House hack analysis (Duplex, Baltimore city)
A very much already renovated duplex, brand new everything -- electrical, HVAC, furnace,carpets paint, cabinets. Both sides are currently unrented, the owner boutgh in 2017 for $230k, renovated most of it (still some small cosmetic stuff in smaller unit and outside), and then decided he didn't want to deal with it anymore. He's asking $249k. We found out house can be considered SFH from a lending stand point due to some loophole they used to get the house appraised (there were no comps for multifamilies for that street), which knocks off a quarter of a percent on our mortgage.
Unit #1 is 2 bed 1 bath and comprises the 2nd floor. Unit 2 is much larger -- officially 2 beds 1 bath with a large finished basement that could be used as an additional bedroom. Using rentometer we figure we can get $1400 for the larger unit and $1200 -- those are median prices for the area. Our monthly payments with 5% down would be about 1550. It's in Baltimore City; the elementary school zoned for this home is not good at all, but middle and highschool are decent. The neighborhood is an odd mix of blue collar and really really nice homes, it's kind of on a street by street basis. Comp wise compared to current SFH on the market its about average, compared to sold ones it's a little on the high side.
My analysis (assumes 3% for repairs and maintenence since all the big stuff is brand new; 3% for my management fee; 5% reserves and 5% miscellaneous; insurance and water and sewer (electric is billed separately)):
| Worst (rent 25th percentile) | Most Likely (median rent) | Best (rent 75th percentile) | |
| Income | $26,520.00 | $31,200.00 | $35,532.00 |
| Mortgage/taxes | $18,504.00 | $18,504.00 | $18,504.00 |
| Expenses | $6,717.00 | $6,717.00 | $6,717.00 |
| Vacancy (5%) | $1,326.00 | $1,560.00 | $1,776.60 |
| Profit/loss | -$27.00 | $4,419.00 | $8,534.40 |
| Total cash to close | $20,561.00 | $20,561.00 | $20,561.00 |
| CoC | -0.13% | 21.49% | 41.51% |
Amenities: Backyard, deck, and garage. Deck is the only thing in the entire house that needs to be renovated, but it's just scraping off the old paint and repainting/staining. Each unit has own sets of washers and dryers.
Pros: Minutes to a major university and large hospital. On a street with a lot of nice, well kept homes. Not a whole lot of work left to be done. Easy access to major highway. Seller is motivated because house has been on market for 30+ days and he is losing money; he's going to pull off market and rent himself if he doesn't sell in next couple weeks.
Cons: I'm struggling to figure out who my target demographics should be for renting the larger 3 bedroom unit, mainly cause the elementary school isn't that great. College students? Very young (not school age children) family? Urban professionals? Also according to IRR Viewpoint report, Baltimore is in the midst of a "hypersupply" in the market cycle, so housing prices will most likely drop.
Thoughts? Any insight appreciated?