Kirkland : House Hack : Help me make sense of these numbers !

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Kirkland : House Hack : Help me make sense of these numbers !

Vic V.
Member since 2018 · 14 posts · 5 votes

Hello y'all !

I'm currently super stressed about the financials of a property I'm strongly considering in the S Juanita Area in Kirkland. I'm going to be primarily using the house as a primary residence. However, there is potential for a basement that can be converted to an ADU. I'm having a tough time making sense of these numbers to see if this will make sense for me

Here are the numbers I'm looking at 

House - 5 bed /3ba @ 900 k Financed with 20% down.  

MIL/ADU unit - 1bed / 1ba will need to spend around 12 - 15k to get this rentable and permitted. Any thoughts on the permitting cost of an ADU? Ive heard that Kirkland is more recently promoting ADU's but would be great to hear thoughts.

Rent potential from ADU - My agent claims that it could rent for upto 1600 per month but based a quick craigslist search I see independent apartments going for 1500-2100. Any thoughts on what might be a reasonable estimate to account towards my estimate?

Overall, my goal is to keep my monthly mortgage related expenses in the 3000- 3500 region. Considering that ADU income is taxable and both my wife and I currently have other full time jobs (cant claim a higher deduction in real estate work). Does this deal make any financial sense long term?

-

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Fern Bacungan
Investor · Seattle WA · Member since 2019 · 11 posts · 10 votes
6y

Hi Vic

If you're super stressed about it now,  imagine how stressful you'll be if you're actually in that situation and are regretting the purchase. My motto is "if you have ANY doubt,  stay out!"  

But,  if you're adventurous soul decides to make a purchase, here are some additional thoughts. 

1. Any thoughts on the permitting cost of an ADU? A call into the city permiting or planning division will ease your mind on the cost and feasability. If they allow it, don't be surprised if it takes months to get it approved, and a few more weeks to get the work done. Will you be ok with paying the mortgage for 6 months or more until you get the additional income?

2. Go to rentometer.com to get comparable rents for a 1bed/1 bath for that area. Enter the address and number of bedrooms. I think you can 1 report for free if you dont have a paying account. I have an account so if you need a report of it, let me know.

3. You may want to consider Airbnb income. I manage properties with Airbnb income. Kirkland is a nice area and might be a good fit for that kind of income. You'll have to compare this type of income with a traditional long term tenant. If you need help with that, i can help you with that also. Pm me directly.

Good luck in your decision.

3Reply
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  • Adrian Chu
    Real Estate Broker · Seattle, WA · Member since 2014 · 1k+ posts · 427 votes
    6y

    I would not look at this as an investment. This would be your own home, with part of your mortgage being subsidized by the tenant.  

    2Reply
  • Vic V.
    OP
    Member since 2018 · 14 posts · 5 votes
    6y

    Thanks Adrian. I'm looking for that as well but simply trying to understand how much of it would actually be subsidized once we took into account taxes and expenses. 

    0Reply
  • Adrian Chu
    Real Estate Broker · Seattle, WA · Member since 2014 · 1k+ posts · 427 votes
    6y

    Your rental income will be taxable and here are some expenses you would be able to deduct on the rental portion of the property.  

    • Advertising
    • Auto and travel
    • Cleaning and maintenance
    • Commissions
    • Insurance (does not include PMI)
    • Legal and other professional fees
    • Management fees (rental agencies and property management companies)
    • Mortgage interest paid to banks
    • Other interest
    • Repairs
    • Suppliers
    • Taxes
    • Utilities
    • Depreciation expense or depletion


    The biggest is depreciation, which isn't an actual out of pocket expense but more of an invisible expense. In this case, you won't be cash flowing much and if your income is otherwise higher and if you aren't considered a real estate professional for tax purposes, then the allowable deductions for losses from real estate will phase out quite quickly. So not too much benefit there.

    1Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    6y

    thanks ..the monthly  total mortgage payment for a  720K loan  is  likely to be in the range you are targeting  ( depending on rate  you lock and the  property taxes for the home) 

    2Reply
  • Fern Bacungan
    Investor · Seattle WA · Member since 2019 · 11 posts · 10 votes
    6y

    Hi Vic

    If you're super stressed about it now,  imagine how stressful you'll be if you're actually in that situation and are regretting the purchase. My motto is "if you have ANY doubt,  stay out!"  

    But,  if you're adventurous soul decides to make a purchase, here are some additional thoughts. 

    1. Any thoughts on the permitting cost of an ADU? A call into the city permiting or planning division will ease your mind on the cost and feasability. If they allow it, don't be surprised if it takes months to get it approved, and a few more weeks to get the work done. Will you be ok with paying the mortgage for 6 months or more until you get the additional income?

    2. Go to rentometer.com to get comparable rents for a 1bed/1 bath for that area. Enter the address and number of bedrooms. I think you can 1 report for free if you dont have a paying account. I have an account so if you need a report of it, let me know.

    3. You may want to consider Airbnb income. I manage properties with Airbnb income. Kirkland is a nice area and might be a good fit for that kind of income. You'll have to compare this type of income with a traditional long term tenant. If you need help with that, i can help you with that also. Pm me directly.

    Good luck in your decision.

    3Reply
  • Vic V.
    OP
    Member since 2018 · 14 posts · 5 votes
    6y

    Thanks Fern, unfortunately, Airbnb isnt an option for us since we would like the activity to remain passive. Thanks for pointing to the site!

    1Reply
  • Charlie Lipthratt
    Member since 2020 · 4 posts · 1 vote
    6y

    Hi Vic - coming in late to the conversation, but here are a few thoughts. 

    1. How bad do you want the home long term? It's nice to get rental help to pay it down faster. Is the long term plan to stay there and eventually not have renters?

    2. If you find something else you like better in 3 to 5 years, will this house pencil out as a single family rental and at least cover all costs including vacancy funds? (I rarely stay in a house more than 5 years - always looking for the next fixer-upper :)

    3. Is there something special about the property that will differentiate it from others in the neighborhood and make it easier to sell in the future?

    4. Renter's access - will they have a separate entrance? This would also increase value for a future buyer. 

    5. What did you find out regarding ADU permitting costs and timing? Is Kirkland reasonable to work with?

    Good luck with the decision. That's a nice part of Kirkland.

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y

    Where did you get that estimate to convert the basement?  Is it already livable space?  Does it have a kitchenette?   Does it have a br?  Br requires proper egress.

    I will be very surprised if you can get it done for that price but it depends significantly on what is already present.  It also depends on how much work you plan to do yourself but your comment on wanting it to be passive leads me to conclude you plan to hire the work out. If you are converting an unfinished basement, I expect the costs will be significantly more than you have allocated.

    Good luck

    0Reply
  • Vic V.
    OP
    Member since 2018 · 14 posts · 5 votes
    6y

    Sorry for the delay folks! here are my answers to your questions. Thanks again for taking the time to read through my post.

    @Charlie Lipthratt

    1. Looking at the 5- 7 year term for now. Unsure of any plans beyond that. 

    2. Maybe, but unlikely since we're again hoping to be as passive as possible. 

    3. Yes they do have a basement and a covered parking spot. 

    4. Presumably the finished ADU and in general the proximity to public transport.

    5. They sound reasonable. Permitting fees are a percentage of the work performed(more information about this below in my reply to Dan)

    @Dan H.

    1. The basement is largely finished other than the kitchenette. Based on my inspection here's what I found necessary to make it rentable.

    - A door to allow access from the main unit to the rental internally [ this is largely optional, I might consider just covering it up with board if thats a cheaper alternative.]

    - A kitchenette. There is a washer-dryer room that can hopefully be repurposed for this purpose. 

    - The bedroom does have an egress window. Because the basement is theoretically above ground. 

    - The bathroom needs to have an exhaust vent duct that needs to be added.

    2. Yes, I do plan on hiring professional help and so any insight you can share would be greatly appreciated!

    0Reply
  • Vic V.
    OP
    Member since 2018 · 14 posts · 5 votes
    6y

    Sorry .. double post!

    0Reply
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