To house hack, or not to house hack?

Question

To house hack, or not to house hack? That is the (leading?) question.

My fiancee and I moved into our new place at the beginning of March, right before the COVID-19 activity started to get serious. We were so excited to house-hack, because this house has a walkout basement that is already partially finished (walls, floors, overhead lighting), but needs a 3/4 bath put in, along with a small kitchenette in order to be rent ready (that is all our local market demands). Plan was to rent on Airbnb, but obviously right now that is not a good plan, so we are looking at trying to fill with longer term tenants (at least month-to-month).

Some details:

- Expected rental income = $1k-1.2k (based on neighbors with same setup doing same strategy)

- Quoted cost to install bathroom and kitchenette = ~$10k (based only on one contractor estimate so far, tough to get more to come look at the job right now, also we plan to keep costs in check by doing some work and sourcing materials ourselves)

- We made sure when we bought the home that we could comfortably make our mortgage payment without any extra income from the basement, so we are not forced into doing the project or collecting rent to stay afloat.

So, my question is this: should we do this project now, while we are home with more time on our hands due to social-distancing, or do we keep our cash on hand and wait for the storm to pass before taking on this project?

My gut says to wait and hold our cash because by my (back of the napkin) math, it would take 8-10 months (being fully rented at the rates above) to make our investment back, and it seems likely that it will be much harder to rent units during times like this. There is added risk of potential income loss from a layoff or pay reduction, if the current climate continues to worsen. We have reserves such that we definitely would not be broke if we did the project now, but it feels impossible to say that any amount of reserves is "sufficient" right now.

Would anyone think about this situation in a different way and/or come to a different conclusion?

Matt Anderson · Answer

@Kirk R. I admittedly have not gone down the youtube rabbit hole yet to determine my comfort level. I suppose now is as good a time as any while I am stuck inside!

Kurtis Delahooke · Answer

About 3 months ago I spent $6K getting my house hack off the ground and made about $1300 before all the cancellations began on airbnb. My recommendation is to hold your cash until the economy opens back up. Also, having multiple contractors talk through design and pricing was a huge help to me, I wouldn't want to be stuck with the only contractor available.

Kirk R. · Answer

watch YouTube & do the improvements you feel comfortable?

Joseph Cacciapaglia · Answer

You have the means and opportunity to make an investment that would return over 100% annually by your estimates. Even if your estimates are way off, you're doing amazing by moving forward. It seems like you just need to pull the trigger. I would also assume that this would add more than $10K in value to the home, in which case you could potentially cash out refinance in 6 months if rates are still low. Plus, the social safety net just got a lot stronger. You should be OK if you have a loss or reduction in income in the short run.

Matt Anderson · Answer

@Joseph Cacciapaglia Thanks for the alternate view, you raise a good point! I am definitely confident we would make the $10K back in value-add to the property, but won't be in a position to do a cash out refi, since we bought with a 0% DP medical professional loan and will still have low equity. To me, I can get the best of both worlds by waiting out the storm in the short term, and taking advantage of that 100%+ return once things settle down a bit. Feels like the best way to manage the risk, and I do not want to be relying on the social safety net if things do indeed go south.

Kirk R. · Answer

Call it a success as long as all fingers are still attached :) what's the rule of thumb? Material cost Multiply by 2 to get the labor cost. So if you get an acceptable product on the 3rd try you've done good? GL Altho tools can get really expensive quickly. But paint brushes....

Matt Anderson · Answer

@Kurtis Delahooke Great point, I definitely do not want to be in a position where we have are forced into working with the only contractor available, I hadn't thought of it quite like that. I think I am leaning towards waiting another month or two. Why risk depleting my cash reserves with no return now, if I can mitigate that risk by waiting just a little while longer!

To house hack, or not to house hack?

To house hack, or not to house hack?

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