A House Hacker's Worst Nightmare
Estimated Reading Time: 3 minutes, 56 Seconds
What’s up!
Interest rates. That’s what’s up. Anyways…
On today’s menu:
🧐 Get Serious: Treat your House Hacking like a business
🏠 Small College Town Find
📈 📉 Changing Tides?
Let’s dive in.
Lesson
Tenant Placement
House Hacking is to real estate investing as training wheels are to bicycles.
What this means is that no matter how big or small you start with House Hacking, it is vital to treat it as a business rather than another hobby.
Once you’ve acquired a property that knocked it out of the park with our deal analysis calculator, it will be time to get tenants in place. Tenant screening may be the most important part of making your House Hack a success. Get the wrong tenant in place and you’ll literally pay for it.
Here’s a list of steps that will put you on track with tenant placement
Define your criteria upfront - This helps protect you from fair housing laws as well
Get Credit Reports - It’s important to understand your applicant’s debts to understand if they are capable of paying rent, and have a strong history of paying on time
Background Check - Some are basic and only show criminal history, but more robust background checks can show employment history, driving records and identity verifications.
Employment History - Equally as important as income is the length of time your applicant has been employed. A tenant that bounces from job to job, industry to industry, is more likely to miss a rent payment than someone who has had steady employment.
References - Make sure it’s not their mother. References don’t hurt to get from an applicant, just know that previous landlords and employers won’t always give you information about the tenant to the degree that credit reports, background checks, and employment history will.
Big Picture: Tenants can make or break your deal. Treat the screening process seriously and use an applicant tracking process to organize all the documents and data on your applicants. Consider this like hiring your first employee, a major step in the business!
Deal Analysis
Want a deal you’re looking at to be analyzed, or want feedback on your analysis? Send it to support@everythinghousehacking.com
If you haven’t noticed yet, we like New England.
Why? We get 4 seasons, the best sports teams, and Dunkin every half mile.
This deal is located in a small college town in Western Mass. There are plenty of multi-families in this area but similar to everywhere else, there haven’t been many on the market.
At an asking price of $289,000, this one will go fast, and likely over the asking price. For purposes of our analysis, we assumed we would need an extra $21,000 over asking price to be competitive with other offers.
Other 3 bed, 1 bath units in this neighborhood are renting for $1650. After considering reserves for the likes of capex and potential vacancy, it would cost us about $881/month to live here. By no means is this a Grand Slam deal, but is definitely worth considering.
Our Final Thoughts: Living at ~50% of market rents is not a terrible deal in our book. There is a solid pool of renters in this area and the college should add some security for the foreseeable future.
Related News
Changing Tides?
There have been some wild stories about bidding wars over the past few years.
One for example, where 831 people bid on a single house, was sold to a couple who paid 50 percent over asking. That’s not all… They also paid straight up cash, and put an amendment in the contract that they would name their firstborn child after the seller.
Kind of a creepy amendment but hey, it worked for them.
Those types of stories may be in the rearview for now.
In April sales of homes were down 26.9% from April 2021. This isn’t because of a supply issue either.
Months supply of homes is a metric that looks at how long it will take to sell off the inventory of homes on the market at the current sales rate. This metric jumped from 6.9 months in March to 9 months in April, indicating that there should be more options for homebuyers in the future.
Big Picture: Things appear to be cooling down in the real estate market. It may be due to rising interest rates or recession fears. This of course can vary from city to city, state to state!
P.S. Check out this article for a deeper dive.
Interesting Stuff
Daily Mail: Abnormal Returns
“Finance and investment blogosphere” that shares interesting news from almost every angle of investing, on a daily basis
Quote: “Bear markets function as full-body cleansers for investors’ psyches” - Tony Isola
Podcast: Tenant screening in 8 minutes
Closing Time…
Shoot us your feedback to support@everythinghousehacking.com — See you next week, and thank you to all those that have paid the greatest price for our freedom.
I love your newsletters, Robert! I believe it is worth mentioning your housing stats (decrease in month to month and months of inventory) are for new construction. The resale market is different depending on the micro market and is usually far tighter. Thank you!