Denver House Hacking - What are the norms?

Question

To make a long story short, my wife and I are starting to set our sites on the Denver area to move within the next year or so. I'm self employed currently but I'm looking to sell/close down my business. We have a 14 month old and another due in June. If/when we move, I'll be looking for a job as an automotive technician (for which there seem to be an abundance of in Denver) and I'd expect to make approx. $60k-80k/ year. My wife will likely not work after the move as child care for two kids almost makes working pointless. We are currently in Iowa.

My current experience: I'm owner occupied in a duplex and I own a 6-plex that I self manage which is currently under renovations. I would probably sell the duplex and either sell the 6-plex or put it under management and cash-out refi. and hopefully pull at least a good 20-40k cash out of it.

My questions for you are:

1. How would a lender in the Denver area determine my eligibility to afford a property? I found a 4-plex in the Denver area for $569 with all 2/1 units that I think would be ideal to house hack, but I know I wouldn't be able to "afford" $569k mortgage if they aren't considering the income of the 3 occupied units. Am I correct, or will the bank consider those units even if it's on a 30yr residential note? I have experience with commercial mortgages where your personal income doesn't really matter, it's the deal that matters, but I'm thinking residential doesn't work that way?

2. Is it common in Denver/ surrounding suburbs for tenants to pay all utilities or does it vary greatly by property?

3. In the event that I would want to move the property into management, what is a typical rate that companies would charge in Denver for a multi?

If you have any other input on getting started in the Denver area, it would be much appreciated. Also, any areas to avoid or areas that might be up-and-coming would be great as well.

Jared Bouzek · Answer

@Dan Kelley You just replied to one of the more active real estate agents on our forum. @Matt M. has a great handle on the local investment real estate market from what I have seen. He would be a great contact for you.

On the financing side, you shouldn't have any issues transitioning here and qualifying, especially because you're sticking in the same industry.

Jared Bouzek · Answer

Thanks for the mention @Bill S.

@Dan Kelley When it comes to house hacking with a residential mortgage, your income will be the primary qualifier unlike commercial which primarily uses a debt service coverage ratio (DSCR). You will be able to count rents from the other units that you do not occupy assuming you use a lender who does not have an overlay on this guideline. The guideline is the same whether conventional or FHA that 75% of the lesser of the gross rents or appraiser's market rents can be used for qualifying. There are certain nuances to purchasing a fourplex with either conventional or FHA but both provide options for you to put down minimal amounts of down payment if you want to conserve funds for investing elsewhere.

Bill S. · Answer

@Dan Kelley I will leave #1 to @Dan Mackin or @Jared Bouzek.

2) Typically tenants pay utilities unless the property is not separately metered. Even if it's not separately metered, many landlords bill back or flat fee utilities back to the tenants. It's generally a tight market so landlords make the rules and our rules are generally the tenant pays for everything.

3) PM fees vary, middle of the road is 10% of monthly income and 1 months rent on turn over. I have seen as low as 8% of monthly rent and no fee for turnover. I have also seen as high as 12% and one month rent and turn-over.

Other insights: The market here is very tight. You will be hard pressed to find a deal remotely and get it closed unless you pay top price. This year it seems the sales of 2-4 units is especially tight (very low inventory). Having a down payment helps but all cash or no loan contingency is better. Do some prospecting before buying. Come out and look at properties and areas and get a feel for what's going on.

Dan Kelley · Answer

@Jean Bolger, that's an excellent point about having that income from my current properties when applying for a loan in Denver. I hadn't really considered that. Thanks!

@Linda Weygant, I will definitely get in touch with you. While European cars have never been my favorite, I did just get a BMW project car that has piqued my interest a bit. I'd love to at least chat with them when the time comes and see if I'd be a good fit. If not, perhaps they'd point me in the direction of another shop that I'd be well suited in.

Jean Bolger · Answer

Hi Dan!Good advice above. The small multi market is pretty tight. Depending on how you look at it, you might have something of an advantage being a house hacker. You're going to have to live somewhere while you're here, and prices for rent/buy are high. So a property that might be a little tight from a straight investment perspective might work for you since you'd be saving money on your housing expenses. Self-employed and selling your business is not going to make a lender happy, but if you can get into a solid W2 position once you are out here you should be OK. I'd suggest exploring all the different possibilities of continuing to rent your current properties vs. selling them. You should be able to get that rental income counted towards your total income. Since you'd be owner occupying here you could get a lower down payment loan.

Drop me a line if you want to chat more about the area!

Kevin Grinstead · Answer

Hi Dan, I can also help with any questions or concerns and set up a search for multi-unit properties. There are a few good ones.  When you are ready to buy, we can try to reach out to the owners in an area you like and try to see if any of them wouldlike to sell before they come active in mls.

Good luck and happy investing.

Matt M. · Answer

Realtor dot com and CL don't get the "income" data feed from our MLS. I'd be more than happy to set you up on the search. PM coming.

Dan Kelley · Answer

@Matt M.  Yes, I've owned an auto repair facility for the past 3 years and I've been in that same field for the past 7 years consecutively.

Anyone have a recommendation for a Realtor in the Denver area (or even Aurora, Springs, etc.) that I could reach out to to be put on an automated email for multi's that pop up on the MLS? It'd be nice to at least start to get a feel for what kind of numbers I'll be working with and what areas pique my interest. I've already done a substantial amount of scanning through craigslist and realtor.com. I obviously don't want to take up anyone's time until I'm closer to moving, but if I can at least be put on an automated email, that would be incredibly helpful.

Matt M. · Answer

What business do you currently run/own? Does it have anything to do with being an auto tech? If not, then you might have to wait a few tax years to qualify with a lender.

I'd speak to a lender first, as what he/she says will determine what you can afford. That will really dictate where you can buy. I always recommend renting first until you find a few areas you like and a job you want to stay at.

Linda Weygant · Answer

@Dan Kelley - I have friends who have a European car focused shop who has been searching for a qualified technician for a VERY long time.  So many people who don't care about their work or are just otherwise bad employees have left them frustrated for a while.  Let me know when you're closer to moving and I'll put you in touch (assuming European cars are in your wheelhouse).

Denver House Hacking - What are the norms?

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