First Deal House Hack Analysis

6 Replies

I am located in the midwest (Wichita, Kansas) new to real estate investing and would like to have some feedback on the very first deal that I want to make an offer on.  My goal is to buy a multifamily property and house hack it by living in one of the units. Below I have broken down the income and expenses for the property I am thinking about making an offer on, there are four different scenarios that I have listed; a 5% down payment where I live in one side, a 5% down payment after I move out and rent both sides, and a 20% down payment for each situation as well. My plan is to finance with an owner occupied conventional loan, live in it for one year while making repairs to the one bedroom side, then move out and rent both sides. This property is a duplex with a one bed/one bath on one side and a 2 bed/1 bath on the other, it is listed for 80k but I hope to negotiate closer to 70k, all calculations below are based on the asking price of 80k. Owner pays water and trash, tenants pay all other utilities. 

Option 1 - 5% down payment, living in one bedroom side, renting two bedroom side

Income: $650 (for the 2 bed side, while I live in the one bedroom side)

Expenses: Vacancy 10%: $65

Insurance- $107

Water - $70

Taxes - $85

Trash - $35

Repair - $65

Capex - $158

Mortgage - $390

PMI - $56

Total Expenses - $1031

Cash Flow: $-381

Out of pocket, upfront costs - $8058

Cash on Cash Return – (-56.7%)

Option 2 – 20% down payment, living in one side, renting two bedroom side

Income: $650 (for the 2 bed side, while I live in the one bedroom side)

Expenses: Vacancy 10%: $65

Insurance- $107

Water - $70

Taxes - $85

Trash - $35

Repair - $65

Capex - $158

Mortgage - $330

Total - $915

Cashflow: $- 265

Out of pocket, upfront costs - $20,036

Cash on Cash Return – (-15.87%)

Option 3 - 5% down payment, renting both sides

Income: $1100

Expenses: Vacancy 10%: $65

Insurance- $107

Water - $70

Taxes - $85

Trash - $35

Repair - $65

Capex - $158

Mortgage - $390

PMI - $56

Total Expenses - $1031

Cash Flow: $69

Out of pocket, upfront costs - $8058

Cash on Cash Return: 10.27%

Option 4 – 20% down payment, renting both sides

Income: $1100

Expenses: Vacancy 10%: $65

Insurance- $107

Water - $70

Taxes - $85

Trash - $35

Repair - $65

Capex - $158

Mortgage - $330

Total - $915

Cashflow: $185

Out of pocket, upfront costs - $20,036

Cash on Cash Return: 11.08%

My goal is to live in one side for a year and then move out with the first two options I look at the negative cashflow as what I would pay in "rent" to live in my own house (rent is higher than both numbers in my area). Please correct me, and be blunt if my thinking is wrong but it seems like if I move in and live there for one year, I will be able to save money from renting somewhere else while building equity in the property. After 1 year, I want to use the equity I built in the house to buy my next property. I would really appreciate any and all feedback for my thoughts, math, or way of looking at this deal. 

Thank You,

Jacob Henderson

I’m just replying because I’m curious. Where are you finding 5% down? 

Also how do you figure you will have equity after one year? You will be lucky to pay 2k off principal in a year.

Thanks for the reply Steve,

I talked to a local bank (Citizens Bank of Kansas) and would be able to put 5% down on an owner occupied conventional loan. You have a great point on equity and I feel as though I have been way to optimistic on how long that will take to build.

@Jacob Henderson analyze the deal as if you are going to have tenants in each side (you are essentially paying yourself by not getting that income and living there). I think you are making a good choice by paying down a mortgage instead of paying someone else’s.

One question, did you tell them you were going to put 5% down on a multifamily as an owner occupant?

@Jared Viernes Thanks for you input. Yes, my banker is aware that it would be an owner occupied multifamily property. Overall, what do you think about this particular deal? I think that I over-estimated the CapEx and repair costs.

@Jacob Henderson it's better to overestimate the costs a little than to make the numbers fit.  11% return is pretty good.  Especially when you consider the average appreciation in Wichita is 10% since last year, you get debt pay down, as well as depreciation and interest expense.  Considering it all together with your equity build up and cash returns make the deal significantly better putting your money in the stock market (especially with the current volatility).  Since it doesn't look like we will be out of a seller's market in the area any time soon you can likely count on at least a little bit of appreciation in the next few years.

@Jacob Henderson your capex/repairs seems high compared to the income you would be getting (even looking at income coming from both sides). It is definitely better to over estimate these figures and under estimate rents. If you feel you have done estimates in this fashion and found a way to make a good return anyway, seems like a win. Definitely run the numbers as if you were collecting rent from yourself. You’re saving money by not paying off someone else’s mortgage, and sounds like you’ll be collecting from your once occupied space eventually. Be careful of your analysis on how quick equity builds on a mortgage and best of luck

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