House Hacking A Duplex In Seattle WA

[Todd Baldwin]

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $900
Cash invested: $100,000

My wife and I currently live in a Duplex, and we rent out the other side. We also converted one of the garage spaces into a studio. After living completely for free, we cash flow $1,800 per month.

What made you interested in investing in this type of deal?

This building is great! Traditional duplex but both garages are equipped with kitchenettes. I converted one garage spot into a studio, making it a triplex! In total this building has 5 bedrooms and 7 bathrooms!

How did you find this deal and how did you negotiate it?

It took me 12 months to find this deal. It was listed at $950k, I got it for $900k and negotiated the addition of two kitchenettes.

How did you finance this deal?

10% Down, bought it as a primary residence.

How did you add value to the deal?

Converted one garage into a hipster studio.

[Michael Haas]

WOW - what are the rents? My rough back-of-the-napkin math had you needing to be at $4,800 a month for one half the duplex and $2,000 a month for the studio to be cash flowing $1,800 a month and living for free, and that was before CAPEX/Repairs. Those rents seem really strong to me, even in the hip parts of Seattle so I'm curious how you got there.

Nice work!

[Jared Boundy]

Nice going @Todd Baldwin!  Was this new construction? It looks like a really great building and obviously has worked out to be a solid investment. I’m impressed.

[Todd Baldwin]

Hi Jared! Yes this was indeed a new build! 

[Ryan Evans]

Well well, look who it is... The legend himself, @Todd Baldwin! 

[Michael Haas]

WOW - what are the rents? My rough back-of-the-napkin math had you needing to be at $4,800 a month for one half the duplex and $2,000 a month for the studio to be cash flowing $1,800 a month and living for free, and that was before CAPEX/Repairs. Those rents seem really strong to me, even in the hip parts of Seattle so I'm curious how you got there.

Nice work!

[Todd Baldwin]

In my half of the duplex there are three bedrooms. My wife and I occupy the master, and we rent out the other two bedrooms. So even our half is monetized. 

[Todd Baldwin]

@ Ryan Evans great to see you! Hope you're doing well! 

[Sue Hough]

@Todd Baldwin your creative-ness and ability to see money in places where most would look the other way is astonishing!  Way to go on an amazing deal, I look forward to seeing your many upcoming projects.

[Todd Baldwin]

Thank you @ Sue Hough!! 

[David R.]

@Todd Baldwin Hi Todd, what are you planning to do if a building inspector stops by and sees you have an illegal 3rd unit?

[Todd Baldwin]

It isn't illegal. It is cleared with the city. 

[Jared Boundy]

@David R. Seattle has made some interesting developments in about the last year. Even in single family zoning, they allow both an attached ADU plus a detached ADU. In multi family zoning, even more (but I don't know if it quite triples whatever would have been allowed).

[David R.]

@Todd Baldwin

That’s great. Nice job on your success in adding value!

[David R.]

@Jared Boundy

I didn’t know Seattle was doing this, thanks for keying me in to this. Glad to hear more parts of the country are starting to take steps to make adding units easier.

[Michael Haas]

@Todd Baldwin way to hustle and stay hungry! We switched to "rent by the unit" on our 2nd house-hack and many of my clients do the same, sacrificing a bit of cashflow in favor of privacy and comfort. "Rent by the room" is definitely the way to go though from an investment perspective if it works for your lifestyle. Cheers and keep it up!

[Larry Whitman]

I've been a real estate investor for a long time so I can't help but ask why you bought this place. I'm curious about your rationale and what your real estate strategy is.

Your monthly mortgage cost is $4,700 and your rental revenue is $6,500 per that CNBC article I found after I googled you. $6,500-$4,700 = $1,800.

You use that to claim you "cashflow $1,800" per month. So...you don't have real estate taxes to pay? How about maintenance? Repairs? Capex? Utilities?

Aren't you paying about $1,000 a month in real estate taxes alone? There are limits to the tax deduct-ability of interest. How about home insurance? Aren't you losing money on this house?

So then my question remains: Why did you buy this house if it's FCF negative with all that work you have to put into it? The only answer I can come up with is that you just wanted to put on as big a leveraged bet as you could on Seattle home prices as possible. Any other reason?

[Todd Baldwin]

Hi Larry, thanks for the questions. First, $4,700 per month is principle, interest, taxes, and insurance. It is all wrapped up into one payment. Second, I live in that house too. With the roommates in my half, one paying $1,200 and one paying $850, we cash flow about $1,800 per month in a house we get to live in for free. When my roommates move out, we won't be making a profit, but we will still be living for free. Not to mention the appreciation of the property as well as being able to depreciate a large portion of the building as we rent out almost all of it. 

Now once I move out of my half, Ill be able to Airbnb that unit, or rent it out to a family, or rent out three bedrooms individually. 

So in a nutshell that's why I bought it. If I don't have roommates and all I do is rent out the other units, I have a free place to live. If I do have roommates, I'm getting paid to live. And once I move on from this place there is a lot I can do with the unit that I'm currently occupying. 

[Larry Whitman]

Even if $4,700 is inclusive of PITI, going with 50 to 100 bps a year worth of repair/maintenance would make me think there's at least an additional $1,000 or so of monthly drag on the $1,800. Not to speak of vacancy reserve, etc. When you use the phrase "cashflowing" for the rest of your properties do you use it in the same sense (just revenue - PITI)?

But that's not the interesting conversation anyway, because it does sound like your strategy is, in fact, highly leveraged bets on Seattle home prices. Do you have a differentiated view as to why Seattle home prices will continue to go up? Or is it just the consensus view because they've gone up a lot and will probably keep going up.

Also I'm backing into average rents of $1,400-$1,500 per room based on what you've posted about your other rentals. Is that about right?

Is Seattle unique in having some sort of dislocation where renting out individual rooms yields much higher returns than the whole home? You're usually rewarded for that extra leg work obviously but rarely is the disconnect this high between what I see on Zillow and what I'm backing into as your rental rate per room. Is this just a Seattle thing? Curious what other Seattle people think on this too?

[Todd Baldwin]

This is a brand new construction home that is under warranty. The maintenance is quite low. And I've never had a vacancy across any room in any property. Not once. I've never missed a month's rent, I've never even missed a days rent. 

[Gabe Storm]

What part of Seattle is your duplex in? I so rarely see duplex's listed for sale.

[Todd Baldwin]

@ Larry Whitman if you want to know more about my duplex deal, give a listen to the BiggerPockets podcast episode 392. I discuss with Brandon Turner and David Green my house hacking strategy. 

[Sherief Elbassuoni]

@Todd Baldwin, this duplex deal is great. I also listened to Podcast 392 and it is awesome. I like the house hack strategies and rent by room strategies you mentioned in the Podcast.

Congrats!

[Dmitriy Fomichenko]

Wow, nice @Todd Baldwin !