First “House Hack” Investment

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First “House Hack” Investment

Matt Brooks
Rental Property Investor · Buffalo, NY · Member since 2019 · 7 posts · 2 votes

Thanks in advance for any advice, suggestions and info!

I’m from Buffalo, NY and have been looking into buying a double as a primary residence and my first investment. I bought my current house in 2009 when I was 21 and single. I’m now 30 with with a wife, 2yr old, 1yr old, a 401k and some gray hairs. My current house has about 25k (conservatively) in equity.

Being in a commissioned sales role for most of my professional career I have always been interested in the business of realestate but never made the jump. My wife and I are scheduled to start taking the NY Realestate license corse together this fall. We figured if I want to learn as much as I can this is the first step and it would be a great part time job for her.

I’m putting a 5 year plan together to eventually have 20 units in the form of 7-10 Multifamily houses. From there I hope to turn it into a full time job and really grow!

I recently found a 2/2 double in the Tonawanda (15 mins from downtown) that is being sold through an estate. It was listed at $150k and is now down to $110k I think I can get it down to $85k because of the work needed. It currently has long term tenants with rents of $650 each (which is very low for the area but most likely friend of the deceased owner) and think this could be a great “house hack” investment.

The property needs a good cleaning and some small drywall work and paint. It will eventually (in the next few years) need 2 boilers a partial roof and updates to the kitchens and baths.

I have updated everything in my current house and have friends in the HVAC, Electrical, Plumbing and Construction industry that I can lean on. I understand there will be unforeseen costs but am thinking I can handle the bulk of the grunt work and bring one of them in for the rest.

Looking at the BRRRR strategy here are the numbers once it's all together if I purchased at $100k

Estimated Income Monthly

$850 per unit (I will be in one of the units while we rehab)

Total $1700

Estimated Expenses Monthly

$575 - Mortgage

$475- Tax

$100- Insurance

$50 Water/sewer/Garbage

$0 Lawn/snow

$100 - Vacancy (guess?)

$100- Repairs/CapEx

Total - $1400

Once it’s fully rented I will have $300 monthly cash flow with an additional $200 vacancy/repair/capex budget built in. My thought would be to get it appraised between $150k-$200k and refinance. With that instant equity I would look for my next property and “house hack” to get 3 properties by the end of 2020.

I am looking for thoughts, advice and/or info from any of you with experience. Thanks again!

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  • Jon Lilley
    Rental Property Investor · Buffalo, NY · Member since 2018 · 14 posts · 2 votes
    7y

    House hacking is a great way to go!  You can get into a property with a minimal downpayment, and live in come cases for free or close to it with the additional rental income.  Also, things you couldn't write off in your single family you'll be able to benefit from at tax time.  Any expenses to the exterior or any common areas, ie, roof, landscaping, paint, is all 50% deductible if you're house hacking a 2 unit bc it's shared by your tenant.  And any work in the tenant unit is 100% deductible, as it's a business expense for a part of the house you don't live in.

    And after you live in the property for 2 or more years, you can turn it into a rental and go house hack again if your family is up to it lol

    0Reply
  • Khaled Morad
    Lender · Tampa, FL · Member since 2018 · 422 posts · 210 votes
    7y

    Ouch, those Tonawanda taxes! I grew up in Tonawanda. It's a great place to live. Best of luck! When you are ready to disclose, I'd be interested in learning where it is.

    0Reply
  • Ciro Affronti
    Investor · Scottsdale, AZ · Member since 2014 · 52 posts · 23 votes
    7y

    I’m currently using house hacking as a way to build up a portfolio of small multi family properties as well. It’s been a great way to learn and acquire properties. You are able to move out after a year, and turn it into a traditional rental and then do it all over again and keep the party going! Offsetting your living expenses from your other unit is also a great perk, as you can use the lower housing costs to save more $, and then put up down payments faster.

    Those taxes are insane though! Good old New York. Here in AZ taxes on my duplex are only about $100/month. 

    Best of luck!

    0Reply
  • Yahya Omar
    Member since 2019 · 2 posts · 0 votes
    7y

    I live in Town of Tonawanda aka Kenmore and I can attest taxes being insanely high. 5700/yr for me. I am also house hacking at the moment while saving up for a 2nd property. 

    0Reply
  • Matthew Irish-JonesBusiness Member
    Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
    7y
    Matt Brooks your numbers look good as posted. The projections vs reality part is where it can get tricky. Many investors over estimate ARV and under estimate rehab/repair costs on their first couple Projects. I can’t say if your doing that, just something to watch out for. Good luck!
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  • Matt Brooks
    OP
    Rental Property Investor · Buffalo, NY · Member since 2019 · 7 posts · 2 votes
    7y

    @Jon Lilley thanks for the info! Is there a rule or law saying I would need to stay there as my primary residence for a certain period of time? I was think of doing this over a 6month period.

    0Reply
  • Matt Brooks
    OP
    Rental Property Investor · Buffalo, NY · Member since 2019 · 7 posts · 2 votes
    7y

    @Matthew Irish-Jones thanks for the tip. Would it be wise to get a pro to put a few ballpark estimates? Is there any way to boost ARV?

    0Reply
  • Matt Brooks
    OP
    Rental Property Investor · Buffalo, NY · Member since 2019 · 7 posts · 2 votes
    7y

    @Ciro Affronti It’s great to see that other people are going this route and being successful. Have you used standard bank financing? Are you finding the properties yourself?

    0Reply
  • Jon Lilley
    Rental Property Investor · Buffalo, NY · Member since 2018 · 14 posts · 2 votes
    7y

    @Matt Brooks I would say check with your CPA for legitimate advice. And if you don’t have one you will definitely need to get one for your taxes. I know that as far as living in a property as a primary you can sell it after living there a full 2 years without paying capital gains taxes, but not sure how often you can claim a property you’re moving into as a primary, so you’re able to put down a lower down payment. I house hacked my first house, but haven’t done it again. It worked out great though, I basically loved there for over a decade for free! I would say find a CPA now and have a conversation to have all your questions answered by a professional and then you can have a solid plan of attack, and you’ll be one step of the game come tax time too. Good luck!

    0Reply
  • Matthew Irish-JonesBusiness Member
    Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
    7y
    Originally posted by @Matt Brooks:

    @Matthew Irish-Jones thanks for the tip. Would it be wise to get a pro to put a few ballpark estimates? Is there any way to boost ARV?

    Yes I would say that would be very wise.

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  • Thomas Latuga
    Real Estate Consultant · Buffalo, NY · Member since 2018 · 49 posts · 24 votes
    7y
    Originally posted by @Matt Brooks:

    @Jon Lilley thanks for the info! Is there a rule or law saying I would need to stay there as my primary residence for a certain period of time? I was think of doing this over a 6month period.

    Matt,

    See IRS publication - https://www.irs.gov/taxtopics/tc701

    "If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home provides rules and worksheets. Topic No. 409 covers general capital gain and loss information.

    Qualifying for the Exclusion

    In general, to qualify for the Section 121 exclusion, you must meet both the ownership test and the use test. You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. Generally, you're not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home. Refer to Publication 523 for the complete eligibility requirements, limitations on the exclusion amount, and exceptions to the two-year rule."

    0Reply
  • Ciro Affronti
    Investor · Scottsdale, AZ · Member since 2014 · 52 posts · 23 votes
    7y
    Originally posted by @Matt Brooks:

    @Ciro Affronti It’s great to see that other people are going this route and being successful. Have you used standard bank financing? Are you finding the properties yourself?

    Yes I have exclusively used standard bank financing which I see as the greatest benefit of house hacking. My first house hack was an FHA owner occupy loan with only 3.5% down required. My other two were both conventional owner occupy loans and I only put 5% down. I chose to put a lower amount down because these were value add type properties that needed work and I knew could force appreciation. I had a plan to fix them up, increase rents and then refinance out to traditional 75% LTV investor loans after they were stabilized, which I accomplished.

    0Reply
  • Joe LivseyPro Member
    Investor · Denver, CO · Member since 2019 · 19 posts · 3 votes
    7y

    @Matt Brooks

    I was listening to a podcast "the millennial real estate investor" episode #55 '203k rehab loans with BRRRR house hacking' which might be of use for you. It basically allows you to put limited (less than 20%) down and wrap your rehab costs into the mortgage without paying insurance, provided you are living at the residence. I'm not an expert by any means but it might be something worth digging into if the numbers make sense for what you're doing!

    [email protected]347-949-0923
    0Reply
  • Matt Brooks
    OP
    Rental Property Investor · Buffalo, NY · Member since 2019 · 7 posts · 2 votes
    7y

    @Joseph Livsey thanks for the tip! I listened to it and am looking into this option now!

    0Reply
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