Analyzing a house hack

Multi-Family and Apartment Investing
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Analyzing a house hack

Gerardo Hernandez
Member since 2021 · 34 posts · 44 votes

Hello everyone! I am hoping to gather some knowledge from you guys. I am looking at a fourplex that I want to house hack in the Midwest. The asking price is 264k and the current rents are 1.500 2.500. that are month to month  3. vacant 4.595 with a year left in the lease. The building overall seems to be in good condition other than the vacant apartment that will need fixing. Taxes for 2020 were $4,696. I was looking at rents around the area and the average rent for one bedrooms is around 650-900 depending on how nice and spacious it is. I would say these apartments would definitely go for the lower end in their current condition(Not very updated or modern looking/Small overall). I am currently driving for over an hour to get to work and I want to start something with my life and therefore I want to get on a deal that hopefully gets me in the direction of financial freedom one day. I might add that there is not washer and drier hook ups but there is coin laundry which according to the paperwork brings in an additional 70 dollars on average a month. There is also small storage units the tenants can rent out too. Give me any feedback or advise from what you guys have learned over the years. Thank you all!

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Evan Polaski
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
5y

@Gerardo Hernandez, so given condition, you are looking at about $700 (let's assume they are not bottom of the range).  SO you bring in 2100/month, gross, given that you are living in one unit. $2100/mo = $25,200/yr.  

At 20% down, your principal and interest will be just about $12,000/yr, taxes at $5k/yr, insurance I am guessing at around $1.5k/yr.  

So that leaves about $7k/yr, but does not account for repairs, Capex reserves, vacancy, etc. If you turn each unit every other year, then your vacancy $1260, turn over costs at $1000/door, etc, and you likely are not profiting anything, and will certainly have times you are going to be out of pocket for items. But, for a house hack, if the out of pocket costs for something you own are less than you would be paying in rent, you are ahead anyways. And this does not account for any potential appreciation.

A couple things to be very careful of: Capex will crush you if it is not appropriately accounted for. If you miss a roof replacements, or appliances and HVAC die soon after purchase, you could be out a lot of money. Typically, these are fairly easy to assess, but make sure you do.

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  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    5y

    @Gerardo Hernandez, so given condition, you are looking at about $700 (let's assume they are not bottom of the range).  SO you bring in 2100/month, gross, given that you are living in one unit. $2100/mo = $25,200/yr.  

    At 20% down, your principal and interest will be just about $12,000/yr, taxes at $5k/yr, insurance I am guessing at around $1.5k/yr.  

    So that leaves about $7k/yr, but does not account for repairs, Capex reserves, vacancy, etc. If you turn each unit every other year, then your vacancy $1260, turn over costs at $1000/door, etc, and you likely are not profiting anything, and will certainly have times you are going to be out of pocket for items. But, for a house hack, if the out of pocket costs for something you own are less than you would be paying in rent, you are ahead anyways. And this does not account for any potential appreciation.

    A couple things to be very careful of: Capex will crush you if it is not appropriately accounted for. If you miss a roof replacements, or appliances and HVAC die soon after purchase, you could be out a lot of money. Typically, these are fairly easy to assess, but make sure you do.

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  • Gerardo Hernandez
    OP
    Member since 2021 · 34 posts · 44 votes
    5y

    Thank you so much for responding and for all your knowledge! I see on the report that the roof on the property has recently been charged over the last few years and the outside of the building was repainted over the last few month. I am glad you put some of those numbers into perspective because a lot of that I wasn't thinking off. after checking the place nothing really needs to be done right now other than just making it look better inside the apartments. I know that doesn't mean nothing can't go wrong but it was nice seeing that the property was well taken care off. 

    How would I go about raising the rent? Do I buy the property and right away do that with the month to month tenants or do I have to wait till they leave and I get a new tenant? Also how would I explain to them the reason to raise the rent from 500 to 700?

    I was thinking on offering 230k or 240k so that the mortgage payment is lower and maybe do an FHA loan and give 3.5-5 percent down. Or should I wait till I have the 20%?

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  • Chace Fraser
    Realtor · Portland, OR · Member since 2017 · 357 posts · 259 votes
    5y

    Hey @Gerardo Hernandez great questions and @Evan Polaski gave you some great advice. 

    To figure out how to raise rents all you'll need to do is serve them a notice that is in line with your states laws. The realtor you choose should be up to date with these laws or, at the minimum, somewhat knowledgeable. As a last resort they should be able to connect you with someone who knows the answers. Finally, you could google "how to raise rents in texas".

    As far as raising rents, do it as soon as you can and you don't need to give a reason. If they ask you can always say "I'm the new owner and my expenses are higher". They're tenants; they should know that you're not there to subsidize their cost of living and that you need to keep up with market rents.

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  • Stephen Brown
    Real Estate Broker · Huntsville, AL · Member since 2019 · 1k+ posts · 872 votes
    5y

    Good for you Gerardo for finding a place to house hack! I would like to caution you to analyze your investment for a tax increase on the property. I had to back out of a 4 unit where I live because the taxes were going to increase with such a higher asking price than the appraised value (it was appraised before rehab 3 years ago.) I'm not sure if the county your buying in does anything similar to mine... but if I would have bought that 4 unit to house hack my taxes would have increased by 4000 a year and I wouldn't have a great deal!

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  • Gerardo Hernandez
    OP
    Member since 2021 · 34 posts · 44 votes
    5y

    What if everyone leaves once I give them that notice? 200 dollars is a lot to raise at once but it definitely helps for the numbers to make sense. This is a huge decision and it's scaring me but at the same time I get excited of the thought of starting what I have always wanted to do which is build a real estate portfolio. Does this overall seem like a good deal? is it better if I keep looking or see if I can find a simple duplex to start ? Unfortunately, so far all the duplexes i have seen are 300k+. Or 140+ but needing lots of work. I am in Wisconsin Btw 

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  • Gerardo Hernandez
    OP
    Member since 2021 · 34 posts · 44 votes
    5y

    I will into the taxes because yeah that would be a huge deal breaker. Thank you!

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