you to get this work done before moving in. I'm a DIY'er for most stuff but I want the flooring and any air vent related work done professionally.

Unit B: Rent is 750, tenants keep good care of the place and are MtM, could still use some normal updating and minor value-adds.

Unit C: Rent is 700, very elderly tenants have been around for 5+ years, are MtM and kept pretty good care of it sans the chain smoking and buds everywhere.  Unit doesn't need much work done, mostly repainting and maybe some new finishing on the old tile countertops.

Unit D: Rent was 750 but tenant is moving out (5 months before lease ends) at the end of september. Only unit with carpet throughout but kept in good condition. Unit has had new stoves, fridge, paint and bathroom work done. Only work still needed is to check some noise coming from the swamp cooler which will happen during inspection and maybe re-paint cabinets in the kitchen (all units could use this honestly). Its basically rent-ready after a good cleaning and can probably put it on the market for 850 min, plus I could screen the new tenants myself.

I have not gone through an inspection yet but 2 of the tenants reported a roach problem and sure enough the repair history shows pest removal at about 120 a month for the last 8 months or so, which worries me.  The repair history does show maintenance tickets for plumbing, electric etc. as well every 2 months or so. There's a dumpster in the alley behind the property that is currently overflowing with junk and looks like its being used by adjacent properties and homeless too. 

After running the numbers multiple times and not trying to sugar coat them at market rent, units B-D would cover my PITI, but I would basically be on the hook for everything else which includes future pest removal, the 230 avg water bill, 80 avg trash pickup.This is my first home/house hack and I'm eager to jump into the business to get experience but dont want to set myself up for massive regret. Im not worried about living in a C-class neighborhood with plenty of homeless and trash strewn about, nor living next to tenants or doing maintenance work/landscaping myself, what I am worried about is that when I move out (2 yrs at most) and have to hire a management company that any cashflow I am making while living there could be reduced to hardly anything worth the hassle. Not to mention coronavirus has forced extended anti-eviction laws until at least April here in California so a rent increase most likely wouldnt come until the pandemic is over.

I could probably throw in some more contingencies into the deal that the seller has to handle like new roofs, swamp cooler repair etc. based on inspection as the seller seems eager to get this property off their hands.  I've been looking around Fresno for house hack potential for a long time now and hardly any have popped up with a unit being vacant or the seller willing to vacate one.  That all being said, I would love any and all advice you guys have for me about whether I should move forward with it or keep my chips while I have em, I'm all ears. Much appreciated!

[Nancy Tran]

It's really difficult to house hack and live rent-free in urban California, just due to HCOL area. That doesn't mean this is a bad thing. You might still be saving yourself rent anyway, and then you will have a property with only 3.5% down after the 1-2 year live-in period. What would you have had to pay in rent otherwise to live elsewhere? You can also shop around for pest, 120 a month sounds a bit much. Use the BP calculator with the expenses, and run the calculations as if you weren't living there and with 8-10% property management put in. Does it still cash flow?

It's good that two of the units are emptied and you can bump those rents up. But remember that California has a rent control law that limits how much you can increase rents, even after COVID ends. It's going to take a few years to reach market on those other two units, unless they move out. Regardless, you probably want to make sure you have some level of reserves for repairs or cap ex going into this. 

We all have to start somewhere, if this is what you want to do. I wish I had done the house-hacking route when I wasn't married or had kids, and I hear that often when experienced real estate investors are asked what they wish they had done differently. 

Best of luck,

Bruce