Spreadsheet Analysis Advice on Baltimore, MD (Federal Hill) SFR

[Greg Parks]

Greetings BP Community,

I'm currently on the hunt for a fully renovated rowhome in Federal Hill, a neighborhood that is well established in South Baltimore. My girlfriend and I both work in downtown B'more (we both walk to our respective jobs), and we really enjoy renting in the Federal Hill location with its proximity to restaurants and the other perks of city life. With that said, Federal Hill properties are not exactly cheap relative to other areas of the city, and from what I can tell so far (since I began my search over the past few months), very few fully-renovated properties meet even the 1% rule at their advertised pricing. However, with renovated rowhomes bordering the western edge of the neighborhood (closer to train tracks and lower cost-of-living sections of the city), asking prices drop slightly and based on my spreadsheet (see link below), just barely cash-flow with the right offer.  Since both my girlfriend and I are certain we want to remain in Federal Hill and house-hack (live together in one bedroom while renting out the remaining bedrooms), I'm definitely willing to accept the marginal cash-flow (barely any) that the property is able to produce.  I'll also be the first to admit that some of the input assumptions I've applied are not as conservative as I'd prefer (I'm fairly risk averse); however, I think my assumptions and fee estimates are still justifiable.  The area surrounding this target property is in the midst of a huge wave of development, and my initial thinking is that this would be a great area to own in for years to come.  Any experienced investors, especially those local to the Baltimore area, who are willing to take a gander at my analysis and post their two-cents will have my deepest gratitude

https://www.dropbox.com/s/swvr53e8rxluu3e/SFR%20An...

Summary:

My spreadsheet contemplates a 3BR 3.5BA fully renovated rowhome in Federal Hill that will require few if any immediate landlord costs (aside from a washer and dryer that I've estimated at $1,500 in Year 1 of the hold). The property features 2 above grade stories and 1 below grade (finished basement with full bedroom and bath). The property also has a brand new rooftop deck to add some marketing appeal. Unfortunately only street parking is available at the location. Aside from the lack of furniture, the rowhome appears to be fully move-in ready. Closing costs and loan assumptions have been copied from my mortgage consultant's Assumed Loan Cost Illustration (ALCI) that he provided me earlier this week (contemplates a 30-year fixed conventional loan with 5% down and lender paid mortgage insurance). The property is located somewhat close to train tracks but the tracks only serve as a temporary storage line for CSX and the neighbors rarely notice any noise disturbances. I've assumed each bedroom (with modernized dedicated full baths) can attract $900 per room. I've also assumed utilities will be covered as a tenant expense. My final assumption, based on conversations with my mortgage consultant, was to include a 3% Seller Credit, which is not guaranteed, but will certainly be a condition of closing should they accept my offer (already lower than what is listed on the MLS). The offer is a long shot, but if I hypothetically tie up the home, I'll need to know my spreadsheet model is accurate!!

Look forward to any feedback the community has to offer!  Thank you so much in advance for lending me your time and opinions!

Greg  

[Kim Coleman]

@Greg Parks very detailed analysis! I would run a scenario where you don't live in the property but rent the entire thing to one family (more conservative than renting rooms and renting rooms can be tricky especially if the landlord isn't living there). I say this because I house hack but don't cash flow; however I'm living almost rent free! But I didn't buy for the purposes of renting and could barely cash flow if I moved out. Which is OK because I bought for appreciation and because it was a house I wanted to live in so when I'm ready to move my exit strategy will be to sell it but in the meantime house hacking gives me great tax deductions and about a 2/3 savings on "rent". I hope this makes sense. Reach out anytime.  I buy and hold in Baltimore and wholesale in Maryland if I can be of help in anyway. 

All the best on your new journey!

Kim