Does This House Hack Deal Make Sense? (Dallas)

Question

Hi BP Community,

I am going back and forth on a duplex in Dallas that I'm looking to house hack. I haven't been able to find a decent duplex in a good area that meets the 1% rule, so I'm considering one that checks all other boxes for me. The numbers on the deal are below:

-$6100 PITI (5% down owner occupied)

-$2600-$2800 monthly rent per unit

-Off market deal near Richardson High School

-Both units fully renovated

I would essentially be betting on the long term appreciation of the DFW real estate market as well as long term rent growth. I could pretty comfortably afford my monthly out of pocket payment due to income and help from my partner. My concern is not being able to move out for 3-5 years for the property to be slightly cash flow positive. The property is nice enough and in a good enough location that I would be comfortable living there for that amount of time, but I am ultimately looking to make money on this deal. Am I better off just renting and investing elsewhere? Any guidance would be appreciated.

Cole Koeppen

Anthony Swain · Answer

Hey Cole,

Fellow house hacker here in Charlotte, NC with my wife.

I think it is ultimately up to you with this decision, because of overall goals and what you're investing philosophy is.

Some factors to consider, what would you be saving if you just rented?

$6,100 PITI + Maintenance, Cap Ex, & vacancy reserves

Versus whatever similar rent would be in the area.

If you're okay with this deal not being a homerun initially, but allowing you to live in an ideal location in a nice home with slightly less mortgage cost, then it may be worth it.

On the other hand, if you're only banking on appreciation, then this seems like it would negatively cash flow even if you moved out unless you can favorably refinance.

Aaron Duthie · Answer

You have way more details about the property than the rest of us, but by the investment fundamentals, this is a liability, not an asset. Your tenant should be subsidizing your housing expense at the very least, not the other way around.

Both units fully renovated means you can't force appreciation. This becomes a speculative investment beholden to the whims of the market. What sort of market analysis have you conducted?

I'm a big house-hack advocate, but if the fundamentals don't make sense, there's no reason to rush into a loss.

Anthony Swain · Answer

Thank you Brian. You mentioned a good point. I think it is very prudent to think, "Does this property cash flow if I move out and rent out the entire property?" If yes, then you are much more flexible. If not, then you are more or less tied to the property unless you want to sell or pay for someone else to live in it.

From your numbers, the $2800 in rent x 2 would not cover the $6,100 PITI plus maintenance, cap ex, or vacancy reserves. You could be negative cash flow $1000 or more. You would be banking on a few factors out of your control to get out of that situation.

Rick Albert · Answer

Real Estate is one of the fastest wealth generating tools available. It is because you are guaranteed to make money in at least 2 out of 4 ways:

1. Cash Flow

2. Appreciation

3. Loan Buy Down

4. Tax Benefits

My guess is if it doesn't cash flow, you will make money the other three ways that you wouldn't otherwise be able to if you rented. At the very least factor in loan buy down into your cash flow calculations because later on you can leverage the equity in either selling or financing. That's how I was able to expand my portfolio from my two house hacks in Los Angeles.

Brian Sardinskas · Answer

Hey @Cole Koeppen,

Some really good responses so far from @Anthony Swain, @Aaron Duthie, and @Rick Albert. I will also give you my two cents from a fellow house hacker.

In my opinion, I wouldn't buy a property if I couldn't move out in a year and at least cover the mortgage payments with the rents from both units. From your numbers, it does not look like you will be able too. You also mentioned that both units are renovated which means it may be hard to force any appreciation or rent growth.

Now, If this property is the ideal place for you and you think you will live in the property for 5-8+ years. I think this can still make sense. My only worry is that you are banking on appreciation and rent growth to move out, which is not guaranteed to come.

I am not familiar with the Dallas market, is this a good deal for that market? Have you found properties that had better cash flow? Are you willing to do some light renovations yourself, or would you want to property to be turn key?

Bruce Lynn · Answer

That does not sound like a deal to me, but that's DFW right now.  You get to pay your full share of the rent and it looks like subsidize the 2nd side as well.  Rent looks high to me.  I show very few duplexes rented in Richardson in the last year at those prices.  Is that your current rent or are they both vacant?  Even though they are renovated, they have to be pretty old in Richardson, maybe 70s vintage, so I would want to know who rehabbed them and what did they actually do....like new electrical and plumbing...any foundation work?

I'm thinking if you're only here for 3 years, rent...and as cheap as you can.  Save your money.  Five is probably better, but still you're maybe just at break even is my guess.   If you want to house hack, the best option in DFW right now is probably to buy 4-5 bedroom home and rent bedrooms.  You maybe be able to live for free or pretty close to it, depending on how extreme you get with it...AND make some decent cash when you sell as well...especially on the 5 year plan vs 3.

Does This House Hack Deal Make Sense? (Dallas)

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