House Hacking (buying my first home)...help/suggestions

[Cyle Lublin]

First, I'm excited to be here and hopefully some you guys will have some good tips on helping me buy my first house! I'm from Belleville, MI and looking to purchase a multi-family in the Metro Detroit area.

Now, I need some input on a property I found that has potential and I'm wondering if it's worth it... here's the scenario:

• Duplex near a trendy downtown area (Ferndale, MI) and it's listed for $225,000
• The millage rate for a homestead is 55 and 73 for non-homestead, which would make taxes approximately $6200 (homestead) and $8100 (non-homestead) a year based on selling price divided by 2...I confirmed this pricing with the city.
• I believe each unit is renting for $900 (rentometer indicates average rents for $1150)
• Both units are leased until April 2018, which at that point I have to decide which unit I'd like and if the other tenant would like to renew.
• I haven't seen the inside of the house but I'm not even going to look if the financials don't make any sense...I'm looking to spend about $1000 a month after all expenses are factored in (P&I, Taxes, Insurance, Utilities, Groceries)
• I have an 800+ credit score and my original lease would be at 4.675% since it's an initial investment property...I'd look to refinance 30-60 days after moving in.

Someone, anyone please let me know what else I'm missing and any suggestions you have would be highly appreciated! Would it be a good idea to form an LLC when buying this property as well? I'm thinking that it would be for the sake of liability in case a tenant sues.

[David McCracken]

I own a duplex in the area and I think I know the exact house you're talking about, over on Troy street.

Sellers are taking advantage of the market, and I'm of the opinion the upper/lower duplexes are priced out in Ferndale. I ran the numbers myself on that duplex and the cash flow looks negative to me (just like all the other duplexes in Ferndale right now).

I strongly suggest you create a spreadsheet so that you can crunch numbers quickly as you peruse through properties. It will safe you lots of time in the long run. It blows my mind when people buy investment properties without having a VERY good idea of how much money they will net. 

I'm not a fan of forming an LLC, especially if you only own one house. Your landlord insurance will have liability coverage, and if you're really worried you can up that as high as you like. Eventually when you buy more properties you should get a PUP (Personal Umbrella Policy) for even more liability coverage.

[Cyle Lublin]

@David McCracken thank you (sincerely) for the tips! Yes, you got me, it's the Troy St. property! Do you invest in any other cities? Other cities to check out for decent cash flow / impact on house hacking? I guess I should mention that I can put up to $50,000 in cash down on a property right now. 

Another emerging concern I have: My current realtor/financial representative were WAY off on their tax measure for the Troy St. property. They told me it'd be $3900 as a non-homestead and $2800 as homestead. I would have been completely screwed...these guys are simply looking for a sale, which is great, if your client is a complete imbecile, ha!

If you have any other suggestions or places I could network at, I'd greatly appreciate it. I'm pretty desperate to get out of my Dad's place already!

[David McCracken]

@Cyle Lublin I can't say I have any good recommendations for other house hacking cities. Good duplexes have become increasingly rare in Metro detroit. You'll find plenty in Detroit itself, but I can't say they would be something you'd want to live in.

I ran into the exact same tax problem as you. I'm happy to hear you did your due diligence! It's definitely a problem with realtors I've run into. I think they are just ignorant of the fact. They aren't educated on Proposal A, and the fact that the cap on year-over-year tax increases is removed when there is a transfer of ownership. You found the millage rates so just use those for your calculations. 

There's plenty of meet up groups for real estate investors. If you look on the meet up app you'll find some. I haven't been to any myself, but now that you bring it up I probably should!

Best of luck out there, let me know if I can be of any help.

[Brian Sullivan]

Hi Cyle,

I own a property in Ferndale.  I also work for the same company as you and have a real estate license.  Look me up next time you are downtown and we can chat.