All Forum Posts by: Benjamin Sulka

First I would urge you to sanity-test ALL your assumptions (like "10% reserve for vacancy, PM, and Capex" and "5% for repairs") by speaking with experienced investors in your market with similar properties. Then you can adjust accordingly.

Second, and most importantly, your calculation of cash-on-cash return is incorrect. For example, post-move-out it will not be 52.7%. It actually will be negative!

Cash-on-cash return = Cash_Flow / All_In_Cash_Investment

Your formula is calculating NOI / All_In_Cash_Investment, which completely ignores Debt Service and Capital Expenditures.

Better you make these adjustments now in a spreadsheet, rather than later on in your bank statements!

Mitch, that makes perfect sense! Thanks so much for taking the time to reply :)

0 Votes

Cleveland, Ohio

Quote from @Sean Haley:

Quote from @Benjamin Sulka:

Hey BP,

I recently shared some of my woes in finding a house hack deal that works numbers-wise so I wanted to share the details. Trying to consider the long term wealth benefits of owning real estate and not just the numbers themselves. My goal is to pay less than I would renting and get my feet wet with REI and landlording without bleeding too much every month. Please scrutinize the crap out of my numbers!

I'm going to paste a photo of my analysis so I don't have to type everything out but wanted to call out a few things:

-This is a duplex house hack where my fiance and I would be taking over one of the units.

-Taking 10% reserve for vacancy, PM, and Capex

-5% for repairs

-All other numbers are standard values based on my area. Need to do some more digging into utilities though.

-Current market rent is $1,250 per unit

Here is what numbers look like when I live there:

We currently pay $1,450/month in rent right now so that's something to consider. We'd be paying less than we would renting after taking conservative reserves.

Here is what numbers look like when I move out:

Negative cash flow but

1. Rate is 7%

2. Only put 5% down

3. Cash on Cash return is 52.7% (obviously we will put more cash into things throughout the year which will make the COCR lower.

Would love to hear people's thoughts! Thanks for your time :)

-Ben, aspiring multifamily house hacker

I input your assumptions into my model, but leaned less punitively. I'm curious about the high cable expense and $2,400 in utilities. Additionally, why is your capital expenditure so high — is this an older property?

You have the flexibility to adjust the assumptions in the model. Underwriting assumes 48% NOI margin and your cap rate is significantly lower than your cost of capital, resulting in negative cash flow. Also, your 7-year IRR is negative, which is concerning. COC calculates cashflow after debt.

Hope this helps!

SFR Model - LTR

Yes, this is very helpful! The $2,400 in utilities is $200 per month x 12 months. In my market, landlords are responsible for water. I honestly think it will be more than $200 per month.

Properties in my market are older. 1910-1930 range.

Thanks for your response!

0 Votes

Cleveland, Ohio

Hey BP,

I shared this on the deal analysis forum and got no responses so trying my luck here. Trying to consider the long term wealth benefits of owning real estate and not just the numbers themselves. My goal is to pay less than I would renting and get my feet wet with REI and landlording without bleeding too much every month. Please scrutinize the crap out of my numbers!

I'm going to paste a photo of my analysis so I don't have to type everything out but wanted to call out a few things:

-This is a duplex house hack where my fiance and I would be taking over one of the units.

-Taking 10% reserve for vacancy, PM, and Capex

-5% for repairs

-All other numbers are standard values based on my area. Need to do some more digging into utilities though.

-Current market rent is $1,250 per unit

Here is what numbers look like when I live there:

We currently pay $1,450/month in rent right now so that's something to consider. We'd be paying less than we would renting after taking conservative reserves.

Here is what numbers look like when I move out:

Negative cash flow but

1. Rate is 7%

2. Only put 5% down

3. Cash on Cash return is 52.7% (obviously we will put more cash into things throughout the year which will make the COCR lower.

Would love to hear people's thoughts! Thanks for your time :)

-Ben, aspiring multifamily house hacker

2 Votes

Quote from @Matt Pine:

@Benjamin Sulka

If the duplex saves you money each month over renting, I think you’ve made a solid investment. You can moving out if/when you have a better opportunity.

Absolutely. I think that would be a win

0 Votes

Cleveland, Ohio

Quote from @Marc Rice:

Quote from @Benjamin Sulka:

Hey BP,

I'm in the market to buy my first multifamily house hack within the next few months. I got pre-approved for $300k but I'm having a lot of trouble finding properties.

Nothing on-market makes sense as expected. But even at my ideal purchase price, I'm having trouble making the numbers work. I'm taking the most conservative percentages for all of my monthly reserves but I'm not budging on these because I'll never skimp on my numbers to make something work.

House hacking makes sense to me as long as I'm paying less than I would renting while I'm living there. The problem that I'm having is that I can't get anything even close to breaking even AFTER I move out.

Would love to hear from anyone's personal experiences on how to navigate this. Should I further expand the radius that I'm looking? I'm trying to stay within 25-30 mins of Cleveland due to work considerations.

Thanks for any comments!

-Ben, aspiring multifamily house hacker

Sounds like you're being over conservative when you don't even know what you can self manage a property for. For your 1st 10 deals, if you want to own in good areas, just self manage and bite the bullet. The hopes are in a few years they'll rent for more and then you can hire a PM then if you need.

Just find something as close to the 1% rule as possible (analyzed at when you move out and have it fully rented) and it should cash flow or break even.

If you're running absurdly conservative numbers, then sounds like you shouldn't buy any real estate and should stick to a low risk savings plan like a CD, money market, or 401k where things are less volatile.

Marc,

Thanks so much for the response!

Running conservative numbers because I would plan on delegating things like PM down the line and my reserves are going to be relatively low for this first investment. I'm not risk averse per se but I'm just trying not to get wiped out.

0 Votes

Cleveland, Ohio

Quote from @Brie Schmidt:

@Benjamin Sulka - Oh wow! I can't believe people still listen to the old episodes, that was almost 10 years ago. Right after that came out I started my own brokerage firm and have been working with house hackers ever since. I can tell you this... the biggest factor making things difficult today are interest rates. I just had a call with a client who bought about 2 years ago and is looking for another property, we ran some numbers and their payment would be $2100 more today because of the interest rate. The cap rate we are seeing have been about the same the last few years so the overall ROI is the same.

For the last 10 years I have seen prices increase steadily and cap rates have only gone down. Back in 2015/2016 you could find a 8% cap rate then in 2017/2018 it was a 7% and 2019/2020 it was 6% and the only reason it has been steady is because rents have seen increases along with prices

So I tell my clients they have a few options:

Buy now on cap rate and refi when rates go down. I am not expert but I do believe we will see rates at 5.75%-6.25% in the next two years

Wait till rates go down and buy then but risk buying at a lower cap rate because of market fluctuations.

When rates started to increase about half my buyers decided to sit out, now they are coming back to get back in the game

Brie,

Super grateful for the in-depth response and so happy to hear about your continued success.

My goal is to buy now and then refi when rates go down. Opportunity cost is a big factor for me and I'm trying to prioritize 1) My learning 2) Time in the market

Trying to use this first deal to inform my second deal and so on and so forth. Going to be diligent and cautious but I'm really just trying to get into the game when I see something that fits my criteria and goals with real estate.

Thanks again for taking the time to respond to my post!!

All the best,

Ben

0 Votes

Cleveland, Ohio

@Graeme Harris,

I'm in a very similar situation to you and my fiance and I are looking to buy our first house hack in the next few months.

Especially with house hacking, expect that it isn't going to cashflow for the first few years. Especially with a low down payment and 7% interest (we are doing 5% down conventional).

Consider those other 3 benefits that Rick listed above and also consider:

1) Paying less than you would renting

2) Hands on investing education

3) Preparation for your second property, and your third property etc.

Assess you personal situation and go from there. We are looking to buy investment properties for the long term benefits of owning real estate. Not necessarily to replace our income.

Hope this helps as I've asked these questions several times before. I'm echoing some of the things I've learned.

You and I both got this!

1 Vote

Detroit, Michigan

@Larry Cersosimo,

Like many others said, it greatly depends on your situation. I'm personally looking to house hack a duplex at 5% down. At 5% down and 7% interest, this property is not going to cash flow when I move out or even several years down the line.

Different people have different goals. I really like what I do for work and don't plan on getting out of that industry to go into REI full time. I have some entrepreneurial goals in the field that I'm in but don't plan on trying to use real estate to replace my income. So in my situation, negative cash flow is completely fine if I'm paying less than I would renting, getting a real estate investing education by actually buying a deal, learning how to landlord, etc.

Assess what your personal situation is see what makes sense for you!

0 Votes

Quote from @Nicholas L.:

@Jaron Walling

yep. Jason Hartman has great content on this. he says that folks who bought when rates were low were buying like it was 2011 because as we all know - price + rate = payment. and most people don't pay cash!

also congrats on your vote to post ratio. just noticed we have about the same number of posts but apparently i only add value 66% of the time and you add value 92% of the time =)

every time someone asks "how do i get started" i respond "house hack" and those posts don't get a lot of votes i guess. ha!

The "house hack" posts make me chuckle every time haha. Straight to the point and accurate.

0 Votes

Hey BP,

I'm going to paste a photo of my analysis so I don't have to type everything out but wanted to call out a few things:

-This is a duplex house hack where my fiance and I would be taking over one of the units.

-Taking 10% reserve for vacancy, PM, and Capex

-5% for repairs

-All other numbers are standard values based on my area. Need to do some more digging into utilities though.

-Current market rent is $1,250 per unit

Here is what numbers look like when I live there:

We currently pay $1,450/month in rent right now so that's something to consider. We'd be paying less than we would renting after taking conservative reserves.

Here is what numbers look like when I move out:

Negative cash flow but

1. Rate is 7%

2. Only put 5% down

3. Cash on Cash return is 52.7% (obviously we will put more cash into things throughout the year which will make the COCR lower.

Would love to hear people's thoughts! Thanks for your time :)

-Ben, aspiring multifamily house hacker

3 Votes

Cleveland, Ohio

All Forum Posts by: Benjamin Sulka

Benjamin Sulka has started 53 posts and replied 809 times.

Post: House Hack Numbers Not Working (Follow up with a deal analysis)

Post: House Hack Numbers Not Working (Follow up with a deal analysis)

Post: House Hack Deal Analysis (with numbers)

Post: House Hack Numbers Not Working (after I move out in 12 months)

Post: House Hack Numbers Not Working (after I move out in 12 months)

Post: House Hack Numbers Not Working (after I move out in 12 months)

Post: Is 2024 The Year to Get Into my First Property? First Time Investor!

Post: What is a good cash flow

Post: What is a good cash flow

Post: House Hack Numbers Not Working (Follow up with a deal analysis)