SFH Opportunity - Seeking Advice for House Hacking and Creative Strategies

Cleveland, Ohio

SFH Opportunity - Seeking Advice for House Hacking and Creative Strategies

Cleveland, OH · Member since 2022 · 826 posts · 578 votes

Hey BP,

I've been discussing my real estate aspirations with my family and personal network and an opportunity presented itself in no time.

A relative of mine has a 2/1 SFH that they've been renting to a family member for 2 years now. Things have started to go down hill and the tenant is moving out once their lease is up in early summer 2024. These relatives of mine are highly motivated to sell but don't want to sell until their family member moves out. This fits my timeline perfectly since my goal for this year is to save up money and pay down debt.

This property has central air, dishwasher, a solid kitchen and bathroom as well as a view of Lake Erie. My significant other and I want to live in the property for a year and house hack while we live there by renting the other bedroom to someone we know and trust. After this, we want to either sell it or turn it into a full time rental.

I've been looking at rent comps in that area and 2/1s rent for $1,300 with appliances but without central air. This property has central air. Trying to find extra opportunities to value add to increase the rent once we are finished with a year of house hacking. After considering all expenses (mortgage, vacancy, capex, maintenance, home insurance, PMI, etc.) the property would negative cash flow. I could offer them less than they want for the property (like I said they are highly motivated) but I'd be giving them less than what they still owe on the property.

This property also has an additional lot that can be sold or built on. I love the ADU strategy but I don't know if it would make sense to put all of that money into building one.

Would love to hear the thoughts of other investors who have rented SFH's.

All the best,

Ben

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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
2y
@Benjamin Sulka a lot to upack here so I'll try to break them down one at a time.
1. Cash Flow - all properties don't cash flow right now. Ok, if you put a TON down...anything will cash flow. Usually 40% down is what you need on single family homes. This doesn't mean you shouldn't purchase real estate...read more on this topic HERE.
2. 2/1 properties - we usually don't purchase 2/1 properties. There's an exception to everything I guess but in most markets we focus on 3/2 properties because that's what an "average, working-class family" will want to rent. When there's more people who want to rent a property, that means more competition...that means we get to maximize the rent. That's why 3/2 work better. And below the median price point in most markets. To anybody who says "2/1 works in my market"...I would bet that a 3/2 works better. Now, that also means that a 3/2 would be priced higher to purchase...and sometimes we have to just take what we can get. But keep in mind that if you analyze 2/1's then your rental numbers will be lower because of it.
3. Downpayment - have you asked your loan officer how much downpayment you will need to execute on this property?
4. Building - building an ADU/Property from scratch will require even MORE of a downpayment (which is why most of us don't go this route).
Hope all of this makes sense but this is what the right expectation should be (and questions you should be asking) for any real estate right now. Thanks!
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Alejandro B Yoon
Investor · Austin, TX · Member since 2022 · 50 posts · 45 votes
2y
The reality is not every deal works, even if it it's from family.
Also for a househack, the more units the better when renting out rooms/units. A 2200 sq ft house with 5 beds will make a lot more money than a 3 bed house the same size. If the space allows it, maybe consider building another room? That would also increase the rent when you leave.
From what I have seen, ADU's typically don't make sense to add unless you are in dense HCOL cities, where more housing is needed and the expensive cost of construction is immediately recouped as equity. Most of the Midwest doesn't follow this trend.
I would also consider just representing your family member in the sale and using the commission to save up even more money when the right opportunity comes
Keep us updated and best of luck!
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Benjamin Sulka
OP
Cleveland, OH · Member since 2022 · 826 posts · 578 votes
2y
Quote from @Alejandro B Yoon:

The reality is not every deal works, even if it it's from family.
Also for a househack, the more units the better when renting out rooms/units. A 2200 sq ft house with 5 beds will make a lot more money than a 3 bed house the same size. If the space allows it, maybe consider building another room? That would also increase the rent when you leave.
From what I have seen, ADU's typically don't make sense to add unless you are in dense HCOL cities, where more housing is needed and the expensive cost of construction is immediately recouped as equity. Most of the Midwest doesn't follow this trend.
I would also consider just representing your family member in the sale and using the commission to save up even more money when the right opportunity comes
Keep us updated and best of luck!

Alejandro,
Agree 100% and I'm not going to buy this property if I can't do something to make it viable as an investment. No emotions involved here. I thought about the prospect of adding a 3rd room and this is definitely something to consider that could raise the value of the property or raise rents.
My girlfriend and I would be paying less to live in this property as our own than we are paying in rent right now though. We currently pay $1,450 plus pet rent. Purchase price for this house would be about 140k with 10% down and closing costs would be little because there would be no real estate agent involved. PITI would be about $1,300 including PMI. Obviously, we would have to take care of the property and are responsible for things that need fixed unlike renting. But if we rented out one of the rooms for 500 or 600 bucks our monthly payment would be far lower.
Really just trying to think of how I could turn it into a viable investment after we house hack for the first year. If the numbers don't work, they don't work, and we won't move forward.
I really appreciate your comment.
Best,
Ben

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