House Hack Opportunity?

[Roy Gamiz]

Fellow Investors,

My wife and I are trying to pick up our investing this year and we have decided to house hack if we can find a good deal in our area. We'd like to house hack for a couple of years then repeat. The following opportunity has come up:

4 Contiguous townhomes: Total sqft 8,965

Asking Price: $618K

Rental Income: $5,475 Monthly

Expenses: 

Property Taxes - $8,146 Yearly/$702 Monthly

Insurance ~ $4,200 Yearly/$350 Monthly

HOA - $548 Monthly

*Property Management - 10% $548

*Maint - 5% $274

*CapEx - 5% $274

*Vacancy - 5% $274

The expenses listed above total $2,970 leaving $2,505 to service the debt just to break even which means I'd have to put 25% down to just break even (at FMV).

I have several other variables that can be incorporated. 1) I'm a veteran and would be eligible for $0 down on $424K of the loan. 2) We could exclude the property management fee since we will be managing but I always hear in the podcasts that it's best to include it in the analysis. 3) We would be selling our existing house to tap into the $100K+ of equity for the down payment. 4) We have a current monthly payment of $1,670 on our existing home. 5) We would not be purchasing at market value for this property since the numbers do not look that great above. 6) We have $50K of liquid funds to serve as reserves. 7) We also have additional funds in our IRA's that we can tap into if needed (yes, this brings up a whole slew of other issues which aren't meant for this forum).

Based on all of the above, if I lived in one of the units I would still be paying into the mortgage but not the $1,670 that I pay now. We would be saving around $1,200 which can be saved up to apply to future endeavors. We would also have the other 3 tenants helping us pay down the mortgage. 

For those house hackers out there, what other things should I consider? 

The numbers seem kind of tight in my scenario above, what asking price should I be comfortable with to make the numbers work?

Is decreasing my monthly mortgage payment by house hacking worth the risk above?

This is a long post so thanks for reading and providing feedback to a fairly new investor.

[John Leavelle]

Howdy @Roy Gamiz

Fellow Texas Vet.  Thanks for your service.

Have you completed any Market research for the area? Have you developed comps to establish a FMV? What are Market rental rates? What condition is the property in? Right now the rental income does not meet the 1% rule based on List price. An offer price closer to $500K would be better (depending on property condition and FMV).

No matter what you need to make sure the property is going to meet your Cash Flow criteria ($100 per unit? $200 per unit) when you move out.  If you pay too much for the property then your mortgage payment will be more than it needs to be.  You can play with the financing numbers (down payment, interest rates, term lengths) to decide what mortgage payment will work best for you.

PM should always be included in your analysis for Cash Flow.  You can not predict the future.  You may decide later to start using a Property Management Service, or something may happen where it is necessary to use one.  We all know that expense will be going straight back into your pocket for now.

Once you establish if the property will Cash Flow just subtract the income you will no longer receive while living there.  Hopefully with 3 of 4 units rented you will at least break even or have some positive Cash Flow.