First-Time House Hacker Seeking Advice

[Hunter Caskey]

Hi everyone, first time poster here! I recently started researching real estate investing and wanted to see if anyone had advice about a property that I’m considering investing in. The property in question is a fully turnkey 4-unit multifamily in an A- neighborhood in a large city near a university. The units consist of a studio/efficiency, two 2BR/1BA, and a 2BR/1.5BA – all of which have been recently renovated and are considered turn-key. Based on some initial estimates (mainly from Rentometer) I believe gross annual rental income would come out to about $48,000.

I have a good relationship with my realtor, and I believe that we could get the property for $515,000. I plan on using special financing through the state which would provide a 3% grant applicable to down payments and closing costs that I plan to pair with an FHA loan that would allow me to close with 3.5% down on a 30-year term. I've ballparked the mortgage payments to roughly $2,250/mo. I'm estimating an additional $1,200/mo for PMI, insurance, taxes, and maintenance costs. Based on these numbers that puts total annual operating costs at $41,400.

One condition of my financing is that I utilize the property as a primary residence for at least one year which I have no problem committing to – in this situation I would occupy the efficiency which would bring gross annual rental income to $3,150. After the first year I would move out of the property and rent out the efficiency to maximize cashflow. Assuming a 5% vacancy rate for this scenario, I project net rental income for year 1 to be ~$35,880 and $45,600 after that. Considering my closing costs and the negative cash flow that I would be running, I think I would have about $10,500 into this investment at the end of year 1, and beyond that I would be cash flowing $4,980. I’m a bit new to calculating these things but I believe that would put my rate of return after year 1 at ~50%.

To be honest this seems too good to be true, and would like your input to point out if there is anything I missed or didn’t account for, am totally naïve about, or alternate scenarios I should consider. Any feedback is greatly appreciated and I’d be happy to chat 1:1 with folks!