Advice needed Home hacking on 3rd deal

[Natalya Whitaker]

I am looking at buying a 4-plex in old Louisville, KY. These houses are GORGEOUS, but very old. It's the biggest historic district in all of the US. In the 1940's several of these houses were converted to multiplexes to help in the war effort. So half are single family and the other half are multiplexes. The single family homes that are updated sell for $280,000 to $400,000. The multiplexes sell for $140,000 to $250,000. The 4-plex I am looking at buying is $225,000 but needs about $30,000 in updates. The units currently rent for #1 - $720. very large 1 BR, 1st flr front, #2 - $550 winter, $500 summer (mows lawn) small 1 BR, 1st flr rear #3 - $595 roomy 1 BR, 2nd flr front #4 – $575 roomy 1 BR. 2nd flr rear I would like to start by living in the front units, and slowly covert the house to a single family while we lived there. (We've fixed a house up while living in it in one of our other deals). So our rents would cover $1125 of the mortgage. I'm not exactly sure how to run the numbers when house hacking, and flipping. The numbers are only so so as is if it isn't a house hack. Cash flow $210 ish ROI 6.7%, although if the apartments were fixed up the would rent for an average of $100 more each per month. But I don't want to fix up the apartments because I want to eventually transform the house into a single family over an extended period of time. We would need to live in the house for 5 years while my husband finishes med school. I want to use the back two units to help with the mortgage while I get more deals. So good deal? Or bad deal? Thanks in advance

[Michael Seeker]

@Natalya Whitaker - Sounds like I'm chiming in after you already got your answer on this particular deal, however 2/3 of my rental units are in Old Louisville so I thought I'd add a bit to the discussion. Your initial post indicates that SFR's that are updated sell in the $280-$400K range. I think you really need to look at what those houses are compared to what you're looking at buying. Something selling for $400K in Old Louisville is in pristine condition with all original molding, hardwoord floors, staircases, windows, etc. with a $20K-$50K kitchen to boot. It's going to be immaculate and in a good location. I've looked at hundreds of multi-family properties in Old Louisville, and I could count on one hand the number that had the potential to be converted from a sub-$200K multifamily to a $400K SFR and that is assuming $200K+ worth of renovation to get there.

If your goal is to buy a multi and slowly convert it to an SFR for a nice capital gain, then it's probably not going to happen. I think your best case scenario is that you break even on the conversion and even that is probably not likely.

I'm not sure where the initial $30K rehab number came from, however I almost never see a multifamily property for sale in Old Louisville that doesn't have $30K+ worth of deferred maintenance.   As others mentioned the costs to convert from multi to single family are going to be MUCH higher on top of the outstanding deferred maintenance that will exist when you buy the place.

If your end goal is to own a rental property, then house hacking a multi in Old Louisville makes perfect sense and there are many that the numbers will work with. If your end goal is to own/flip a SFR in Old Louisville, then starting with a functioning multi is not going to be the best way to achieve that.