Does this report look like it was done correctly?

Question

Hi,

I'm just starting out looking for a multi-property house hack. I'm planning on living in this property for a year and renting the second unit, then will rent both units moving forward. First, I'm trying to understand if I've filled out this report correctly. Second, at first glance this is a terrible deal considering I won't see any profit for at least 10 years, but that's based on living there and paying half the mortgage myself - once I've moved out of this property and start renting both sides it could potential start to cash flow?

I like this property because its rent ready. However, thinking I should consider a lower cost investment in order to get to higher cash flow sooner. Thanks in advance for your guidance!

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*This link comes directly from our calculators, based on information input by the member who posted.

Roman Puzey · Answer

Thanks @Kevin Sobilo & @Tanner Pile - great advice on running two reports, makes sense. Without those additional expenses it looks pretty clear, this property won't cash flow quickly enough to be worth any further analysis so I'm going to move on. Thanks again!

Tanner Pile · Answer

@Roman Puzey

What did you see for rent in the area on this property?

When I run my house hack deals I always do one as if I'm living in it and collecting rent from one unit and another analysis as if I'm not living in it it to get the complete understanding of all plays on the property. @Kevin Sobilo gave good advice for vacancy, cap rate, and maintenance.

Your monthly  insurance estimate is quite low for a duplex too. I would estimate between $250-300 for monthly insurance on a duplex. My duplex monthly insurance is $250 a month and insurance rates have been on the rise recently. I have a insurance broker that can give you a better estimate if you're interested.

Kevin Sobilo · Answer

@Roman Puzey, I would fill it out as if you would be renting it from day #1. This way you can assess the deal as a buy and hold rental which is will be after year #1.

I would also budget 5% each for vacancy, maintenance, and capital expenses (15% total).

Based on what I see it does not appear to be a cash flowing deal.

Some things to keep in mind. If you are looking for a "deal", you aren't buying a house you "like", you're looking more at "the deal" or for "the opportunity". An opportunity might be where there is a motivated seller that you can negotiate down. If the seller in this example was motivated, you might be able to negotiate 10-20% off that price. So, often times I will run numbers based on what I might offer for a property because a deal is often what you make of it.

Ben Rhodin · Answer

Hey @Roman Puzey!

I agree with all of the points above, it's easiest to simply run the analysis as if you are not living there and just know in your head "I am paying the rent on unit 1" or whatever. Keep the House Hack aspect out of it from the beginning, and save yourself time in analyzing. Looking at the report as well, I am not seeing a PMI payment, which if you are house hacking you will have unless you are using a VA Loan, or other loan product that doesn't have it. And if you are in a Multifamily, you are using an FHA loan which is having very high PMI payments currently. Along the same line, your interest rate seems pretty conservative for today's market. Is that a current quote from your Lender?Secondly, your utility costs seem very low as well. 25$ a month for both water and trash? Your trash will be at least $35 a month, and more if you are using a collective one for both sides. and water will be about $100 a side, depending on the size of the units.I'm also not sure what strategy you are using but if you are getting $5K a month in rental income I am assuming probably STR or MTR? Unless this is a very large or high-end unit. Either way, if it is an MTR or STR you'll need to also factor in other expenses, such as cleaning fees, management software, booking fees, furnishings, utilities, supplies, etc...Overall, it's a solid report! Just need to tighten some stuff up, and posting it here is the best way to get that input on what you may be missing! The other thing I will say is after you have inputted all your numbers (expenses, reserves, income, etc...), then you want to mess with the only thing you can control, which is how am I renting it, and what price can I get it at. You can keep lowering the price until you have a working deal, and that gives you your offer price. Remember that the asking price is just that. One last thing I will say, if you are planning on doing an STR on the other side, be aware of the city you are in. Denver and a few other municipalities do not recognize the other half of a duplex as your primary residence, and hence you can't STR that side.

Alan Le · Answer

Agreed on above points for analyzing your house hacks with the scenario of you living in it and as well as when you are moved out.

I'd have to disagree though on allocating a grand total of 15% for vacancies, maintenance, and capex. Don't get me wrong, I also like to err on the conservative side and understand what my worse-case scenarios are, but doing a blanket 5% for each of those categories is going to over-expense a lot of analyses. Instead, I like to make these expense allocations dependent on the facts known about the property, (age of big ticket items like roof and appliances, landscaping, etc.). I was seeing in attached analysis that there was $1250 a month being allocated for these expenses, or $15k a year, which I don't think is a very likely annual expense for maintaining a duplex. You could get a new roof every year for less than that.

Regarding vacancies, the good thing I've found with investing in Denver is that there is a great supply of quality renters. I'm a relatively new landlord myself, but in the last 2 years and now 4 total rounds of tenant placement, I was able to find quality tenants and get them under leases within a week of posting the unit each time; on two occasions it was even within 2 days of posting! Again, kind of noobie landlord here, but I would bet that $3k a year on vacancy for this duplex would be too much -- particularly as a long term rental. If it's decently updated, in a decent part of Denver, and you have got some good pictures, I don't think you'll have much difficulty finding great tenants!

All that to say, I think this 5% rule is a major generalization, and does not scale very well. Best wishes on your investing journey, Roman!

Does this report look like it was done correctly?

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