4-Plex house hack - IRR too good?

[Jesse Wolf]

Hi BP,

  I've been learning more and more and I feel like I'm ready to take on my first house hack of a 4 plex.

I've done some napkin math  and can't really see how I'd go wrong, even with an economic crash and having a seriously poor first experience.

For reference and the scope of this deal: I have great credit, a high paying job, and a current mortgage of 2300/mo where myself and my girlfriend reside. I live in WA state on the western side near Seattle. Our market does not cash flow unless you are seriously in the know and doing some creative rehabbing/developing/zoning shenanigans. (or maybe have some great sources for finding undervalued deals) My girlfriend and I have spoken extensively about doing this, and we are both on the same page.

For this example I will use a property that is currently available and listed for $815,000.

We would be doing an FHA loan. My payment on the 4 plex would be approximately $4,500 after taxes, insurance, interest,principal.

The property is currently owner occupied, and the other 3 rents are 1250, 1250, and 1500. A quick tap on Rentomer and Zillow shows me they would max out at around 1600, and I could probably easily bump them to 1500 no worries. Tenants pay utilities.

I'm estimating loosely that between the 3.5% down payment and closing costs I'd be somewhere into it for 50k to get into the property. This is not a problem.

So here is where I am:

Saving $2300/mox12 by eliminating my mortgage: $27,600

Appreciation of 3% on 815k (this is extremely conservative for Seattle): $24,450

Loan paydown/Tax writoffs: In the neighborhood of 15k

Total: $67,050 for my first year, totaling a 130% IRR on my investment.

Even in the event where I only were to collect half of what I think I will for the rents, I would still be up about $40k IRR and at an 80% return. Lets say I have to spend 20k to redo roof and heating on top of that in an absolute worst case scenario and I'm only up 20k IRR my first year. Still at 40%.

I realize I still need to do all of my due diligence once I'm under contract, but I feel like from my position now to where we could be it is just a no brainer. 

After the year is up we would either move back into a SFH, or jump to the next 4 plex.

Any thoughts, comments, concerns would be highly appreciated.