In this deal analysis, we’re looking at a first-time house hacker in Westminster who bought a $500K house with a down payment of only $3K! We’re examining how he did it, and what his returns will be while living there and after he moves out.
This deal is part one of our recent webinar on underwriting rental properties. Check out podcast episode #424 to learn more about all of the deals.
One of my clients has a background in software, and we got into a great conversation on house hacking. He asked me to help him to start looking for a home before his wife moved to the Denver area.
His criteria in looking for a property was to live for free and also do the rent by room strategy in the Denver metro area. His price range was $400K-$600K in a rent-ready type of house, so there was some flexibility.
Investment Property DetailsAs we started looking in September 2022, interest rates climbed to the high 6% range in just a couple of weeks. While this made him very nervous about trying to buy, I reassured him that rates don’t matter. An interest rate is just one variable in the overall equation. The goal for a first-time house hacker is to eliminate or reduce the largest expense – housing. By accomplishing that, it will change your financial freedom trajectory immediately.
By utilizing the rent by room strategy, he could accomplish that goal, as long as we found a house with enough bedrooms to rent.
Thus, the search began, and we toured a good 5-10 houses before we found one that checked all the boxes.
The property is a large single family house in Westminster with 5 bedrooms and 3 bathrooms in great, rent-ready condition. It even had three egress windows already installed in the basement! Needless to say, this property was ready to go.
Plus, there is room to add another bedroom in the basement to make it a 6-bedroom home in total. The cost would be about $3k to add a couple of walls and a door since there’s already a window and closet in the space.
Property Contract DetailsBecause this was a first-time home buyer, he wanted to explore all the loan options. The home is in a moderate-income level tract, which made him eligible for a pre-approval for a grant loan. He was able to utilize the program to get $10K towards his down payment and $7.5K for closing costs.
On top of that, the slower market we’re in now allowed me to negotiate another $10K in seller credits when I made the offer. These credits allowed my client to buy down the interest rate to 5.9%. After we completed the inspection, we found some electrical issues. I was able to further negotiate another $4k in seller credits to make the electrical repairs before closing. All in all, the total cost to purchase this property was only $3k out of pocket for my client, and he will be able to live for free that first year!
The big takeaway here is to not let the high interest rate environment scare you. There are solid properties still available today that translate into great deals.
Property Financing DetailsI used the Rental Property Spreadsheet to run the numbers on this deal. First, I ran them while he’s living in the house. Then, I ran them after he moves and rents out the master bedroom.
Property Overview Property Operating Expenses First Year ReturnsWhile he’s in the house, he and his wife will pay a little over $100 a month to live there. Before he moved into this house, he was paying $1500 a month to live in a downtown Denver apartment. Saving $1400 a month while owning an appreciation asset is a huge step.
Property OverviewOnce he moves out, the returns on this property get even better. He expects to be able to charge $850 a month for the bedroom he and his wife are living in now.
First Year ReturnsHis cash flow will jump to a whopping $7700 a year once he moves out!
Strategies That Still Work in Today’s MarketEven though interest rates are high, don’t let that detract from finding an investment property. Remember that interest rates are just one factor that will affect cash flow and monthly payments, but they shouldn’t be the only thing you look at. Make sure you evaluate the deal as whole to see if it makes sense.
YouTube Video Living for $150 a Month Despite a 5.9% Interest RateBoosting Returns $10K by Investing Denver Equity in Pueblo
8 Simple Questions to Clarify Your Real Estate Investing Strategy
Guide to Choosing the Best Real Estate Investing Strategy for YOU
Active or Passive Investing? Picking a Strategy that Works for You
Why Lon Welsh Is Going All In on Passive Investing
State of the Market: 4 Moves You Can STILL Make in Your Real Estate Portfolio Today
When Hard Money Lending Can Help You Profit on Your Fix and Flip
State of the Market: 6 Cash Flowing Colorado Rental Properties You Can Invest in Today
Getting $250k Cash to Replace Lightbulbs? A Creative Method for Pulling out Equity in an Office Building Refinance
State of the Market: Should I Still House Hack in Denver?
May 2022 Residential Roundtable Denver Market Update
4 Factors That Will Help You Thrive in a Shifting Market
Where Should You Invest $50k in Colorado?
We’re Hiring! Pueblo Investor Friendly Agent
From Unfulfilling Desk Jobs to a $1 Million House Flip
Denver Commercial Real Estate Q1 Market Updates
Loftium’s Host to Own Program Review: Can You Really House Hack with Almost No Money Down?
April 2022 Residential Roundtable Market Update
Property Llama Goes to New York
Lessons Learned from First Time House Hackers in an Englewood Duplex
Create your
podcast in
minutes
It is Free
The emPOWERed Half Hour
U.S Property Podcast
Aligned Money Show
Dubai Property Podcast
The Ramsey Show
The Clark Howard Podcast