House Hack Numbers Not Working (Follow up with a deal analysis)

Cleveland, Ohio
Real Estate Deal Analysis & Advice
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House Hack Numbers Not Working (Follow up with a deal analysis)

Benjamin Sulka
Cleveland, OH · Member since 2022 · 811 posts · 578 votes

Hey BP, 

I recently shared some of my woes in finding a house hack deal that works numbers-wise so I wanted to share the details. Trying to consider the long term wealth benefits of owning real estate and not just the numbers themselves. My goal is to pay less than I would renting and get my feet wet with REI and landlording without bleeding too much every month. Please scrutinize the crap out of my numbers!

I'm going to paste a photo of my analysis so I don't have to type everything out but wanted to call out a few things: 

-This is a duplex house hack where my fiance and I would be taking over one of the units. 

-Taking 10% reserve for vacancy, PM, and Capex

-5% for repairs 

-All other numbers are standard values based on my area. Need to do some more digging into utilities though. 

-Current market rent is $1,250 per unit

Here is what numbers look like when I live there: 

We currently pay $1,450/month in rent right now so that's something to consider. We'd be paying less than we would renting after taking conservative reserves. 

Here is what numbers look like when I move out: 

Negative cash flow but

1. Rate is 7% 

2. Only put 5% down 

3. Cash on Cash return is 52.7% (obviously we will put more cash into things throughout the year which will make the COCR lower.


Would love to hear people's thoughts! Thanks for your time :) 

-Ben, aspiring multifamily house hacker 

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  • Mitch Messer
    Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes
    2y

    Hey @Benjamin Sulka, I applaud you taking the time to analyze your deal! So few starting investors do.

    First I would urge you to sanity-test ALL your assumptions (like "10% reserve for vacancy, PM, and Capex" and "5% for repairs") by speaking with experienced investors in your market with similar properties. Then you can adjust accordingly.

    Second, and most importantly, your calculation of cash-on-cash return is incorrect. For example, post-move-out it will not be 52.7%. It actually will be negative!

    Cash-on-cash return = Cash_Flow / All_In_Cash_Investment

    Your formula is calculating NOI / All_In_Cash_Investment, which completely ignores Debt Service and Capital Expenditures.

    Better you make these adjustments now in a spreadsheet, rather than later on in your bank statements!

    1Reply
  • Sean Haley
    Real Estate Consultant · Dallas · Member since 2022 · 36 posts · 12 votes
    2y
    Quote from @Benjamin Sulka:

    Hey BP, 

    I recently shared some of my woes in finding a house hack deal that works numbers-wise so I wanted to share the details. Trying to consider the long term wealth benefits of owning real estate and not just the numbers themselves. My goal is to pay less than I would renting and get my feet wet with REI and landlording without bleeding too much every month. Please scrutinize the crap out of my numbers!

    I'm going to paste a photo of my analysis so I don't have to type everything out but wanted to call out a few things: 

    -This is a duplex house hack where my fiance and I would be taking over one of the units. 

    -Taking 10% reserve for vacancy, PM, and Capex

    -5% for repairs 

    -All other numbers are standard values based on my area. Need to do some more digging into utilities though. 

    -Current market rent is $1,250 per unit

    Here is what numbers look like when I live there: 

    We currently pay $1,450/month in rent right now so that's something to consider. We'd be paying less than we would renting after taking conservative reserves. 

    Here is what numbers look like when I move out: 

    Negative cash flow but

    1. Rate is 7% 

    2. Only put 5% down 

    3. Cash on Cash return is 52.7% (obviously we will put more cash into things throughout the year which will make the COCR lower.


    Would love to hear people's thoughts! Thanks for your time :) 

    -Ben, aspiring multifamily house hacker 

    I input your assumptions into my model, but leaned less punitively. I'm curious about the high cable expense and $2,400 in utilities. Additionally, why is your capital expenditure so high — is this an older property?

    You have the flexibility to adjust the assumptions in the model. Underwriting assumes 48% NOI margin and your cap rate is significantly lower than your cost of capital, resulting in negative cash flow. Also, your 7-year IRR is negative, which is concerning. COC calculates cashflow after debt.

    Hope this helps!

    SFR Model - LTR

    1Reply
  • Benjamin Sulka
    OP
    Cleveland, OH · Member since 2022 · 811 posts · 578 votes
    2y
    Quote from @Sean Haley:
    Quote from @Benjamin Sulka:

    Hey BP, 

    I recently shared some of my woes in finding a house hack deal that works numbers-wise so I wanted to share the details. Trying to consider the long term wealth benefits of owning real estate and not just the numbers themselves. My goal is to pay less than I would renting and get my feet wet with REI and landlording without bleeding too much every month. Please scrutinize the crap out of my numbers!

    I'm going to paste a photo of my analysis so I don't have to type everything out but wanted to call out a few things: 

    -This is a duplex house hack where my fiance and I would be taking over one of the units. 

    -Taking 10% reserve for vacancy, PM, and Capex

    -5% for repairs 

    -All other numbers are standard values based on my area. Need to do some more digging into utilities though. 

    -Current market rent is $1,250 per unit

    Here is what numbers look like when I live there: 

    We currently pay $1,450/month in rent right now so that's something to consider. We'd be paying less than we would renting after taking conservative reserves. 

    Here is what numbers look like when I move out: 

    Negative cash flow but

    1. Rate is 7% 

    2. Only put 5% down 

    3. Cash on Cash return is 52.7% (obviously we will put more cash into things throughout the year which will make the COCR lower.


    Would love to hear people's thoughts! Thanks for your time :) 

    -Ben, aspiring multifamily house hacker 

    I input your assumptions into my model, but leaned less punitively. I'm curious about the high cable expense and $2,400 in utilities. Additionally, why is your capital expenditure so high — is this an older property?

    You have the flexibility to adjust the assumptions in the model. Underwriting assumes 48% NOI margin and your cap rate is significantly lower than your cost of capital, resulting in negative cash flow. Also, your 7-year IRR is negative, which is concerning. COC calculates cashflow after debt.

    Hope this helps!

    SFR Model - LTR


     Yes, this is very helpful! The $2,400 in utilities is $200 per month x 12 months. In my market, landlords are responsible for water. I honestly think it will be more than $200 per month.

    Properties in my market are older. 1910-1930 range. 

    Thanks for your response! 

    0Reply
  • Benjamin Sulka
    OP
    Cleveland, OH · Member since 2022 · 811 posts · 578 votes
    2y
    Quote from @Mitch Messer:

    Hey @Benjamin Sulka, I applaud you taking the time to analyze your deal! So few starting investors do.

    First I would urge you to sanity-test ALL your assumptions (like "10% reserve for vacancy, PM, and Capex" and "5% for repairs") by speaking with experienced investors in your market with similar properties. Then you can adjust accordingly.

    Second, and most importantly, your calculation of cash-on-cash return is incorrect. For example, post-move-out it will not be 52.7%. It actually will be negative!

    Cash-on-cash return = Cash_Flow / All_In_Cash_Investment

    Your formula is calculating NOI / All_In_Cash_Investment, which completely ignores Debt Service and Capital Expenditures.

    Better you make these adjustments now in a spreadsheet, rather than later on in your bank statements!


     Mitch, that makes perfect sense! Thanks so much for taking the time to reply :) 

    0Reply
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