House Hack Deal

[Mark H.]

House Hack Deal - Seeking Feedback

Hey everyone,

I'm considering a house hack deal in a large metro city with tenant friendly laws. My plan is to live in one 3-bed/2-bath unit initially and rent out the other 3-bed/2-bath unit. Down the line, I'll convert the two-car garage into a 1-bed/1-bath ADU, at which point I'll rent out both of the original units.

Here are the numbers:

• Purchase Price: $1,275,000
• Interest Rate: 6.625%
• Down Payment: 20%
• Renovation (owner-occupied unit initially): $25,000
• ADU Conversion Budget: $160,000

Duplex (Before ADU Conversion - Owner Occupied)

Rental Income:

• 3/2 Unit 1: $3,500

Expenses:

• Mortgage: $6,531
• Property Tax: $1,349
• Insurance: $340
• Utilities (not paid by tenant): $200
• Maintenance & CapEx (8%): $328
• Vacancy (5%): $175

Cashflow: -$5,376 Percent of Pre-Tax Income: 22%

Triplex (After ADU Conversion - Owner Occupied)

Rental Income:

• 3/2 Unit 1: $3,500
• 3/2 Unit 2: $3,500

Expenses:

• Mortgage: $6,531
• Property Tax: $1,349
• Insurance: $340
• Utilities (not paid by tenant): $200
• Maintenance & CapEx (8%): $560
• Vacancy (5%): $350

Cashflow: -$2,251 Percent of Pre-Tax Income: 9%

Triplex Fully Rented Out (If I move out)

Rental Income:

• 3/2 Unit 1: $3,500
• 3/2 Unit 2: $3,500
• ADU: $2,000

Expenses:

• Mortgage: $6,531
• Property Tax: $1,349
• Insurance: $340
• Utilities (not paid by tenant): $200
• Maintenance & CapEx (8%): $720
• Vacancy (5%): $450

Cashflow: -$571

Personal Context:

If I were to rent, I'd likely pay around $1,800 per month.

As a high earner, I'm okay with a larger negative cash flow initially because I can technically afford it (if this were just a home without rental income, I'd still qualify for the mortgage).

What do you all think of this deal? Any insights or red flags I should be considering?

[Aaron Zimmerman]

The goal with the house hack is to reduce your living expenses. When you move out, you want it to Cash flow. Right now, it seems Like it might reduce your living expenses but it  will not cash flow after moving out. I would personally not be looking to buy this property. 

a couple of questions:

1. Have you gotten your insurance quoted?

2. What's the assessed value of the property? Are there any exemptions that artificially lower the taxes paid you may be basing your assumptions off of.