Help with deal analysis on first house hack

[Steven DeMarco]

I'm looking at a SFH + ADU in Salt Lake City, UT as a potential house hack. Before I put in an offer, I want to run the numbers by some professionals.

The property is 4BD/2BA in total, with 2BD/1BA upstairs and 2BD/1BA downstairs with separate entrance. Current list price is $564K, my offer would be $515K using a 3.5% FHA loan. My estimated mortgage would be $3380/mo. Currently the upstairs unit is rented at $1395, which is below market rents (Rentometer average is $1650). I would owner occupy the downstairs unit in Year 1, per FHA guidelines.

Currently I pay $2150/mo. in rent. So in Year 1 for house hacking and keeping the existing lease in place, I'd be saving about $165/mo. in rent ($1980 in total rent avoidance for Year 1).

In Year 2, if I decide to move out, I have to take the following measures to break even.

- Raise rents for each 2BD/1BA unit to $2050 (a 47% increase of current lease). This puts rents at 75th percentile according to Rentometer and brings total rental income to: $4100/mo.

- Reserve only 9% for maintenance, capex and vacancy: -$369/mo. ($4428 for the year)

- Spend only 8% for property maintenance: $-328/mo. ($3936 for the year)

- Pay the monthly mortgage obligation: -$3380/mo.

So for Year 2, that leaves me with a net cash flow of $23/mo.

In order for the deal to work, I'd have to be slim on my reserves (only reserving $369/mo.) and have to find a nimble PM company (for 8% or less of monthly rent). I've done some research and it's possible to find solid PM company for 7% - 8% of rents in the SLC area.

What are your thoughts? Can I make this deal work with slim reserves and by raising the rents to 75th percentile? This would be my first house hack and second real estate investment. I have a strong W2 with good savings and could potentially float additional capital expenses if/when they come up.