Denver Rent by the Room House Hack w/ Spouse

[Ben Einspahr]

Below is the story of Jordan Lindsays investment details of his 2nd HH purchase. Closed in November of 2022. Way to crush it Jordan!

Investment Info:

Single Family Home with 5 bedrooms and 3.5 baths and 2,700 sq ft in Southwest Aurora CO. This is my second House Hack (HH#1 purchased 13 months ago) with a great layout in a popular area. Closed November 2022.

Purchase Price:

Originally listed for $549,000 and falling out of contract a couple of times, we closed at $529,900

Cash Invested:

DP - $26,495

Seller Credits - -$8,000

Total Cash at Close - $31,600

Furnishings and Appliances - $5,000

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

We bought our first HH in August of 2021, which was also 5 bedrooms and we were able to rent out the basement while living there. That allowed us to save money quickly to buy this second HH, which has a much better layout for my wife and I. The basement is about 800 sq ft with everything we need and separates us from the main floor (kitchen and living rooms) and 4 bedrooms upstairs. We were also able to rent out all 4 bedrooms within just a couple of weeks, because the area is very popular.

Once we save up enough to buy a third house, we should be able to rent out this basement for at least $1,200/mo which will then make the overall property profitable.

How did you find the deal and did you or the agent need to do any negotiating?

This was on the MLS (big shock) and we worked with Stacy Rozansky with the Envision Advisors. This was only our second offer put in during our search, and it was an unexpected find on our part. Stacy did a phenomenal job negotiating as well as discussing her opinions and recommendations. We initially offered $15k in concessions, which was decreased to $8k, but then we got nearly 100% items on the inspection report resolved before closing.

How did you finance the deal?

We put 5% down on a conventional loan with monthly PMI. We bought points down using the seller concessions, which brought us below a 7% interest rate... We plan to watch the market and refinance when it makes sense.

Did you add any value?

We chose this property because it was recently renovated and move-in ready, which is unlike our last property. We needed to furnish the shared spaces, and prepare the bedrooms with curtains, but otherwise didn't have to put in as many projects as before. We did, however, have people moving in within the first two-weeks of living there, which made it far more difficult to get everything setup as quickly as we would have liked. We're still in the process of smaller stuff, but we found tenants that have been super understanding.

We're currently paying around $1,100/mo to live here because we offered lower rents in order to get the rooms filled more quickly in this down-market of a winter. We expect to raise rents to market value within a year, to offset some of the cost. That being said, we're super happy and excited about this deal because it offers a better living situation for my wife and I and our first property will be making $1,700/mo before utilities. This will hopefully lean into us getting a third property in under 18 months.

Tenant Screening Challenges:

Here are details of Jordan experienced screening tenants for rent by the room

Below are the details of the underwriting, both while living there are after moving out

[Luke Stewart]

I want to start off by saying I have never done rent by the room, not sure how that impacts house hacks. OR if he will continue doing rent by the room after he moves out. That being said, I think $633/year is tight. You are basically breaking even, and if something big happens he could be in the negative. If the goal is cashflow its not the best property, but if the goal is equity to use a 1031 down the road then I think $633/year is acceptable. I personally would need more than $633/year to feel good about it unless I had a specific plan for the place. As someone who also invests in Denver, one could say any cash flow is good cash flow.