House hacking a $900k triplex in Nashville
Do the numbers pencil out?
Today’s newsletter is brought to you by Innago, a free property management software for landlords that’s as effective as it is user-friendly.
Happy Friday! In this week’s issue, we're looking at a potential triplex house hack in Nashville. We’re going to see if it’s a good investment, and see how we can use Innago's free property management tools to save us time and improve our profitability.
Here’s the triplex we’re looking at - it’s currently on the market for $900k and has three 2bd/1ba units.
This property, built in 1974, is located just a short distance from Downtown Nashville and McFerrin Park, making it an attractive place to live. We'll assume that we acquire the property at its listed price. Despite being built in 1974, the property was recently renovated so we won't need to set aside funds for immediate repairs.
We’re going to make the following assumptions:
20% down with a 30-year fixed mortgage at 7% interest rate
0.67% annual property tax rate (based on Nashville’s current rates)
$315/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 two units and one bedroom in our unit. Based on rental comps in the area, it looks like we could get around $1,600/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 $4,000/mo.
Incorporating Innago's free tools into our daily operations can significantly enhance our property's attractiveness and make management a breeze. Innago offers a straightforward way to advertise our property on various platforms instantly, ensuring it gets maximum exposure. The platform's streamlined processes for screening tenants, processing applications, and finalizing leases could dramatically reduce our vacancy rates, giving our profits a nice boost. Halving our vacancies would mean an additional $1,200 in profit every year!
Additionally, Innago's online system for handling maintenance requests does wonders for keeping our tenants satisfied with quick turnarounds, while also helping us avoid the pitfall of rising repair costs.
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 results don’t look great. Our monthly outlay for mortgage + insurance + property tax comes out to $5,608, but our monthly rental income is only $4,000, leaving us with a loss of $1,608/mo. Ouch.
We’re setting aside $600/mo in the first year for capex, maintenance, and vacancy, which brings our monthly net income to -$2,208/mo. Over our whole first year of living in this property, we’ll lose $26,498. We accrue $7,314 in equity, so we end up with a net loss of $19,184 for the entire first year. These results are poor, even if we account for the potential savings from reduced vacancies and repair costs by using Innago’s marketing and management tools.
There’s really not much we can do to get this property in the green. We’re losing more than $2k/mo and no strategy can fill that hole. We could try Airbnb given the property’s prime location near Downtown Nashville, but it’s highly unlikely that we’ll make enough to be profitable on a monthly basis.
Would I purchase this property? No. The numbers are far from where they need to be to make this a profitable investment, and there’s no reasonable way to make it one. Given the property was recently renovated, we can’t really add much value by updating the units. Even with a tool like Innago, sometimes we just can’t make the numbers work!
Thanks for reading, catch you in the next edition!