First Seattle Area House Hack - Running the Numbers - Thoughts??

Question

Hi All,

I’m looking to purchase my first duplex in the Seattle WA area and started to use the Bigger Pockets calculator to run some numbers. The intention would be to have a house hack in the Seattle Market, I will be purchasing the house itself; my girlfriend and I will live in one side of the house and then have a renter in the other side.

House I’m considering is $600k; I’m looking to put down 10% and have $10k for closing costs. I’ve calculated Vacancy Rates and CapEx at 10% per month and included property taxes, etc. that the calculator accounts for in the tool.

I was using the “Rental Home” calculator on the site, which I think would be the best option, correct me if I’m wrong? From a rental income component, I just included the assumed monthly rent of $1,500 from the side that we would be renting out as the other portion would be my side of the mortgage. The monthly expenses for the house is coming in at $4,626 per month and with rental income of $1,500 that leaves a negative balance of -$3,126. In order to get a more accurate CoC return and breakdown should I be assuming what the house would bring in if both sides were rented? Is that the best way to determine the ROI?  The intent would be to live in the house for a year and make small cosmetic updates as needed and then move out into the next duplex.

Any guidance would be greatly appreciated, if anyone has some househack calculations that they’ve run in the past and would be willing to share, I’d love to see. Thanks!

Michael Haas · Answer

@Jim Doyle glad to hear you're getting started with househacking! Our family HouseHacked 4 times back-to-back in Seattle, and that process is the biggest reason that our rental portfolio is a big as it is today. There's really no better way to get started as a real estate investor, especially in a high-cost market like Seattle.

Looking at your numbers, your 10% vacancy and 10% CAP EX estimates are a little high for our market - I estimate 3% vacancy, 5% CAP EX, 4-5% repairs personally. That said, the reason this deal doesn't work isn't because your vacancy estimate is high - it just doesn't work to get $3,000 in rent on a $600,000 property. Even at 3% mortgage rates this will not cashflow. Bad deal, so either try to negotiate $100,000 + off the purchase price or move on.
We've HouseHacked A LOT lol, so here's a couple recommendations for your from our experience. If you want to go more in depth just DM me!

1. You mentioned looking for a duplex, but in Seattle oftentimes properties with ADU's or DADU's perform better than true, traditional duplexes. That said, if you find a property with a second kitchen (ADU or MIL), be aware that 80% or more of those units have been built without permits. Not a deal breaker necessarily, but a risk to be aware of and mitigate.
2. Brush up on building code requirements: in basements you're looking for egress windows that are 5.7 sq feet or more openable (3ft by 3ft casement style windows work best), and ceiling heights 6ft 8 inches or greater (as little as 6 ft 4 inches is ok under ductwork and beams though)
3. We've had success with cashflow rentals around Seattle by getting off the beaten path- there are established investors bidding up the price (and therefore compressing the cap rate) on many small multi-families, but those same investors are not going after large 5-9 bedrooms SFHs that you can househack by the room or split up with an ADU / MIL. Establishing a short term rental / airbnb in part of the home is another great way to maximize rental income.

Cheers and good luck! And seriously, message me anytime if you'd like to talk more about house-hacking, it's definitely changed my family's financial life and the lives of almost 100 of our clients for the better!

Joseph Crunkilton · Answer

Jim,

You've got the right idea. You want the rent to equal your cost so you can live rent free while building equity. Unfortunately the real world doesn't always work out the way we want it to. Especially since our market (PacNW) is extremely expensive.

I doubt the rent you'd be looking at is 1500. That's very low, even for a 1bd apartment in Seattle. A duplex I'm sure would get you more, but probably not 4k.

This is what led me to out of state investing. I've bought multiple properties for what I bought my primary residence for. It's a lot more accessible than people realize. I'd be happy to share my experience and help you along. With the money you seem to have on hand you should be able to buy multiple properties.

Nicholas Coulter · Answer

@Jim Doyle hit up @Eric Yu! He is a several time house hacker in the Seattle area and he has been able to combine air bnb with the strategy to be super successful!

Joseph Crunkilton · Answer

Good luck!

Jim Doyle · Answer

Thanks @Joseph Crunkilton as this will be my primary residence I'm committed to staying in state and househacking as I'll need a place to live. I think the out of state investing will be a follow up for me down the line as I build equity and get some experience under my belt with a couple of house hacks. I think when I do decide to invest out of state it will be in Idaho or Ohio as I have connections in both states that would provide a bit more of a competitive advantage versus a state that I'd be starting from scratch in.

Eric Yu · Answer

Hey Jim! Exciting to see that you're getting started into your house hacking journey. I've helped a # of folks in the Seattle area this year. You're right that it's hard to find cash flowing properties in the Seattle proper area. It's never a safe bet to make a play on purely appreciation, but the goal would be finding something that could be cash flow neutral once we move out of the property. A lot of times, this would mean finding a property with a larger foot print (like 4-5+ bedroom), and renting out room by room instead. Feel free to DM for more questions.

Osei K Boakye · Answer

Hi Jim

considering the figures that you have laid out, you can clearly see that even if both units are rented out, you will still have money coming out of your pocket every month in order to maintain your properties expenses. This property has a negative cashflow.

Jim Doyle · Answer

Thanks Allan, In Seattle a mortgage, depending on your down payment and house costs will more than likely be thousands of dollars, in my case $4,600 with expenses; It's much harder to cash flow as the rents don't come nearly as close to offset the high mortgage costs.

Allan Smith · Answer

I don't think I would be thrilled with a house hack that only covers a third of my expenses. I got started with the house hack as many did, and I was making a profit every month. My mortgage was $800 and two rooms each rented for $400, and the third room I would Airbnb for about 800. So rent revenue of $1,600 was more than enough to cover mortgage and expenses.

First Seattle Area House Hack - Running the Numbers - Thoughts??

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