House Hacking Single Family

[Bradley Abramson]

Hey Guys, 

I wanted to see if you guys could let me know if I am doing anything not advised for my first house hack.

I am currently looking at a single family house. It is a 3 Bedroom 2 bath house South of Denver (Columbine Area) for 350k. I was pre-approved for a loan and with all the interest, insurance, and principal the loan will be about 2250 a month. This loan is a conventional loan 3% down and can have the PMI removed after I hit 20%. I want to also do some renovations and make the downstairs basement extra room and turn it into a room by adding a wall and closet. I am estimating 30k for renovations of the whole house and will be 30,000k. The AVR's for a similar 3 bedroom house fully finished is 400k and 4 bedroom around 420k.

I have conducted a  dry listing to see if I could get interest and was able to 8 applications in 24 hours before I removed the listing at a rate of 700$ per room. I am employed and can definitely afford the mortgage by myself. I want to get a renovation loan out and fix the place up and potentially turn the garage into an apartment where I live and rent the full house out.

Is there anything I am missing? I am currently paying 700$ in rent. The loan would be 35% of my before tax income and roughly 60% of my after tax, health insurance, and retirement account. I have enough for the down payment and will have at least 3 months of mortgages payments by the time of closing. I know that for a typical rental this would be 

Thanks for the help and if you need anymore information I would be glad to provide.  

[Bill S.]

@Bradley Abramson you lost me a bit with the renovations. I wasn't able to track what the $30,000 was for exactly. You mentioned a renovation loan. Usually banks only lend on equity so that typically isn't there with a new purchase. There might be loans available for you to use to construct improvements on a property with no equity but I am not aware of them. You also have to be concerned about debt to income ratios as second loans usually carry higher interest rates and shorter terms (think larger payments). 

The idea of adding space is good. I would say, a basement is generally less desirable than above ground space but if you throw in a private bathroom it would be a bonus that might off-set the living in a hole issue. 

Finishing the garage into a unit is a tough go. There is unusually no heat in garages which can mean you need a larger furnace. They are not designed to be living  space so they pose problems with electrical as well. The flow of the house is disrupted in that the garage is a long haul to the bathroom. In the end, when you sell, homes with no garage are really really difficult to move unless you are in a neighborhood where that is common. I would ditch the garage conversion idea.

As Kevin said, the numbers don't look great but unless you buy more house or broaden your area you probably won't be able to do much better.