My House Hacking Experiment

[Jon Ladas]

Hey BP what's going on? I'm trying to get in the habit of posting more because I have not been active for the last few months. 

I figured I'd share my house hacking experiment that I've conducted over the last 2 years and see if I can bring some value to others who are looking to get into real estate or want to take their house hacking to the next level. 

Two years ago when I was 27, I purchased my first duplex (2 years after my target date to purchase a 3 family but better late than never). It is a strange set up so I will describe it as simple as I can. Think of the house as a square with two levels. 3/4 of the first floor is a 1 bedroom apartment (750-800sf) with a small living area, bathroom, and kitchen. The other 1/4 of the first floor is the kitchen to the 2nd floor unit. It is a larger unit with 3 beds, 1 bath, living room, and *formal dining room* upstairs. (Formal dining room is the key to my success)

My original plan was to live in the 1 bedroom unit and rent out the 3 bedroom unit for around $2400-$2500/mo. All in, my mortgage was $3,000 at the time so I would have been living for around $600 + paying water and oil for heat since the systems were not separated. Yearly cost for Oil is around $1,000 So Let's say I would be living for $700/mo. Not a bad play since I am 10 miles outside of Boston, 1/2 mi from Salem State University, and 0.7 miles from downtown Salem.

One day I thought to myself, "you know what, I'm going to throw the 1 bedroom unit on the market for $1,600 and allow pets to see how much action I get. Then I can move upstairs and rent out the other two bedrooms for around $800 each." Long story short, that's what I did. Now I had $3,200/mo in revenue so after expenses I'm living for $500/mo, pretty good for a noob. 

But, remember I said there was a formal dining room and living room in the three bedroom unit? Well I put up a wall between the two for $1,000 to make a 4th bedroom. I moved into that room and rented the 3rd bedroom out to a buddy of mine at the discounted rate of $500/mo with the agreement that he would help me renovate his bedroom, two kitchens, two baths, and the garage. 

Now we're cooking with grease. My income was $3,700 on a $3k mortgage. 

I was able to refi 6 months ago bringing my mortgage down to $2,700 so I'm grossing $1,000/mo and after paying water + Oil I'm netting $700/mo to live in my own property while my tenants are paying down my mortgage and my equity is growing.

I am about to refi out of my PMI (Mortgage insurance) which will remove $285/mo from my payment. This will probably be a cash out refi because I purchased the property for $430k and I should appraise out at $530-$560k and I have a lot of renovations planned.

I have done minimal work to the property because when I purchased the property I got out of corporate America and have been a full time Realtor, which everyone who is a realtor knows that the first year is always the hardest. Let's just say I didn't make enough money to live the upper middle class lifestyle I'd become accustomed to in corporate america, nevermind renovate my property.

However I will be gutting my unit's bathroom next weekend (doing most of the work myself) and remodeling both kitchens by the end of 2020. It's safe to say that 2020 was a solid year for me and I was able to substantially increase my income.

Bonus: I purchased a 2 floor duplex in a multi family zone where the city allows me to go up to 4 units. I will be starting the permitting process in 2021 to add 2 more units to my property. Worst case scenario I will only be approved for a 3rd unit. That means I will only throw a 3rd story on and build a 2 bed unit for under $150k. This should bring me an additional $1700-$2000/mo depending on the quality of finishes I decide to go with.

I will be all in at $430k + $15k in bathroom/kitchen renos + $150k for the 3rd unit = $585,000. 

Gross occupied income: $64,800 -$68,400 (additional $13,200/yr if I move out and rent the 4 bedroom unit)

Gross Cap: 11% - 11.7%

(When I purchased this at $430k it was running at a 6.5% Cap)

If anyone has questions about House Hacking feel free to reach out. If you have any suggestions for me I'm all ears. If you're going crazy stuck at your home office and just feel like chatting let's connect and talk shop. 

THANK YOUUUUUUUUUUUUUUUU