Deal Analysis- House Hacking in NJ

4 Replies

I currently own a townhouse where my mortgage plus HOA is $1,665. Rentometer says my place would rent for $1,908, Zillow says $2,300 which seems way too high, then Zillow rental comps are around $2,000-2,100. 2 bed, 2.5 bath, with garage, near the beach.

My goal is to eliminate my mortgage payment, or come close.  I figured I could rent my current residence out, then move into a duplex and house hack for a year and only have to put 3.5% down.  Below are the details for the potential property.

Purchase price: $265,000, I based my numbers off $250,000 which I think will work for me
Taxes: $7,041 for 2018
Rent Income: $1,500 on a yearly lease and $1,100 on a monthly.  I would move in the smaller unit that is being rented month to month, so this leaves me with $1,500 in rental income
Expenses: I used 5% Vacancy since I would be living in a unit, I figured it was less likely of vacancy, 8% R&M, 8% Capex
Cap Rate: I estimate around 8%, it's about two blocks from the waterfront in an area that is improving
Recent work on house: MLS says "recent work gas heating unit and windows siding and roof"

Based on the BP rental calculator my monthly cash flow while living in the unit will be ($558), after 1 year and I can move out cash flow looks like $310 for the two units.  Renting my primary residence out now should net me over $300 per month, so total out of pocket will be around ($250) per month.

I think the home is overpriced at $265,000 and an 8% cap rate, I would try to offer $240,000 which is more in line.

Looking to see what the BP community thinks.  Thanks for reading!

@Brett Baginski , your townhouse is not likely to be a good rental. Does the $1665 account for taxes and insurance? What about repairs, CapEx, management, and vacancy. Very unlikely you'll actually see any cash flow here.

The house-hacking idea looks okay. As a way to lower your expenses, build equity, and get experience as a landlord, I say go for it. But it won't make a great rental once you move out. I think you'd be lucky to cash flow $50/month.

@Jaysen Medhurst Thanks for the feedback! The $1,665 does include taxes and insurance. As for Capex, the association covers the exterior repairs and roof. The townhouse was built in 2001 so everything is still in great condition. I recently replaced the hot water heater a few months ago. I guess long term I should still be budgeting for Capex though for things like a furnace and AC unit. I would also be self managing this unit unless I decided to move out of state so I did not budget for that.

I'm really looking to get started and don't see many other options in my market other thank a house hack and renting out my townhouse.  Like you mentioned, it would be great experience and create a track record for me as an investor.

Thanks again for the response!

I think turning your town home in a rental will make a good first investment property. I think $300 a month is a little high when you account for property management and any maintenance. It's not going to cash flow a whole heck of a lot but if the HOA covers all the exterior maintenance that will help you keep your maintenance cost low as you'll never have to worry about replacing a roof down the road. Townhome communities are generally kept very nice but they don't appreciate as well as a SFH. In my area SFH are appreciating 4-5% where townhomes are only appreciating 3% year over year. I say go for the house hack, you'll get much lower expenses, tenants paying down your mortgage balances and experience as a land lord.

@Brad Baker Thanks Brad!  That's just what I was thinking/hoping.  I contacted my realtor on the property and already did a drive by and spent a couple hours in the downtown area to get a feel for it.  Fingers crossed.

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