Renting vs. House hacking: a case study

[Wesley W.]

Hello all,

I've got a bit of a financial puzzle I'd like some input on.

My wife is going away to school for 3 years, so she will need housing during that time. As budding buy and hold investors, we thought this might be a great opportunity to add to our portfolio and get some tax deductions to boot. I'm distilling this problem down to two choices based on actual numbers I have gleaned. My pro forma is pretty conservative, so I'm pretty sure we can hit the mark.

I did not account for rental increases in either scenario, as I assumed they would be at the same rate given both options would occur in the same market. I used 10% management, 10% repairs, 3.5% cap ex, 10% vacancy. I also did not add in any ancillary expenses (e.g. Cable) since they would be the same in either scenario. The property is not in a market that will appreciate much over this time period. I tried to make this as “apples to apples” as possible.

OPTION A: Wife rents an apartment

Rent & utilities: $800/mo.

Housing expenses after 3 years: $28,800

NET EXPENSES AFTER 3 YEARS: $28,800

OPTION B: Buy duplex, wife lives in one side

NOE when renting out one side: $465/mo.

Housing expenses after 3 years: $16750

Initial down payment for purchase: $19600 (including $10k in closing costs/repairs)

GROSS EXPENSES AFTER 3 YEARS: $36,350

Down Payment Equity after 3 years: $9600

Debt Service Loan Paydown: $4650

TOTAL EQUITY AFTER 3 YEARS: $14,250

NET EXPENSES AFTER 3 YEARS: $22,100

Difference between Options A & B: $6700, or about $186/month.

So, understanding that “anything can happen” in landlording, is the $6700 savings worth the extra responsibility and PITA factor?

Your thoughts and feedback graciously appreciated!