First House Hack Advice Needed

[Tyler Hodgson]

Hello BPers. I have a friend who is under contract to purchase his first duplex as a house hack. He came to me with some concerns about the state of the market right now, and thoughts that maybe he should just wait another year to purchase. I took a look at his current deal under contract, and I think he's in a pretty strong position to move forward with this house hack. I know there is a lot of fear and uncertainty out there right now, especially purchasing your first duplex, so maybe some of you can give you thoughts and advice?

Here are some quick facts and details:

• Duplex in Farmers Branch (just north of Dallas), Texas
• Each unit is 3 bed / 2 bath / 1648 SF, and cosmetically pretty upgraded 
• Purchase price: $405,000 
• Seller Concessions: $10k towards closing costs and $10k towards foundation repair
• Here is the listing: https://www.zillow.com/homedetails/2822-Golfing-Green-Dr-Farmers-Branch-TX-75234/26998169_zpid/
  
  FHA Loan: total cash to close less than $8k
• • 1st Mortgage (P&I)     $1,758
    
  • Property Taxes             $658
  • Property Insurance       $230 
  • Mortgage Insurance      $274
    
• Total PITI                      $2,920

• One unit is vacant and the other side is rented out for $1,400 with a long-term tenant, that is now on a month-to-month lease. Market rents are now closer to $1,700 per side. 
• He has already paid for inspection, option fee, and earnest money. Which would all be lost if he backed out - approx. $5k
• Currently paying $1,800/month in rent, so if he doesn't purchase this duplex would continue to rent for $1,800/month.
  Strong enough income to be able to make the entire $2,920 PITI payment plus other expenses/bills without problem.

Some of my friend's concerns are the other tenant not paying rent and not being able to evict right now because of COVID protections, and/or it being hard to get a new tenant right now. He has uncertainty with the markets, jobs, housing values, etc. and thinks it may be less risky and smarter to wait a year. What are your thoughts on this deal? And what are your suggestions to someone who is purchasing a house hack duplex right now? 

Thank you for your help!

[Abel Curiel]

Originally posted by @Tyler Hodgson:

Hello BPers. I have a friend who is under contract to purchase his first duplex as a house hack. He came to me with some concerns about the state of the market right now, and thoughts that maybe he should just wait another year to purchase. I took a look at his current deal under contract, and I think he's in a pretty strong position to move forward with this house hack. I know there is a lot of fear and uncertainty out there right now, especially purchasing your first duplex, so maybe some of you can give you thoughts and advice?

Here are some quick facts and details:

• Duplex in Farmers Branch (just north of Dallas), Texas
• Each unit is 3 bed / 2 bath / 1648 SF, and cosmetically pretty upgraded 
• Purchase price: $405,000 
• Seller Concessions: $10k towards closing costs and $10k towards foundation repair
• Here is the listing: https://www.zillow.com/homedetails/2822-Golfing-Green-Dr-Farmers-Branch-TX-75234/26998169_zpid/
  
  FHA Loan: total cash to close less than $8k
• • 1st Mortgage (P&I)     $1,758
    
  • Property Taxes             $658
  • Property Insurance       $230 
  • Mortgage Insurance      $274
    
• Total PITI                      $2,920

• One unit is vacant and the other side is rented out for $1,400 with a long-term tenant, that is now on a month-to-month lease. Market rents are now closer to $1,700 per side. 
• He has already paid for inspection, option fee, and earnest money. Which would all be lost if he backed out - approx. $5k
• Currently paying $1,800/month in rent, so if he doesn't purchase this duplex would continue to rent for $1,800/month.
  Strong enough income to be able to make the entire $2,920 PITI payment plus other expenses/bills without problem.

Some of my friend's concerns are the other tenant not paying rent and not being able to evict right now because of COVID protections, and/or it being hard to get a new tenant right now. He has uncertainty with the markets, jobs, housing values, etc. and thinks it may be less risky and smarter to wait a year. What are your thoughts on this deal? And what are your suggestions to someone who is purchasing a house hack duplex right now? 

Thank you for your help!

Hey Tyler,

Thanks for sharing your friend's story, there are MANY prospective house-hackers with the same questions/concerns right now.

Firstly, I don't know much about your market other than that it is one of top markets in the country with respect to job and population growth. As per a good friend of mine who lived in Dallas and studies various market trends.

That being said, I think there are some things in your friend's favor:

- Interest rates won't be this low for a long time.

- The tenant is on month to month and can renew their lease for a higher rental amount. If the tenant decides to stay, great! Your friend can request updated financials - paystubs, bank statements, employment verification, tax returns - before lease signing.

- If the tenant decides to leave, he can manage the mortgage payment comfortably until he fills the vacancy. The next tenant will be paying close to 60% of his mortgage.

- The property is well maintained and might not have tremendous turnover costs to make it rent-ready for the next tenant.

- Since he is concerned about tenant's job security, he can consider Section 8 as another option. Guaranteed rental income during economic uncertainty is a pretty good deal. In my market here in New York (Queens, Brooklyn, Long Island), Section 8 recently raised its rental rate to become more competitive. In some areas, my clients are getting ABOVE market rent with Section 8 tenants.

- Due to COVID-19, everyone is pretty fearful and that includes sellers. Their retirement, relocation, or home-upgrade plans are hanging in the balance and they may want to close ASAP in any way they can. Your friend may be able to negotiate a final credit from the seller.

Best of luck to you and your friend moving forward!

Abel