All Forum Posts by: Steven DeMarco

You make great points, Dave. I would indeed be wrapping the UFMIP into the loan amount. I would prefer to put as little cash down as possible and like the lower starting rates for FHA, so I may still favor that route but you have certainly added some valuable input and perspective to my thought process.

Sounds like a great deal Jodi. Are you living in the main house and only using ADU as STR? Awesome that you are able to cover the mortgage.

What is the beds/bath setup in main house? And how about the ADU? Sq. footage?

Thanks Dave. After chatting with my lender, the monthly payments for 3.5% FHA (even with the UFMIP) end up being slightly less than the monthly payments for the 5% conventional (without the UFMIP). The interest rates for the FHA are better than conventional. So I'm putting less down, getting a better rate and therefore paying less monthly. If I'm planning to refinance in the next 2 - 5 years when rates are hopefully better / to get rid of the PMI, and have no need for another FHA in the interim, what other reasons would you advise me going with 5% conventional?

Mortgage figure of $3380 includes PITI (and PMI)

Great points @Ben Einspahr. And to clarify, I'd be putting 3.5% down but am being pretty aggressive with rent projections and reserves. I'm putting a PM fee as I may be moving out of state after living in the property for one or two years. 

The comps I listed are entire SFHs, not duplexes. Also, the comps are a bit bigger sq footage wise. I'd agree with you that it's a stretch to be in the top 75th percentile.

It would be awesome to see your spreadsheet. I've been using every calculator I can get my hands on, creating my own spreadsheets, etc. Trying to tackle it from all angles. 

@Ryan Thomson, I've seen this copy pasta before :) My current goal is to buy a property to house hack in Salt Lake City. Year 1, I want to avoid some portion of my current $2150/mo. rent payment and have the property self-sustain in Year 2 when/if I move out.

In the spirit of trying to learn and incorporate everyone's feedback, I'm going to take a stab at applying your though process to my scenario. You are running most of the numbers assuming that the investor is living in the property for 5 years. I could see myself reasonably living in my house hack for up to 2 years (for other tax benefits as well, like avoiding capital gains if selling). Therefore, I'll run these numbers as if I live there for 2 years.

Appreciation Gains (using 3%): $30,450

Loan Paydown: $11,074

Tax Benefits: $0 (no cash flow)

Rent Avoidance: $10,080

Total Net Worth Increase: $51,604

Down payment of 3.5%: $18,025

Closing Costs: $12,000

My total capital investment would be: $30,025

Simple interest rate of return: 85.9%/year

I recognize that I didn't set anything aside for maintenance, capex reserves, etc. but that was a fun exercise. Do you think I missed anything?

Completely understand what you're saying and genuinely appreciate the feedback!

Rentometer average in the area is $1650 for a 2BD/1BA. When I look on Zillow, Facebook MP, etc. I see rents in the $2000+ range for similar quality property with lots of activity and contacts. For example, here is one for $2195 that's been listed for 4 days with 20 contacts. Another here for $2500 that's been listed for 6 days with 50 contacts. The Slate apartment complex has 2BD options starting at $2100 and going up to $2300.

If I adjust to Rentometer average of $1650 per unit and be more conservative with reserves (8% for maintenance/capex, 8% for vacancy and 10% for PM) then the deal tanks. I'm looking at -$938/mo. in negative cash flow for renting both units.

Rent projection was one of my biggest concerns. It's in the "Ballpark" area of SLC, a few blocks from Smith's Ballpark. It's got a downtown feel, with walking distance to bars, restaurants and entertainment on State St. There's a lot of new apartment buildings going up in the area.

The 9% reserve figure was my other biggest concern. And to clarify, I'm only reserving 9% total for: maintenance, capex items AND vacancy. It's way more aggressive than what I see quoted as more conservative figures. I'd be $300 - $500 negative cash flow if I put away 10% for maintenance/capex and 8% for vacancy. 

What if I moved out of state in Year 2? Would you still recommend self-managing from afar? How to handle maintenance, showings, turnover, etc.? Surely, there is still a need for a "boots on the ground" person.

Thanks Gregory. I'm thinking I will put an offer in. I've been running plenty of numbers and analyzing every deal that comes across the MLS. This is the closest one to penciling out and in my opinion, in the best area.

 I would possibly consider staying there for two years, but I may be relocating out of the area at that point. At minimum, I would definitely stay there for one year - maybe two years.