Is this a good deal?
I'm looking at a buy and hold property. It's a 1900 sqft. 4 bedroom 2 bath house (built in the 50's) with an attached mother-in-law suite that has one bedroom, a kitchen (converted garage), and a bathroom. I think the mother-in-law suite could either be a short term rental or serve as a fully furnished rental. Here are my options:
1. Rent out the whole thing to a very large family.
2. Rent out the House part and the mother-in-law suite separately (could also be a short term rental).
3. Live in one part of it as a house hack and rent out the other side depending on demand.
In the absolute best-case scenario, I think I could potentially get up to $2400 a month in rent because this is a college town. I think I could rent each room for up to $450 as a student rental + $600 for the fully furnished mother-in-law suite / short term rental. I think the house portion would rent for around $950 - $1000 to a family. At worst, I think I could make $800 a month on some sort of house hacking strategy - live in the main part with a roommate and rent out the MIL suite, or rent out the main house while living the MIL suite. So in the worst case, I'm living for free.
Other variables: It's a 1-acre lot that's zoned for multi-family and has enough leftover space that I could use someday for a triplex or just divide it and sell.
New roof in 2019, new hot water heater and HVAC within the last 3 years.
The utilities are combined so I'd either have to include it in the rent or work out another solution.
I think I can get it at $120,000 with either 15% down on an investor loan or 5% down on a conventional mortgage.
Taxes: $950
Insurance: $1200
I would manage it myself for now.
In my various scenarios, I either run $1000 a year for expenses for living in the main house and renting out the MIL suite or up to $3000 a year in expenses for the student rental scenario. (keep in mind new roof, water heater, and HVAC)
@Michael Tucker Are you including property management, CAPEX, repairs, & vacancy in your monthly expenses? I feel like $3,000 a year in expenses seems a little low IMO.
@Kevin Zolea I'll manage it myself for now. Vacancy isn't included in my expenses because it's its own separate thing in my calculator. The $3000 is CAPEX and repairs. I'm expecting a slightly lower CAPEX because it's got a new roof, water heater, and HVAC. I went ahead and ran the numbers with a $4000 and a $5000 expenses scenario, and both versions still cash flow over $100 a month. My main concerns are can I keep both sides occupied at the same time or is an attached short term rental/apartment going to be a deterrent for some families or college kids? And, are the utilities going to be a huge issue? This thing could cash flow at upwards of $700 a month if some of my higher projections for rent prove true. Like I said, worst-case scenario appears to be that I use it to house hack, break even on the cash flow, and live for free while renting out my current residence for a small cash flow.
@Michael Tucker Gotcha. I think it's still a good idea to include property management in your numbers because I'm sure one day you won't want to manage it yourself. But that makes sense. I don't know anything about your market but if the numbers work and they meet your criteria, I think you should go for it. Like you said, even at your worst-case scenario you can still make it work by house hacking.
Originally posted by @Kevin Zolea:@Michael Tucker Gotcha. I think it's still a good idea to include property management in your numbers because I'm sure one day you won't want to manage it yourself. But that makes sense. I don't know anything about your market but if the numbers work and they meet your criteria, I think you should go for it. Like you said, even at your worst-case scenario you can still make it work by house hacking.
I agree on the property management thought. Thanks for your input - It's great to get another perspective!
Hey Michael,
Just saw something I'd like to double-check with you. The $950 in taxes, is that accurate? @ $120k assessed value, you're currently projecting a 0.79% property tax rate. Your other numbers look realistic, $3,000 in operating expenses did seem low at first, but I saw your follow-up response to @Kevin Zolea and that does seem like a fair assessment.
@Michael Tucker No problem. Good luck and keep us posted!
Originally posted by @Wyatt Franta:Hey Michael,
Just saw something I'd like to double-check with you. The $950 in taxes, is that accurate? @ $120k assessed value, you're currently projecting a 0.79% property tax rate. Your other numbers look realistic, $3,000 in operating expenses did seem low at first, but I saw your follow-up response to @Kevin Zolea and that does seem like a fair assessment.
That's what the tax records website says. I don't know how that compares to the rest of the country, but that's pretty average here.
@Michael Tucker another option for you: Airbnb it. WIth the number of bedrooms you have, you can house lots of people. If the market rent is low, Airbnb might be an alternative route.
Since it is located in a college town, I think you should rent to students per room, that will give you the highest return.