House Hacking a $1.3m Duplex in SF
Do the numbers pencil out?
Hey everyone! Today we’re going to walk through a potential house hack for a duplex in San Francisco. We’ll crunch the numbers and see if this deal is worth pulling the trigger on. Going forward, we’ll be sending one of these deal breakdowns every week - stay tuned if you’re interested!
Here’s the duplex of interest - it’s currently on the market for $1.3m. One unit is 4 bed/2 bath and the other is 2 bed/1 bath. The 2 bed/1 bath is currently occupied but for the sake of this analysis we’ll assume it’s delivered vacant.
This duplex is in San Francisco’s Richmond District, which is a quieter neighborhood in the western part of the city. SF is a competitive housing market, so we’re going to have to make some sacrifices if we want this deal to work. We’ll live in one room in the 2-bedroom unit, rent out the other room, and rent the entire 4-bedroom unit.
We’re going to make the following assumptions:
20% down with 30-year fixed mortgage at 7.5% interest rate
1.18% annual property tax rate (based on SF’s current rates)
$400 / month home insurance
10% reserve for capex and maintenance
5% vacancy rate
2% annual rent and expense increase
Looking at rental comps in the area, it looks like we’ll be able to rent the 4-bed unit for $5,000 and the empty bedroom in the 2-bed for $1,500, bringing our monthly rental income to $6,500.
Plugging all this into our house hacking calculator (reply to this email and I’ll send you the link!), we get the numbers below.
Our monthly outlay for mortgage + insurance + property tax comes out to $8,937 and we’re bringing in $6,500 in monthly rental income. That means we’re losing $2,437 per month before accounting for repairs, capex, and vacancy. After accounting for everything, we’re losing $3,412 / month - not good.
We’re accruing about $10k / year in equity for the first few years. Taking that into account, our all-in living cost comes out to around $30k / year, or $2,500 per month. That’s not horrible, especially if you consider having to pay rent elsewhere, but it’s definitely not a home run deal.
It doesn’t seem like this deal pencils out with current interest rates. You’ll have to get creative to make a house hack work in a city like San Francisco - maybe you can turn a basement or dining room into an extra bedroom.
Thanks for reading until the end - see you next week!