Looking to purchase my first House hack in Atlanta, tips?

Question

Good Morning BP!

I am in the market to purchase my first house hack here in Atlanta.

The first deal I came across was a quad in Norcross, with a purchase price of $700k. The units needed about $20k each to get them up to 2023 standards for rent. Each unit is a 4 bed 3 bath, all units are currently rented at $1,200. However, when I pulled comps I was seeing 2 bed 2 baths more updated being rented at $1,400-1,600. So my thought was I could be able to get more for these units having two more bedrooms and another full bath. Could also padsplit one of the units and make more.  However, the area of Norcross this property is in, is not the most favorable.

With that being said, I am still on the hunt for a similar property in a safer area, with a return between 8-10%.

Do you have any tips?

Laura Shinkle · Answer

Hey Katlynn,

Love that you're looking at multifamily properties! A couple notes:

1. Definitely look around. The more you look at and run numbers on properties, the more the good ones 'float to the top' and become obvious.

2. Comp the rent with 4 bedrooms, not 2 bedrooms if at all possible. There's a big difference in the tenant looking for a 2 bedroom unit versus a 4 bedroom.

3. If all the units are currently rented, and the tenant has been there a while, then likely the rent is lower than market rent.

4.Is the $1200 market rent for the units as-is, where-as if you updated them, the market rent would be more like $1600-$1800?

5. This may be a controversial opinion, but if you're looking at a househacking strategy, I'd don't know that I'd be looking at it with the return in mind. Does the rent you'd get for the other three units pay for or almost pay your living expenses? Would 4 fully rented units hit your return numbers so that if/when you move out, it's a solid investment? Assuming a $1600/month rent for each unit, I think those numbers may be tight given the purchase price? What purchase price do the rent numbers make sense? If it's not ridiculously out of the ballpark of the list price, offer lower and see what happens.

Bottom line, keep running numbers with different scenarios (different down payment amounts, rent numbers, purchase price, reno budgets, etc) and see what makes sense.

Ryan Thomson · Answer

@Katlynn Teague that sounds like those rents are way under value. If that's true that's exciting.

Can you clarify your 8-10% return? Is that after considering loan paydown, appreciation, tax savings, etc? Or is that just Cash on Cash? If its just the cashflow than you probably need to lower your expectations for this market or you may never find a property.

James Sigsbee · Answer

@Katlynn Teague

Love house-hacking as a strategy to get started in multi-family (up to 4 units).  The 1-4 financing is superior to a commercial loan on the property, which gives you an advantage over most investors.  I come up with a ballpark 6-6.5% cap rate based on your figures for this property (well below your preferred rate of return).  It has been very hard to find an on market deal with a cap rate 8%+ in a decent area and only off-market has really given you a shot at that recently.  That may change depending on what happens with the market, but you will almost definitely have competition on market for properties like you are looking for.  Keep looking (particularly off-market) and be patient and you will find something!

Laura Shinkle · Answer

It's definitely key to make sure you are clear on your return. Some investors look at cash on cash, some look at cap rates, some just look at straight cash flow per door. It's up to you how you evaluate properties; whatever strategy/value makes the most sense to you, use that and stick with it!

Tanner Pile · Answer

@Katlynn Teague I always like seeing properties with undervalued rents. That is how I found my first duplex house hack and it worked out great!

Sticking to the good areas of your market is good for a house hack. I like to think if I don't want to live in this area why would a good quality tenant? Helps when deciding where to buy because having bad tenants will be another headache!

Looking to purchase my first House hack in Atlanta, tips?

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