Multi-Unit Deal

[David Ferrette]

I would like to get feedback on the following house hack deal.  My business partner will live in one unit while we rent out the other three for the first two years.  The home was built in 1945 so it is older but the seller just did quite a bit of work.  3 of the 4 units were just rehabed along with the exterior.  We will need to renovate one unit that is already in decent shape.

Purchase Price: $192,000

Down Deposit: 3.5% (FHA Loan)

# of Units: 4 (each one is a 2 bed 1 bath)

Monthly Rent: $700 each unit. ($2800 total a month) + what we get from laundry room

Monthly Taxes: $416

Monthly Landlord Insurance: $204

Monthly 9% Vacancy: $252

Monthly 10% Maintenance: $280

Monthly PMI: $129

Monthly Utilities (Water): $120 - Everything else is metered

Total Cash Flow at the end of the month: $564

[David Faulkner]

A few things don't add up ... house hacking? You mean your business partner is house hacking and you are investing in him/her from SoCal to Texas? FHA loan? I thought those were only for owner occupied, which you will not be? 2 years? So your partner as a owner occupant can try to get the capital gains tax exemption? How can he/she do that if this is a business partnership? How is it structured? Do you know your partner well and have done many deals with them? You will be 100% dependent on them as your eyes and ears on the ground. Does your partner know what they are doing with REI? Doubt it if they are getting an FHA loan for an owner occupied house hack and still need a partner's capital to pull it off. Do you own your primary resident and have several house hacks under your belt in SoCal? If not, then how on Earth do you expect to manage one from thousands of miles away or select a partner to trust 100% to do it for you? Are you intimately familiar with the area you are investing in? Down to the street level detail and flying out to see the property? If not, then how will you do your due dilligence to verify all the numbers, comps, intangibles, etc? Trust your partner to do it for you? Seems strange and a bit fishy to me ... blind leading the blind at best, fraud at worse ... either way, no go would be my advice on the whole arrangement unless you have some very compelling answers to these questions that I hadn't thought of. Sorry if this is harsh, but not nearly as harsh as the lesson that may be coming if I'm right. If so, this deal falling through may have been your lucky day ... I've been fortunate enough to have a few of those myself in hindsight. Good luck, and be careful.