THE ISSUE: My CoC ROI in a HOUSE HACK is negative.
Is to HOUSE HACK in a Tri-plex, preferably a Four-plex, Multi family. I've been running the number into the rental calculator and I typically find that the Magic number to offer is nowhere close to the seller's asking price. That being said I had enough of the Analysis Paralysis and diving into an overinflated market and buying. BTW I'm not crazy to buy a bad deal but in NJ pickings are very slim in B to C neighborhoods. The issue is that even when I run the numbers with my family and I living there, our cash on cash ROI is negative.
The Money out of MY Pocket:
Is to cover a small portion of the mortgage and water/sewage. The rest of the money that is budgeted is going into the reserve for CapEx, repairs, vacancy's for couple of years to build the reserve.
As long as the majority of my living expenses are paid such as: P&I, taxes, water/sewage, able to save whatever is left over for any repairs and/or CapEx, I should assume that I am House HACKING appropriately for the circumstance?
Just would like to get some thoughts from others. I have read many times that people have House Hacked and most if not all their expenses were payed. Are those days are over in this type of market? Also I would love to hear other House Hackers stories and suggestions on how to possibly do it better or how they could have done it better themselves!
Thank YOU BP Mentors!!!
Howdy @Christopher Veljkovic
I have not House Hacked. I do BRRRR strategy Buy and Holds. But, have analyzed enough HH deals to provide you a response.
First, be sure to analyze the property as if you are not going to live there to make sure it cash flows. If it’s not going to cash flow when you move out then what’s the point. This might be the problem for your market.
Second, HH deals naturally have higher mortgage payments due to the low down payment. Plus you're required to pay PMI. Both of these eat into your cash flow potential. It seems that only a 4Plex has the potential for positive Cash Flow while you occupy one unit. Anything smaller reduces that chance. Not impossible, just not likely.
Once you reach 20% in equity the PMI go's away.
As you stated your hope is that most of your expenses will be covered. It should at least reduce your cost of living.
Again, make sure it will cash flow after you move out.
Hope this helps.
How does the property cashflow when you move out? If it's cashflow positive then you may want to consider purchasing. Of course, it also depends on how negative you're talking about - but think about that negative number as your new rent payment - is it in line with what you could rent a similar place for, or is it cheaper? If cheaper, you're coming out ahead as far as living expenses while you are there ( in addition to the mortgage paydown and tax benefits) , and then if it cashflows once you leave, it should be a good deal. Post the numbers and we can help you in more detail.
Total operating expense:
4 unit apartment:
D: $$1200 (this apt I’ll be living in)
Of these expenses are CapEx savings, repair savings, and vacancy savings
Total Cash Needed:
Cash on Cash ROI:
This is a FHA loan with 3.5 down on $439k.
Obviously I’ll be looking saving and also looking to add income. But as of now these are my numbers.
@Christopher Veljkovic I thought you meant it was negative cashflow when you were living there, but this is negative both when you live there and even when you have all 4 units rented, so it doesn't look like a good deal at first glance. But, you can do further investigation: Do you have the breakdown of all expenses? Is there opportunity to increase rents? How much work does it need to be rent ready or is it already rented out?
Water & Sewer: $200.00
Property Taxes: $1,166.67
Purchase Price: $439,000.00
Purchase Closing Cost: $15,000.00
Estimated Repairs: $12,000.00
Total Project Cost: $466,000.00
After Repair Value: $439,000.00
I’m trying to purchase the apt for $390k.
Does this help any? Is there anything that I’m missing to incorporate into this calculation?
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing