Nothing in Seattle MFH house-hacking makes cashflow. Am I crazy?

[Vasily R.]

I am working with two agents who showed me a bunch of MFH properties: mostly duplexes, some 4plexes. One in UW, many in Greenlake, some in Cap Hill/First Hill and a couple in West Seattle. My plan is to house-hack with an FHA loan. When our loan consultant came back to us and said I got a pre-approval for almost all of them, I got excited and started crunching cashflow numbers for each property, as per our overlord Brandon Turner.

And then it hit me: the numbers just didn't make sense. Everything is red, even if I massage the numbers in multiple ways. Too many posts here are too vague, so let me give you some concrete data. Here is an exact copy paste of my excel sheet, which took me multiple hours of labor to create:

Address	Town	Price	units	Loan amount	Current RI	RI x 105%	Additional	Total Income	[email protected]	[email protected]	Taxes	Utilities	FHA MIP	HOI	Repairs	Yard Care	Vacancy	Total expenses	Net income
5042 11th Ave NE	UW	1,400,000	4	1,351,000	5,500	5,775	25	5,800	6,066	5,791	968	0	1,182	350	232	0	0	8,524	-2,724
8059 25th Ave NW	Loyal Heights	965,000	2	931,225	4,000	4,200	0	4,200	4,182	3,992	675	0	815	177	193	25	126	6,003	-1,803
7231 3rd Ave NW	Phinney Ridge	980,000	3	945,700	4,000	4,200	0	4,200	4,244	4,052	667	0	828	180	245	100	336	6,408	-2,208
523 N 105th St	Greenwood	1,195,000	4	1,153,175	6,020	6,321	0	6,321	5,178	4,943	850	0	1,009	95	280	50	253	7,480	-1,159
541 N 105th St	Greenwood	749,000	2	722,785	3,250	3,413	0	3,413	3,246	3,098	500	0	633	137	183	75	137	4,763	-1,350
4715 whitman ave N	Wallingford	897,000	2	865,605	4,075	4,279	0	4,279	3,887	3,710	583	0	758	164	193	50	171	5,629	-1,350
1907 Chestnut St	Everett	380,000	2	366,700	3,300	3,465	0	3,465		1,572	342	0	260	133	181	50	139	2,677	788
							current rent	0		1,660		30						1,690	-1,690

All this info is from public websites found on Zillow, government websites, etc, so don't feel like I'm giving any free lunch out here, but it's all to make a point: do you see how all the numbers in the right-most column have a minus in front of them, except the Everett property I added just for contrast? That's the problem here. I am glad I did these calculations because my agents were getting all giddy about me making an offer on any of these. Mind you, this is a best-case scenario, and these numbers don't even account for the fact that I'll need to live in one of these units. Even if I raise rent aggressively and assume the best FHA rate I could find, low repairs, low utilities, low vacancy, the numbers are still bad. Sure, I'd make a decent profit from appreciation from a sale eventually (maybe), but all the while I'll be bleeding money for who knows how many years.

Someone please tell me what I'm missing here. Plenty of people in this forum are bragging about easily getting good cash flowing deals in the Seattle metro area. Is that all bs? 

Do I really need to dig deep and find pieces of crap that need full renovations (I've seen a few of those and they still cost a fortune), BRRRR or some other fancy strategy? Is FHA MFH house-hacking just not a thing in the Seattle metro area? I am a city guy and don't want to move far; will I really need to concede that privilege? I am new and don't want to BRRR yet. Besides, FHA appraisals are strict and it probably wouldn't work anyway. What other strategy works out here? My agents were so stumped by my observations that it's been 2 days since I've heard from them. It's honestly making me suspicious of their honesty from the start - surely they should have realized this fact long ago already, being in the market for 8+ years?

Sorry for the frantic post and thanks in advance for all the kind wisdom.

[Adrian Chu]

I am going to sound very discouraging, but it reflects the reality of the market.

Unless it is a property that either nobody knows about and the seller is selling for substantially below market value, FHA MFH house hacking is just not a thing in Seattle. For 3-4 units, you will never be able to pass self-sufficiency test based on market values and rents.

Furthermore, in Seattle, there is a lot of cash floating around. There are lots of people who can buy properties without obtaining financing. Especially for MLS deals with solid numbers, chances are a cash buyer is going to beat everybody else. With the stimulus package and the government essentially printing money, there is only going to be more and more cash floating around. Plus, there are some new components of the stimulus package that strongly encourage those classified as real estate professionals for tax purposes to pour more money into real estate.

The primary ways to generate more cash flow are room rentals and airbnb. Seattle allows you to have up to 8 unrelated people live in a home. That means you want as close to 8 bedrooms as possible. $800 a pop is $6400. $900 a pop is $7200. $1000 a pop is $8000, etc. Buy a single family home, live in it, and rent out the other rooms. For more privacy, buy a single family home with an ADU, live in the ADU, and rent out the main part of the house by the room.

As we see now, airbnb are just like hotels and are hit hard by COVID-19.

Best of luck.