Hello BP team,
This morning I have stumbled upon a unique property I want to house hack and would like input on my numbers used. The property appears to work with my conservative figures, but I would appreciate the opinions of someone more experienced. Specifically, a more accurate estimation of the cost to finish the property.
5 Units total
(x4) One bedroom efficiencies with garage
(x1) Two bedroom/Two Bath with four car garage
- Complete two bedroom unit already in progress
- Build out the four one bedroom units
- Pour concrete driveway and lot while leaving the front yard area
- Exterior paint and landscaping
Thank you in advance for any input! When plugging in my numbers, I only accounted for the rental income of the (x4) efficiency units as I plan to live in the two bedroom unit.
*This link comes directly from our calculators, based on information input by the member who posted.
@James Derrick This property has major problems. I am assuming this is in Texas as you plan to house hack; it is laughable that you think you will pay $1,000 per year in property taxes on a $600k property it will probably be more like $10,000-$12,000 or more. Also being 5+ units it is commercial meaning you probably won't find a 30 year loan for it. If it is anywhere near Houston your insurance cost also seems fairly low. Your repair costs seem like they may be accurate but the other factors are the problem here, this is expensive for what you get in TX and I'm going to assume that it is in the downtown of a major metro area which is why the price is so high.
Definitely left off a zero in the property taxes blank! The estimation was around $9600 and I meant to put $10,000. Thanks for catching my error.
The property is in Houston, just inside the loop in Shady Acres near the rapidly appreciating Garden Oaks/Oak Forrest area. Single family homes in the area are going from $300-500k and renting $2-3k. This leads me to believe my input of $1000 per unit of rental income for the one bedrooms is obtainable.
Because it is Houston insurance is expensive, and like I mentioned 5+ years qualifies as commercial so you'll probably need to adjust your financing calculations for something more like 20 years. If the 2 bed was also rented out you'd probably get fairly close to the 1% rule which is fairly normal in many parts of TX. If I were you I'd also do the math on buying a primary residence and a couple of SFR rentals just for comparison because those could certainly be on 30 year loans.
Thanks for your input, I will play with those figures. With remodeling and construction already needing to be done, I could potentially make it only four units and avoid becoming a commercial property. Two two bedrooms and two efficiencies.
This link has updated figures for only correcting the taxes and insurance.
@James Derrick you can't make it 4 units before you purchase it so if that was the plan you'd need some sort of short term loan or to refinance both of which cost more money. Also you would take your $4,000/ month down to $3,000 which would push the already low cap rate even lower. Your cash flow is already negative by $500 with you living in one of the units this would make it negative $1,500 or more at which point you should ask yourself what the point of house hacking is if you are paying $1,500/ month to live in a 2 bed apartment when you could pay $1,500/month to live in a house and have a separate rental property or two or three that actually cash flow. It may just be the case that you'll want to keep looking.
Excellent things to think about.
A couple probably novice questions:
Are the number of units permanently declared at 5 although the project isn't completed?
Could the loan not be based on the after repair condition?
I agree $1,500/m out of pocket while house hacking wouldn't make any sense. However, I would be ok with $500 or so negative with living there if I can make the numbers work for it. The property would turn positive by me moving out, but living there at $500/m is beyond a steal for two bedrooms inside the 610 loop and absolutely unheard of to have a four car garage until you are in the multi million dollar homes. The negative cashflow incurred would be offset some by the large garage allowing me to cancel my storage unit being used for vehicle and trailer parking. You very well may be right to move on, but a good learning experience for me to work the numbers on this until it clearly isn't an option.
Good thoughts and a possibility! There are 8 garage bays. My thoughts were to assign one for each efficiency unit and keep four to myself for the truck, track car, classic project, and working bay (I have a Motorsport problem). Then that would allow me to consolidate and get rid of monthly storage payment.
Two bedroom four car garage layouts don’t exist, so a unique property like this is the only way I see to have everything under one roof without an hour long commute. Might be forcing a square peg in a round hole, but no harm in finding the right number and trying!
@James Derrick the lender is unlikely to lend on a four unit when you are purchasing it for the price of a five unit and you still would need to convert it (and have the money to do so), that is probably the largest stumbling block and it has little to do with the actual profitability of the property.
Absolutely, the financing is tricky and something I will need guidance on. Fortunately, I have a relationship with a lender that will lay out my options for me and discuss openly what they can and cannot do.
As I looked into this further tonight comparing to other multifamily properties near the area, it would appear that the listing price is incredibly high. The ask of $650k is actually closer to a realistic ARV and not the current state of the building. I have adjusted my numbers as such and I believe the magic number for this property is $480k; a drastic cut of their listing price. With that offer and hacking, I would basically be breaking even. With that offer and renting the entire complex, cashflow increases to $1200 and a 10% CoC ROI.