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10 Tips for Running the Numbers for your House Hack Strategy - Your Home in Washington
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10 Tips for Running the Numbers for your House Hack Strategy

25 Aug 10 Tips for Running the Numbers for your House Hack Strategy

Posted at 18:33h in House Hacking, Investments, Uncategorized by
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Are you wondering how to run your numbers if you are using the house hacking strategy?  In this blog, we are going to go over 10 tips on how to run numbers for a house hack investment property.

Tip # 1 Narrrow Down the Type of Property

What house hacking scenario are you considering? Options may include renting out rooms of your home, subdividing a multi-story home into a duplex, or purchasing a 2-4 unit property. When you are getting started, it’s important to think about what you are willing to sacrifice when it comes to your own space that you will be living in. Are you comfortable having roommates or would prefer separate units? How many renters are you willing to have? These are important questions to ask yourself when you start looking at the type of property you are going to purchase. 

Tip #2 Determine The average Purchase Price

First, you need pre-approval from your lender. Then explore what type of properties fall into your price range, based on this pre-approval.  Are there any recently sold properties that meet your criteria?  Do you need to make adjustments in your price range?  This is part of your market research.

Tip #3 Explore down payment options

What will down payment costs be? In my video “5 Things to Know When Financing Your House Hack,”  I go over the different down payment scenarios for up to a four-unit property.  

Tip #4 Understand Potential taxes

Look up the average tax on the county website and include this as a line item.

Tip #5 Estimate insurance

You can find estimates online or you can call your insurance company to get a quote on an average property that you will be looking to buy.

Tip #6 Research Vacancy Rate

Do you live in an area where most properties have 20% vacancy rate? Or Is it closer to 5%? You can do an online search to determine vacancy rate for your area. Otherwise, you can reach out to a property management company or real estate agent to tell you how long a property may sit on the market before it is rented.

Tip #7 Include Extra Expenses

Include any HOA costs, road maintenance, or community dues on this line item.

Tip #8 Estimate utilities

Factor in water, sewer, garbage, and electrical costs. First, determine who will be paying the utilities – the  owner or the tenants. It will be important to know  if there are separate water and electrical meters for each unit, if there is septic system, or any other potential costs.

Tip #9 Calculate deferred maintenance

If you are a buy- and-hold investor, there are a few ways to account for deferred maintenance. You can calculate all of the fixes you would make over the next 10-30 years and divide that by the number of years you will hold the property.  Another method is to take 10-20% of the purchase price and divide that by 30 years.

Tip #10 Stress Test the Numbers

Now, you can add and subtract different line items to stress test your numbers. Stress-test items could include a longer vacancy, a $25,000 repair, having the tenants pay the utilities, or a decrease in market rent adjustments. Once you are done, you should have a range of cash-flow that you can expect on the property.

BONUS! Tip #11 Analyze your return

There are many ways to analyze your return. Yield, cap rate, or straight cash flow are some of the ways a house hacker would use to study their rental property. One key note:  if you are planning to buy and hold your property, you need to make sure the cash flow is efficient enough to cover your stress test items.  This is especially important once you move on to the next property

I hope this video helped you understand what to consider when running your numbers on a house hack property. To learn more, watch “5 Things to Know When Financing Your House Hack”.

If you have more questions about how to run your numbers or how to get started in house hacking, please don’t hesitate to reach out!