House hacking an $825k fourplex in Houston
Do the numbers pencil out?
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Happy Friday! This week, we’re diving into a fourplex house hack in Houston, and evaluating whether it’s a good investment.
Here’s the fourplex we’re looking at - it’s currently on the market for $825k and has two 3bd/1ba cottages and two 1bd/1ba apartments.
Located in the historic Old Sixth Ward, the property is located close to Downtown Houston and the Buffalo Bayou Park. We’ll assume that we purchase the property for its listing price. The interiors are a little dated, but it looks like they were refreshed not too long ago. For simplicity we won’t allocate any money upfront for renovations, but it’s definitely something to keep in mind as a possibility.
We’re going to make the following assumptions:
20% down with a 30-year fixed mortgage at 7% interest rate
1.74% annual property tax rate (based on Houston’s current rates)
$289/mo home insurance
5% reserve for vacancy
10% reserve for capex and repairs
2% annual rent and expense increase
We’ll pencil out the numbers assuming we live in one of the 1bd/1ba apartments and rent out the rest of the units. Nearby 3bd units are going for $2.6-3k/mo, but they’re more updated than ours. Let’s be conservative and assume we can rent out each 3bd unit for $2k/mo. Newer 1bd units in the area are going for $1.3-1.5k/mo, so let’s assume we can get $1k/mo for our 1bd unit.
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 don’t look terrible. Each month, we're paying $5,876 for mortgage, insurance, and property taxes, and we're bringing in $5,000 from rent. Including the $750/mo expense for capex, maintenance, and vacancy, our net monthly loss is $1,626/mo. Our equity buildup in year 1 is $6,704 - if we add that to our total loss, our year 1 net loss comes out to $12,808.
These results aren’t bad given how conservative our projections are. We need to come up with an additional ~$1k/mo to breakeven, which is definitely doable. According to Rabbu, we could make $2.4k/mo renting out each 3bd cottage on Airbnb. Is the extra $800/mo across both cottages worth it? We’d need to see whether we come out ahead after fees, supplies, and other expenses, but it’s an option worth looking into. Another possibility is renting out furnished units - if we can increase rent in each unit by $200-300/mo by furnishing them, that would make good progress towards eating into our loss. A final possibility would be to rent out the 1bd unit that we live in for $1k/mo, and instead live in a bedroom in one of the cottages. If we can rent the remaining two bedrooms for $750/mo each, that would increase our monthly rent roll by $500/mo. I don’t know which strategies would actually end up working for this property, but it seems possible to combine a couple of these and make up the deficit we currently have.
Would I buy this property? If I was in Houston, I’d definitely take a close look at it. I think there’s a lot of opportunities to put in some sweat equity and make this a profitable house hack, whether that’s by upgrading the units or making them short-term rentals.
Thanks for reading until the end. Catch you next week!