First Time Investor Looking for Numbers Advice

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First Time Investor Looking for Numbers Advice

Sam Twarek
Cleveland, OH · Member since 2017 · 1 post · 2 votes

Hello!

This is my first post on the Bigger Pockets Forum, so the usual apologies if I'm posting this to the wrong place.

I'm looking to leave the rental world and start up a "house hack" where I can live in one part of a two-family home and manage the property while tenants help pick up the mortgage payment. 

I found a home that's on the upper side of my budget at $149K (my budget being $150K maximum). This place is just a block away from my current rental -- and I absolutely love my neighborhood in Cleveland, Ohio.

I've run the numbers below and am hoping that some might have some advice on if this seems like a smart choice.

HOUSE DETAILS

.07 Acres, Built 1890, Paved Driveway, Asphalt/Fiberlass Roof, Vinyl Exterior, 

Unit 1: 650 sqft, 1 bedroom

Unit 2: 1,200 sqft, 2 bedrooms

RUNNING THE NUMBERS

Total Rental Income: $1,900

Total Monthly Expenses: $1,730

Total Monthly Cashflow: $170

COC ROI: 6.1%

The house is in fairly good shape. It's a 2-bedroom first floor and 1-bedroom second floor house. From what I can tell, the most work involved will be sanding and staining the wooden floor in the immediate interior.

Normally, I'd shoot for something in a lower price range ($100-115K). However, the possibility of staying within my neighborhood is incredibly valuable to me. The neighborhood is in a years-strong renaissance with rent amounts rising and new development popping up often.

I hope I've given enough information for some advice. I'd appreciate any info or even something I might be forgetting.

Thanks!

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Account Closed
Rental Property Investor · Orlando, FL · Member since 2016 · 463 posts · 220 votes
9y

I agree with @Cary F. that house-hacking is a great way to "leave the rental world," as you put it, or rather enter in from the other direction, as a landlord.... Getting help with paying the mortgage while living in an area that you love seems like a no-brainer.

Now- looking at your numbers, they are too aggregated to gauge how good of a deal this is. Can you break them down? It seems like you are reluctant to provide details, but it would be helpful to know how you get to the $1,730 monthly expenses or COC return, for example.

What you really want to ensure is that you set enough reserves aside to pay for repairs. Since it is an older structure, you are sure to have pretty regular maintenance (you say it is "in fairly good shape"- I assume it has not been fully renovated). Be sure to budget enough to cover big-ticket items (roof, HVAC, furnace) if necessary in the next few years. Make sure that you can cover the mortgage yourself if there is a gap in occupancy or your tenant does not pay for a while or you need to renovate or whatever. 

Bottom line is- if you are where you want to live, the building is sound and you are confident that you will be able to rent consistently, metrics like COC don't really matter. But your reserves do.

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  • Cary F.
    Investor · Lakewood, OH · Member since 2016 · 203 posts · 191 votes
    9y

    @Sam Twarek Sam! Funny to see someone I know on Bigger Pockets..

    I bought a double in West Lakewood last fall. Shana and I live upstairs and rent the downstairs unit.

    With house hacking, I say just do it. Make sure the property will cash flow when you decide to move out and rent out the other half. But Shana and I are living in a very nice double and are living there very cheaply, all while picking up equity from the tenant helping with the mortgage. It's a beautiful model and works well in most cases.

    I have some helpful Excel spreadsheets I can share with you for deal analysis. It's literally built from the BP deal calculator.

    I also use some very helpful tenant screening software that you may find valuable.

    If you ever want to catch up over a beer, just let me know. I could talk REI all day every day.

    0Reply
  • Christopher Blanco
    Real Estate Consultant · Cleveland, OH · Member since 2016 · 511 posts · 345 votes
    9y

    CoC of 6.1% is not where you want your investment dollars. If you lend me your 150K, I will give you a higher rate of return than that and you won't even need to do the work. If a deal is not north, well north, of 10% CoC return...then you need to look elsewhere

    0Reply
  • John Collins
    Investor · Denver, CO · Member since 2015 · 49 posts · 24 votes
    9y

    Hi guys, Sam for that price I expect you're in a A neighborhood. You're obviously not going to cash flow like say you paid $60k in old Brooklyn ,but you've got a great duplex in a great location that will probably appreciate over the long term and you get to live really cheaply.Although could you explain the $1900 where it comes from?

    It would be nice to have maybe $5k in reserves or available on your cc for johnny jump ups.

    Probably good idea to do a sewer scope or not a good idea DO IT .I assume you got 15 years left on the roof.

    Hvac / furnace if you're lucky you will nearly get 20 years out of them,learn how to change the igniter on your furnace (you tube)

    Are you going to have to deal with pos?

    What are the local guys thoughts on job growth,  millennials growth in Cleveland ?

    I had a great night down at noble beast a few weeks ago ,can't wait to get back ha ha 

    Good luck 

    0Reply
  • Account Closed
    Rental Property Investor · Orlando, FL · Member since 2016 · 463 posts · 220 votes
    9y

    I agree with @Cary F. that house-hacking is a great way to "leave the rental world," as you put it, or rather enter in from the other direction, as a landlord.... Getting help with paying the mortgage while living in an area that you love seems like a no-brainer.

    Now- looking at your numbers, they are too aggregated to gauge how good of a deal this is. Can you break them down? It seems like you are reluctant to provide details, but it would be helpful to know how you get to the $1,730 monthly expenses or COC return, for example.

    What you really want to ensure is that you set enough reserves aside to pay for repairs. Since it is an older structure, you are sure to have pretty regular maintenance (you say it is "in fairly good shape"- I assume it has not been fully renovated). Be sure to budget enough to cover big-ticket items (roof, HVAC, furnace) if necessary in the next few years. Make sure that you can cover the mortgage yourself if there is a gap in occupancy or your tenant does not pay for a while or you need to renovate or whatever. 

    Bottom line is- if you are where you want to live, the building is sound and you are confident that you will be able to rent consistently, metrics like COC don't really matter. But your reserves do.

    1Reply
  • Chris Co
    Raleigh, NC · Member since 2017 · 15 posts · 1 vote
    9y
    Originally posted by @Christopher Blanco:

    CoC of 6.1% is not where you want your investment dollars. If you lend me your 150K, I will give you a higher rate of return than that and you won't even need to do the work. If a deal is not north, well north, of 10% CoC return...then you need to look elsewhere

    While it's not ideal, would it be a deal-breaker? Say you lived it in for 5 years, you're making X amount per month passively and are getting equity. Refinance in 5 years, your COC would go up (because you would have less cash in the property) and still have a rental place?

    0Reply
  • Christopher Blanco
    Real Estate Consultant · Cleveland, OH · Member since 2016 · 511 posts · 345 votes
    9y

    @Sam Twarek Can you break your expenses down a little more? What are you putting aside for vacancy, capex, PM and maintenance? 

    0Reply
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