House hacking a $750k fourplex in Minneapolis
Do the numbers pencil out?
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Happy Thursday! In this week’s issue, we're diving into a practical example of how house hacking can significantly benefit from leveraging Innago's comprehensive suite of free property management tools. We'll analyze a fourplex for sale in Minneapolis as our case study for a potential house hack, and see how Innago can enhance both the profitability and ease of managing such an investment.
Here’s the fourplex we’re looking at - it’s currently on the market for $750k and has four 2bd/1ba units.
This property, constructed in 1960, is situated only a few blocks away from Lyndale Park Gardens in Minneapolis, making it a fairly desirable location to live. We'll assume we purchase the property for the asking price of $750k. Even though the property was built in 1960, each unit was renovated in the spring of 2022, so we won’t allocate anything upfront for repairs.
We’re going to make the following assumptions:
20% down with a 30-year fixed mortgage at 7% interest rate
1.10% annual property tax rate (based on Minneapolis’ current rates)
$263/mo home insurance
5% reserve for vacancy
10% reserve for capex and repairs
2% annual rent and expense increase
We’re going to rent out three units and one bedroom in our unit. Based on rental comps in the area, it looks like we could get around $1,500/mo for each 2bd/1ba unit. For the single bedroom, we’re looking at around $800/mo. That brings our total monthly rent roll to $5,300/mo.
By integrating Innago’s free tools into our workflow, we can amplify our property’s appeal and streamline operations. Innago simplifies listing our property across multiple platforms with a single click, ensuring our property reaches the widest audience possible. The platform’s efficient tenant screening, application, and lease signing processes can potentially halve our vacancy rates, directly boosting our bottom line. If we cut our vacancy by 50%, that’s an extra $1,600 that goes back into our pocket every single year!
On top of all that, Innago’s digital management of maintenance requests not only keeps tenants happy with prompt responses, but also protects us from escalating repair costs. This is especially valuable for us given we’re trying to maximize our investment with minimal hassle.
Plugging the numbers above into our trusted house hacking calculator (reply to this email and I’ll send you the link!), we get the results below.
The initial results are great! Our monthly outlay for mortgage + insurance + property tax comes out to $4,943, and our monthly rental income is $5,300, leaving us with a gross profit of $357/mo.
We’re setting aside $795/mo in the first year for capex, maintenance, and vacancy, which brings our monthly net income to -$438/mo. Over our whole first year of living in this property, we’ll lose $5,254. We accrue $6,095 in equity, so we actually end up with a gain of $841 for the entire first year. If we account for the potential savings from reduced vacancies and repair costs through Innago’s efficient marketing and management tools, the results are even more positive.
Our initial projections are promising - we’re living for free and making some money on top (although not much). Ideally, we’re in the green before accounting for equity buildup - let’s see if we can figure out how to make that happen.
If we offer furnished rentals and increase rent by $250 per unit ($750/mo in extra income), that’d more than cover our current $438/mo loss. It’d likely cost ~$2k to furnish each unit but it’d be worth the additional upfront cost. Another opportunity could be to offer medium-term rentals. Minneapolis serves as a hub for the state of Minnesota and for adjacent parts of neighboring states. A lot of commerce and healthcare delivery happens in Minneapolis, so there’s likely a constant stream of business travelers and temporary healthcare workers coming into the city. If I owned this property, I’d test out the waters by renting one unit as a medium-term rental and seeing how the results compared to a traditional long-term rental.
Would I purchase this property? If I lived in Minneapolis, very likely, yes. The numbers are great and I think there are a fair number of levers you can pull to make the financials more attractive. Using a tool like Innago is total no-brainer for property owners - it’s completely free to use and takes a lot of the hassle out of managing a property. I’d highly recommend checking it out!
Thanks for reading, catch you in the next edition!