$130,000 Profit from first House Hack

56 Replies

Case Study for Houshacking in Minneapolis, Minnesota:

Bought a duplex for 3.5% down on an FHA mortgage: $6370

Rehab said duplex: roughly $10,000. This consisted of carpet, laminate floors and paint in the lower unit, countertops, backsplash, appliances, tile in bathroom floor and shower surround. 

Also paid for was furniture for two Airbnb rooms, roughly $1600.

Lucky for me we had a hail storm and I was able to get the siding replaced for $1200 deductible.

PITI: $1230
Water, sewer, trash: $150
Internet: $90
Gas: $80-100
Electric: $70

Rent from upstairs unit: $1100
Rent from roommate in lower unit: $450
Rent from Airbnb room in lower unit: $600

My rents were low for Northeast Minneapolis because of the condition of the exterior of the home when I rented it and giving my roommate a great deal. Should have been $1200 and $600 for room.

Gross rent: $2150
Expenses: $1640

Profit: $500 a month + free rent (savings of $1250 per month)

$6000 profit per year, $15,000 savings per year = $21,000 extra in disposable income per year.

Initial purchase price of $182,000
Sales price of $326,000

After realtor fees and closing costs a profit of $129,000. I didn't take a commission of course so add about $9k to this for everyone else.

During the almost two years of owning the place I was able to live for free, learn how to be a landlord, buy a 6 plex in Louisville, KY and travel quite a bit more than I had in the past. If I wasn't in town I just rented out the room that I stayed in on Airbnb, which covered a chunk of travel expense. 

I have two more 6 plexes under contract in Louisville and will be using the proceeds from this plus savings to purchase those through a 5/25 commercial loan with US Bank.

This strategy is so simple and even if you can't make it work in your market where you live absolutely for "free" you can still have many benefits such as loan paydown, depreciation for tax purposes, appreciation, landlord experience and a reduced living expense.

Was what I did always comfortable? No. Not at all. 

Am I going to do it again and for as long as I can? Hell yes.

Great write up but you should have tried making it to the 2 year mark to exclude some gain!!  But I understand - can't let the tax tail wag the dog.  I personally am OK selling flips and paying ordinary rates when it makes sense to avoid market and tenant risk.

Congrats man! I have just started investing and bought my first property in November of last year and it has already appreciated about 30k. I guess the neighborhood is really coming up!

@John Woodrich

The only thing I'd do different that John Woodrich mentioned is I'd wait for the 2 year for no tax or in my case whenever I BRRR- sell after 1 year and a day to utilize long term capital gains. I've stacked my renovations and take them in order so I'm never paying 25% fed, 8% state, and 15% SS= 48% tax rate on profits but rather 15% fed and 8% state= 23% total tax rate. My Dad taught me, it's not how much you make but rather how much you keep of what you make so my deals sometimes utilize 1031 exchanges to avoid taxes all together when it makes sense. good job Jordan.

@Bruce Runn

Sounds like Jordan may have waited long enough to get capital gains treatment but it would have helped a little if he did a partial 1031 into one of the new properties. Great result either way.

I ate the tax on a flip last year.  Figure 10% higher tax (cap gains vs ordinary) and SE tax isn't too bad If someone is over the Social Security limit however still sucks paying it.  In my case my wife designed the house with cararra marble counters, farmhouse sink, etc which are prone to staining and scratching.  We had plenty of profit and I just wanted to avoid the tenant risk.  One year and a day is a good strategy.

Just a quick note about shirt-term rentals in Louisville...they are illegal in multi-family dwellings (3+ units under one roof). Only single family and duplexes under residential zoning. Commercial zoning is more lenient. 

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