Student Rental House Hack (Bethlehem, PA)

[Jason Reynolds]

Hey everyone,

So as the title says, I'm planning on purchasing a 3 Bd/2 Ba SFR to house hack right next to Lehigh University in Bethlehem PA. I'll be getting an FHA loan, attempting to rent out a couple of the bedrooms for the year that I am there to come close to breaking even, then renting out the entire house to a group of students in the following years. With this particular house, there's a huge living/dining room area I will be able to split into a 4th bedroom. Student rentals at my school (and I'm sure most others) will charge rent based on the amount of students living there (about $500-600/student depending on location). So I will be able to increase monthly rent from $1500 to $2000. I've used the BP calculator for the years where I am renting out the entire house to students to make sure it cash flows (attached PDFs at end), and manually calculated numbers for the first year.

Purchase Price: $150,000

3.5% down: $5,250

Closing costs: $3,000

Rehab (adding walls/closet for additional bedroom): $5,000

monthly mortgage+tax+insurance (quote from lender): $1176 (1176*12= $14,112 for year)

other monthly expenses: $300 (300*12= $3600 for year)

All-in cash needed for year 1, assuming absolute worst case scenario and I can't find any single bedroom renters for the first year while I am living there:

$30,962 

After $7,500 room and board reimbursement from employer: $23,462

I plan on pricing each bedroom way below market rent at $350/month, to try to fill up each bedroom and cut away at year 1 costs.

If I can rent out 1 bedroom: (23,462-(350*12)) = $19,262 

If I can rent out 2 bedrooms: (23,462-(700*12)) = $15,062

If I can rent out all 3 bedrooms: (23,462-(1050*12)) = $10,862

BP Calculator (after year 1) assuming worst case year 1 scenario:

Note: I added money to "repair costs" to change numbers to reflect 12 months of mortgage payments I would have made during year 1.

https://www.biggerpockets.com/analysis/rentals/df4b1eda-9cde-41ee-afb7-f8d9cdb8724c.pdf

BP Calculator (after year 1) assuming mid-scenario where I manage to average 1 bedroom rented during the year I'm there.

https://www.biggerpockets.com/analysis/rentals/df4b1eda-9cde-41ee-afb7-f8d9cdb8724c.pdf

CoC ROI goes from 5.7 to 8.5.

Also, I plan on eventually refinancing to a conventional loan, lowering my fixed costs from about 1200 to somewhere in the 800-900 range, freeing up 300-400 more in cash flow each month and increasing the CoC ROI.

Would very much appreciate it if somebody could try to find holes in my plan. I think the main risk is not being able to find people to rent out individual bedrooms in year 1, since students typically have housing plans a year in advance. But even then, that just requires me to put more cash into the deal, and I still end up cash flowing after year 1 (albeit with a lower ROI).

Thanks!

Jason