Overvalued House Hack, but the Numbers Still Work

[Mac Caspersen]

My wife and I found a house that we want to live in and raise our kids in. It is a nearly 5,000 sq ft ranch with 2 BR upstairs and and full mother in law suite in the basement. The basement has 2 bedrooms, a full kitchen, full daylight, a garage, laundry, etc.

Our realtor expects we can rent the top for $2000 and the bottom for $1500, so a total of $3,500 in rent if we were just to rent it out. Because of that, I plan to hold onto it long term. For now, we will be living in it and my mother will be living downstairs for $1,000/month to help her out and to help us out with the kids. That would still make our monthly housing costs very cheap.

So all the numbers look good, except our realtor thinks the property is way overvalued. It is a flip that an investor bought a year ago and is making nearly $150k on (excluding costs), and they’re now selling for about $400k. Our realtor says it’s unique and comps are hard to find, but she thinks it’s a crazy market right now and this property is actually worth $330-$360k.

What do you guys think? I of course don’t want to overpay since things are so hot right now. On the other hand, I can make the numbers work easily, and I plan on holding it long term. I suspect it will be a competitive bid, even at the high price.

[Jaysen Medhurst]

@Mac Caspersen, make a fair offer based on your agent's recommendation. If this is the house that you want to raise kids in, the rental analysis doesn't matter. Your home is not an investment.

One bit of research worth doing is to pull all the permits for work done during the flips. This should give you a sense of what was actually done (legally) vs. what the seller is saying was done. The permits will also give you a glimpse into how much was spent on the reno. If you find that no permits were pulled, but the seller is boasting about the new kitchen and upgraded HVAC...well, now you have some leverage.