House Hack/Live in Flip as First Time Home Buyer - Advice/Tips?

Question

Hello All,

My wife and I have been actively working with our agent to find a small MF property (<4 doors) to live in as first time home buyers in Austin, TX. We came across a potential value add duplex (built in mid-70s, and outdated) and I am looking for tips/advice/recommendations for this potential opportunity. Heres the details...

- Side A (2/1) is unoccupied and in need of significant updating, including completely redone kitchen, bath, bedrooms, new windows, doors, flooring, remove popcorn ceiling, etc in order to bring to date/be live-able by my wife's standards.

- Side B (3/1) rents currently at $1k/mo (lease ends in March), which is $200-$300 below market rent for the area. B is in nicer condition, not much needed in kitchen, but needs updated bedrooms, bath, remove popcorn ceiling, etc.

- Roof is 16 years old, HVAC looks to be old as well (pre-inspection).

* List Price: ~$335k (~$162/sqft, average price in area for outdated duplexes, per comps)

* Class 5 Remodel Estimate: ~$40k (We will be doing most of the work, with the exception of a few things to be hired out)

* Current Sales Price of Remodeled Duplexes in Area: ~$205/sqft (potential sales price of ~$423k, without including appreciation)

I plan to sell the remodeled duplex 1-2 years later, potentially making a small profit, and living with a reduced mortgage payment. This would essentially be a live in flip/house hack. Also, my wife will be an agent by then, and would be the listing agent for the property.

My Question(s): Would pursuing the above make sense financially for us? What am I missing here? Is this a go/no-go for a first time home buyers?

Thanks for the advice!

Michael Mayes · Answer

@Ryan Kelly agreed! I love the idea of someone else helping pay the mortgage - especially in a more expensive market here in Austin.

@Jordan Moorhead got it. Congrats on that one sounds great and appreciate you sharing your experience.

Scott Fehrenkamp · Answer

Hi Michael,

Some other things to consider:

- Will you be comfortable (enough) living in that location?  The other side of the house hack, in my opinion, is that you actually have to live there!

- What is your "reduced" monthly mortgage payment (after collecting rents), and how might that compare vs., say, a less expensive single family?  Are you prepared for that monthly cost?  Obviously the "live for free" house hack doesn't really exist in austin

Lee Bell · Answer

For me it seems every diy project takes 2 or 3 times as long as I first guesstimate. Maybe you will be better at estimating, or more efficient with the work.

Luke Miller · Answer

@Michael Mayes I don't know Austin's market well so I can't tell you if it's a good deal, but if you've put in the effort and learned what makes a good rental and what doesn't, just jump on it. House-hacking was a great way to start my investing career and I learned a lot.

Obviously, the mechanicals and roof need to be replaced, that should be in your negotiations. Also, make sure you and your wife are both prepared to live in a construction zone - it's tough on marriages sometimes. It's fun to make things nice, but there's an interim for a while where it's tough to live in. Good luck!

Scott Fehrenkamp · Answer

Sounds good to me!

Long as you've considered all the angles and it fits your goals, I'd say go for it!

Michael Mayes · Answer

@Scott Fehrenkamp

- Location is good. Relatively central to both mine and wife's work, although I do work from home frequently.

- We plan to live in the 2/1 side, and rent out the 3/1 side. The current tenants in the 3/1 pay $1k/mo, which is well below market. I think we could get $1200-$1300/mo. This would put my mortgage amount at ~$1100/mo. This wouldn't include repairs and maintenance, but it seems to me that it would be hard to find a livable home in Austin area with an  $1100 mortgage.

Thoughts?

Danny Webber · Answer

I would need more info on the project but assume you will blow your budget and count on vacancies/make ready costs using a worse case scenario. If all the numbers still work safely you may have a winner.

Michael Mayes · Answer

@Lee Bell good point. Usually always takes longer than expected.

Jordan Moorhead · Answer

@Michael Mayes I had planned on holding long term as a rental so rented the whole thing out, I did a 1031 when I came across an opportunity I couldn't pass up. I didn't do much more than kitchen and bath, just got lucky with timing and buying in a desirable area

Ryan Kelly · Answer

House hacking is a fantastic way to get started because you are killing two birds with one stone. You have to live somewhere and this will greatly reduce your primary living expenses, plus create a current and future investment property with a conventional loan. As long as the investment screening meets your goals, what's not to love? Congrats and keep us all posted with your decision!

House Hack/Live in Flip as First Time Home Buyer - Advice/Tips?

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