TLDR; House hacking: it works.
Howdy,
About nine months ago, I closed on my first property (house hack in DFW, TX). I've had a few people from Bigger Pockets and other friends reach out with questions, so I figured a recap could be useful to other new investors and myself. The goal of this post is to give a first time investor a road to follow with PLENTY of details, so let's take it one step at a time, starting with...
The Hunt
Original Criteria (can be found in my first post on BP):
- area with decent schools, B- or better neighborhood
- around $200k purchase price
- 2+ bathrooms
- something that could cash flow after moving out if I were to rent to a single tenant
From that first post about my criteria, I found a rockstar real estate agent Harrison. This was a crucial moment in the process. When I was making my New Years resolutions, I actually didn't plan on buying a house until August, and if it weren't for Harrison's drive, I might not have met that deadline. Finding a good agent (or any team member) who keeps you accountable can be just what you need to get over your analysis paralysis. Harrison also referred me to his lender Tyler who was able to get me a pre-qualification letter with some owner-occupied loan options (3% and 5% down conventional or 3.5% down FHA).
After looking at the price points across the DFW metro, we settled on Arlington for two big reasons. One, the University of Texas at Arlington could provide a good tenant base for rent-by-the-room candidates. Two, the price point of a single family home was as close to the 1% rule that I could find anywhere in the metro.
I analyzed about 50 properties and toured 6 homes. The one I went with was a 3/2, 1640 sq.ft, 1955 build. The interior was quite outdated, but the bones seemed good. A couple things really stood out about this property to me. One, it had two living spaces, and with the way the layout worked, I could easily create a fourth bedroom for myself by erecting a wall to split a long 25x11ft dining/living space in half. Also, both of the bathrooms were in the hallway instead of one being a true master bathroom. That way, it wouldn't be awkward for the bathrooms to be shared, two people each, no need to enter someone else's bedroom.
Skipping ahead a bit, my offer was accepted. The inspection revealed some problems with the roof and the plumbing. The HVAC system was over 20 years old, but it still worked fine. Harrison negotiated a roof replacement and new PVC piping to be installed all the way to the curb. The hunt had concluded. Let's talk numbers.
The Preliminary Numbers
Here's what I was originally predicting:
- Purchase price: $185,000 (same as listed price)
- PITI: $1363 (3% down conventional loan)
- Rental income: $1,800 ($600 per room, splitting utilities)
- Reserves: $400
- Cash flow with living in the house: $37... Not bad for free rent!
*a note about reserves: I recommend not overthinking your reserves. You're really just throwing a number into a spreadsheet to give you a better idea of the income/expense in aggregate. I had about $10k reserves to dedicate to the "house fund" after closing costs and everything else. That's what made me feel comfortable.
After a minor crisis with my employer while trying to get a necessary document for underwriting, I was able to secure financing with Tyler and closed on time, May 26th. At this point, I had two roommates lined up, both of which were friends of mine. In order to secure two friends to live with me, I decreased their rent to $550. COVID had dried up the tenant pool from UTA, and I decided that having two trusted friends with me was worth much more than $100/month. Both of them were to move in at the beginning of July. This gave me just enough time to knock out some cosmetic rehab: painting the bedrooms and living room, installing some ceiling fans, updating the flooring in the living room, creating the fourth bedroom, and furnishing the common areas.
How much did all this cost?
- Earnest and option money: $1950
- Inspection: $600
- Closing costs: $9550 (including down payment)
- 4th bedroom: $1500 (wall construction, door hung, baseboard trim, paint)
- Flooring and painting: ~$1700
- Refrigerator: $1100
- Furniture: $600 (one roommate also brought some things for the common areas)
- Miscellaneous Tools and house supplies: ~$800
- 1 Month of Vacancy: $1363
- Total $ invested: ~$19,200 (rounding up)
By the way, I highly highly recommend creating a separate bank account for each property you own. It makes bookkeeping soooo much easier.
The Management
But wait, what about the 4th room? I still had one bedroom vacant. Through ads on FB marketplace, I had many people inquire, but I couldn't find a perfect fit. The ~vibe~ in the house with the 3 of us was too good to jeopardize. I decided I would wait to find the perfect roommate. And after 3 months of casually searching, I found him. Yes, this is suboptimal from a cash-flow perspective, but you know what? I don't regret it all. The roommate dynamic in the house is something that can't be accounted for on a spreadsheet. It was well worth the $1650 in lost rent for me to lock in a perfect fit.
Now let's fast forward to my first maintenance crisis! Remember that big Texas freeze? Remember my old HVAC system? So do I! The first night that the freeze was beginning, the heater goes out. And even better yet, I was on a 2 month long ski trip at the time! I tried to contact my home warranty provider, but they weren't going to be able to send anyone out for a few days. That wasn't going to work, so at 11pm on a Friday, I manage to get an HVAC repairman to come out to the house for $100 to solve the problem. One of my roommates did a bit of diagnosis on the problem which proved to be helpful when describing the issue to the HVAC Repair Dispatch. Finally at 12am, the repairman fixes the problem. God bless him. There is some bad news though. It's finally apparent to me that I'm going to need a full system replacement by the time I return from skiing, but that's what the reserves are for. Throughout the rest of the freeze, my roommates leaked the spigots and battled temperatures as low as 38 degrees in the house as the Texas Freeze Fiasco raged on across the state. Thankfully, the house survived with no damage.
The Current Numbers
At this point, the house has been in a stable state with no vacancy for about 5 months now, and the numbers work out as follows:
- Rental Income: $1650
- PITI: $1363
- Average Repairs: $51
- Average "Promotional Expense": $25 (I like to treat the guys with some beers every now and then)
- WiFi and TV: $96 (not entirely sure why I offered to pay for this since we split the other utilities)
So it would seem like I'm living for free and netting a little over $100 per month, but we should remember a few things: I went 3 months with vacancy in the 4th room, I'm about to replace the whole HVAC system, and I still pay my split of the utility bill.
The Final Recap
For about $19,200 cash down and another $10,000 that I left in the house bank account, I've basically been able to buy myself 8 months of free rent, 9 months of loan paydown, 9 months of appreciation, and a PRICELESS learning experience. I can't recommend house hacking enough, especially to someone whose never bought a house before. Living in the house and having the same experience as my tenants has given me a lot of insight as to what it means to manage a property built in 1955. Also, I've learned that doing manual labor is not nearly as straightforward as I think. Every time I start a project, it requires 2 trips to Home Depot and about 4x as much time as I would've expected. This is possibly because I'm an idiot however...
Anyways, I hope this was helpful to someone out there. And if you made it to the end of this, congrats. It turned out to be about 5000x as long as I thought it would.
Happy investing,
Ryan
