All Forum Posts by: Steven DeMarco

Hello everyone - wanted some help fleshing out my thoughts on this deal analysis for a fourplex in Utah. I'd be owner occupying one of the four units and using an FHA 3.5% down loan. Also, I may have the option to get a rate buydown from the seller, as that is mentioned in the agent remarks. Currently, I rent a 3BD/2.5BA apartment for $2,150/mo. This would be my second real estate investment. I currently own and operate a STR in Pittsburgh, PA.

Property Details: 

- Current list price: $750K

- There are 4 units (3 1BD/1BA units and 1 2BD/1BA unit); I would owner occupy the 2BD/1BA unit

- There are leases in place for the 3 1BD/1BA units, total monthly rents: $3,185 (a bit under current market rents)

Year 1: House Hack

I would owner occupy the 2BD/1BA unit and keep the other renters in place.

- Loan Details: Up front Mortgage Insurance Premium would be 1.75% and Monthly Mortgage Insurance would be 0.55%

- Loan Amount: $736K @ 5.625% making my monthly mortgage payment: $4,853/mo.

- Annual Rent Avoidance: $5,784

Year 2: Rent all Four Units

I would adjust rent for all units to current market rents. In that area, Rentometer average rents are 1BD/1BA: $1,350/mo. and 2BD/1BA: $1,650. That brings total rental income to $5,700.

- Monthly Rental Income: $5,700

- Monthly Debt Service: $4,853

- Expenses: $1,143 (includes: Vacancy (3%) $171/mo., PM Fee (9%) $497/mo., Maintenance + Capex (8%) $475/mo.)

- Monthly Cash Flow: -$486

Using this free Rental Property Calculator, it shows that I would be negative cash flow from Year 2 - Year 5. If I sum up all the negative cash flow across these years, it would be about $14K in total. If you look into the details of that rental property calculator, I had to add the MIP (I would have to borrow $736K because there is a 1.75% tacked on to my loan amount) and PMI (added the monthly mortgage insurance to the "Insurance" field). I recognize that in these calculations, I'm not considering the loan paydown, appreciation or tax savings. I currently have strong W2 income and although the -$400/mo. figure is not terrifying, I'd like the property to float itself and not get in the way of future investments (negatively impacting DTI ratio for years to come).

So, is this a good deal? What else am I missing? Blow holes in this! Any and all advice/guidance would be very much appreciated.

Thanks for your insight @Carl Davis. I'm fully bought in on the value of house hacking and will continue investigating, maybe with a bit more emphasis on the SF + ADU setup.

Hello, I'm hoping for some advice on how to proceed on my next step with REI. Currently, I rent with my SO in Salt Lake City, UT. We pay $2,150/mo. to rent a 3BD/2.5BA and our lease expires at the end of June, 2023 (we do have the option to re-sign for an additional year or month-to-month). We want to stay in SLC for at least another year, at minimum. But after that, I'm not sure where we will end up. We have family/friends back East (in Pennsylvania). Last year in December of 2022, I purchased a SFH in Pittsburgh, PA, did some rehab/repairs and furnished as an STR - which was launched in March of 2023. In just our second month of operating the STR, we were cash flow positive (by about $650) and I have line of sight to cashflow positive for the next few months. I've officially got the REI bug and am eager to get to the next deal.

Right now, I'm weighing my options. I'm currently working with an investor-friendly agent in SLC to try and find a property to house hack but I'm not having much luck with finding deals that pencil out. I've got pre-approval with a lender for up to $760K and have about $30K in liquid cash for down payment and another $80K in investments (of which I'd be fine to liquidate about 20%-50% for a purchase). The two loan options I'm targeting are FHA 3.5% down or Conventional 5% down. A few properties have shown decent rent avoidance while owner-occupying, but after moving out in Year 2, I'd be cash-flow negative by renting both units as LTRs. With my experience in STRs, I have thought about going that route with one or both units, but the STR situation in SLC is something I'd like to avoid. Officially, STRs are "not allowed" in SLC but there are obviously plenty of STRs in the market. With that uncertainty, I wouldn't want to go all-in on an STR just to have some regulations come down in the future that would put me in a tough spot.

Of the house hack deals that pencil out from a rent avoidance perspective, a small minority would cover the mortgage after moving out in Year 2. When you add in reserves (maintenance, capex, PM fees, vacancy), I've yet to see a cashflow positive deal in Year 2. The closest was -$600/mo. And most of these that have a chance of covering the mortgage are further outside of greater Salt Lake City (Kearns, Taylorsville, Ogden, etc.) which doesn't exactly align with our goals of where to live/own property in Utah. If this were Deal #5 or Deal #10, maybe a small negative cashflow hit would be acceptable. But for Deal #2, I want to have much clearer line of sight to the property being able to float itself. I don't need $1K/mo. in positive cashflow, I just want the property to pay for itself.

To summarize my decision factors & goals for house hacking in SLC:

- Close to greater SLC (w/in 15-20 min drive to downtown)

- Minimum 2BD/1BA during owner occupancy

- Avoid significant portion of rent payment with a house hack

- Cash flow positive in Year 2 (with proper reserves for maintenance, capex, PM fees, vacancy)

Should I keep looking in SLC for small MF (duplex) or SFH + ADU or are my goals unrealistic?

Should I re-sign my lease, rent for another year and keep stockpiling money for my next STR investment in a more STR-friendly market?

@Jarret Durst - I can completely relate. I just backed out of a contract during due diligence. I struggled with the feelings of not following through but at the end of the day, the numbers didn't work. Emotionally, I saw the potential and at first glance, future rent numbers could be slightly above the mortgage payment. So I submitted the offer and was accepted. However, using the exact same calculator that @Steven Foster Wilson linked to, after factoring in vacancy (5%), management fees (8.9%), maintenance/Capex reserves (5%), I'd be negative cash flowing about $600/mo. Nevermind the additional fees the PM would charge for any occurrence of maintenance or tenant turnover. To some, that might be a deal they'd be willing to take, banking on loan paydown and future potential appreciation. But for me as property #2, I want something much closer to break-even (is it too much to ask for any cashflow these days?). The property was located in a suburb of a larger market and I wasn't exactly sold on the location.

I currently own one STR that I bought as a second home in December of last year that is off to a good start and building some momentum. I currently rent my primary residence and this momentum made me so eager to get into my next deal as a house-hack to offset those rent payments and move out after the first year of occupancy. I'm trying not to let my ego get in the way of "feeling bad" about backing out of a deal. Before I submit any other offers, I'm going to post on BP the numbers to get more perspective and see if the offer makes sense before committing to it. Learned the lesson the hard way and I don't want to be in this situation again.