Am I Running the Numbers Correctly?

Question

I'm writing this post just to make sure I'm on the right track. Been analyzing deals for over a year now, and want to hear what you guys aim to achieve when house hacking. I understand that each market offers a unique perspective.

As of now, my goal is to have cash flow as I focus on CoC return.

I set aside 15% for CapEx, Vacancy, and Repairs/Maintenance combined. Is this enough?

I use the rent estimator to find average rents.

In Spokane, where I'm analyzing, the average "good deal" is around 1-2% when I put down 20% with a conventional loan. My goal is to aim for a 3-4% return. Is this a high enough CoC return?

I analyze deals as though I will be moved out of the property. I am also including the taxes and insurance while running the numbers. I will be self managing.

I'm trying to gain an accurate lens. Am I being specific enough? Or should I dive into my goals more thoroughly?

Thanks!

Ryan Thomson · Answer

House hacking is tough to cashflow in year one (with current house price run-ups and interest rates) for a couple reasons:

1. You are living in one of the rentable units

2. You are only putting 5% down so your loan amount is much larger and therefore your mortgage payment.

I would consider your net worth ROI. What I mean by this is considering how much your down payment returns to your net worth (appreciation, loan paydown, tax benefits, AND rent avoidance). Don't forget to include rent avoidance in your numbers! You have to live somewhere.

You may need to lower your return or cashflow expectations so you can get into a house hack that will allow you to avoid throwing rent money away every month. You know this, but don't forget all the other ways real estate makes you money. Paying down your mortgage and owning an asset that will appreciate over the long term.

Ryan Thomson · Answer

And if you are running the numbers as if you will move out...

Cashflow is tough when you move out because prices doubled since 2015 (at least in Colorado Springs) and interest rates have tripled in a year. Cashflowing within the first couple years is somewhat of an anomaly due to the low interest rates of the last couple years.

I would consider your net worth ROI. What I mean by this is considering how much your down payment returns to your net worth (appreciation, loan paydown, tax benefits, AND rent avoidance). Don't forget to include rent avoidance in your numbers! You have to live somewhere.

Don’t throw away getting a good investment because you can’t yet scale to number two.  If interest rates come back down, your numbers will look a lot better and scaling might be possible. If they don’t, you’ll be glad you bought since you are avoiding rent and cashing in on loan paydown and leveraged appreciation.

Ryan Thomson · Answer

Rent avoidance is the money you would no longer be spending on rent every month. It's a real savings that should be a part of your calculation.

Jessie Dillon · Answer

- househacking is really designed more to LOWER your personal cost of living vs eliminating it, let alone cashflowing. you CAN achieve cashflow, it's just harder. look into STR'ing or MTR'ing some of the units.

- i personally think 2% for LTR vacancy works in most markets.

- the rest estimator doesn't work well in less-populated areas. i use facebook marketplace to find 5-10 comps and average them.

- COCR isn't as applicable with househacking because of my first bullet point & because it doesn't factor in that you're also saving on your personal cost of living. many investors shoot for 10%+ COCR with a traditional rental property that they're not househacking. STR investors might shoot for 15%+. don't worry about what's high enough for others. look at your personal financial picture & say "ok, if i have to put $____ down, and my personal cost of living which has been $___ is eliminated, plus i'm cashflowing $____ every month, is it worth it to me to make that initial investment?"

- yes, def analyze each deal for now AND for when you move out.

- don't get too hung up on the details here. if you're underwriting 25 similar deals in one market and they don't make sense, you have to change your plan somehow. don't keep looking for something that's not penciling out. do what you have to do to tweak your buy box & be ale to make solid offers within the next 2 weeks!

Corby Goade · Answer

Whatever return is acceptable for you is a high enough return. Don't plan your future based on what a bunch of strangers on the internet tell you is the right return.

You need to know the vacancy rate in your market and plan for that- you can always beat it, but plan for it anyhow.

Best of luck!

Jacob Zivanovich · Answer

@Ryan Thomson

Hey Ryan, thanks for the response!

Net worth ROI, alright I'll start looking at that metric! It seems like much more of a "bigger picture" metric. I'll be putting 20% down, so that'll help my Coc.

Is Rent Avoidance the same thing as Vacancy rates? Or is rent avoidance my "rent" if I househack?

Conner Olsen · Answer

I personally don't like percentages when setting aside funds. I prefer dollar amounts. I look at my major systems and determine the remaining useful life and budget those in. Then I add around $50 a month for miscellaneous maintenance. The question I ask myself is 'If I need to call someone for a minor fix, how much will that cost? How often will that happen?' On my property I call an appliance repair company or plumber once a year and it costs $150-$400. $50/month is more than enough for me right now on my properties.

Anthony Swain · Answer

Hey Jacob,

Good luck with your house hacking endeavors. My wife and I are on the same path right now.

I say those are solid conservative numbers when analyzing. If they end up being less then its a nice surprise, but you won't be in for a shock if you estimate too low.

I agree with Jessie. As a house hacker, you have to account for your lowered cost of living i.e. instead of renting a 2 bedroom apartment for $2200, you're house hacking with a leftover cost of $1500 after all costs. Your adjusted returns would be higher because you're saving $700/month on your housing expense. This doesn't even take into account the leverage you can utilize, appreciation, amortization, etc.

Good luck! Hopefully you find a good deal soon!

Nathan Harden · Answer

"I set aside15% for CapEx, Vacancy, and Repairs/Maintenance combined. Is this enough?"

This is a tough question because every property varies. A house built in 2015 will not require as much CAPEX/repairs as a house built in 1915.

I will say this, I ALWAYS run my numbers safely so I think anywhere from 15-20% for you is a good ballpark number. When preparing for the inevitable costs, always make sur you know the age/condition of your big ticket items.

Roof, plumbing, windows, electrical, HVAC, foundation

Jacob Zivanovich · Answer

@Conner Olsen

Hey Conner! Haven't heard the perspective yet, thanks for the insight. It makes a lot of sense to have those reserves be set on a dollar amount, rather than a percentage which might be overkill and skew the analysis. Thanks!

Am I Running the Numbers Correctly?

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