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Lesson
What is a great house hack deal?
It depends.
Helpful, right?
Let me explain…
What makes for a great house hack deal is one that meets your goals and serves the purpose you need/want it to. Everyone has different goals when house hacking, that’s why it depends.
For example, one person may just want a little extra money coming in every month by Airbnb’ing their place when they’re out of town for the weekend. Another person might want to live for free, or even make money every month.
This is how we break it down — The Everything House Hacking Deal Scale:
Good deal: Live for less than 50% of the market rent for a comparable living situation
Great deal (maybe consider it a triple in baseball terms?): Live for free
Grand slam: Get paid to live there
The important takeaway here is not my personal benchmarks (although you’re welcome to adopt them for your own use), but rather that you need to set your own. You cannot find a house hack to buy if you don’t know exactly what you’re looking for.
Pop Quiz!
If a property costs $100,000, the buyer puts down 5%, utilizes a seller credit to cover all of the closing costs, and the annual net cash flow is $1,000, what is the investor’s Cash on Cash Return on Investment (CoC ROI) in Year 1? See answer at the bottom of this email.
Deal Analysis
Surf is up! Well, not really. Generally hurricane szn is when the East Coast is pumping.
Regardless, this property in Virginia Beach has the features that would catch an aspiring House Hacker’s eye. With two separate dwellings, a single family and multifamily on one property, this is nearly as turn-key as it gets to place tenants and start renting.
The price tag on this property may be daunting to those who live in cheaper markets across the country at $725,000. However, if you take a look on google maps, you’ll notice this place is a 5 minute walk to a highly desirable vacation destination. Remember, location is the cornerstone of a solid real estate investment, and with this property you’re in the company of Marriott and Diamond Resorts.
Market rents at comparable properties in the area are approximately $1600 for a 1 bed, 1 bath and $1800 for a 2 bed one bath that has smaller square footage and isn’t updated. At $3400 in total rent, our adjusted living expense would be $1911/month.
Final Thoughts: To live by the beach with that low of a mortgage is some people’s dream situation. At $1911/ month to live here, this deal doesn’t come close to a “Good Deal” on the Everything House Hacking Deal Scale).
Related News
Believe it or not, good news still exists.
Housing appears to be an economic positive over the next 12 months.
You might be thinking “WOW, Everything House Hacking must not see the prices of properties and soaring interest rates”! But hear us out….
Since there has been major supply shortages over the past few years, there’s been a significant gap between building permits and actual starts of construction for new homes, leading to 50 year highs. In April, this metric declined (which is a positive).
Currently, the three month average of actual construction starts is up 13% year over year, while permits remain down 4%. Permits being down would ordinarily be indicative of a bearish housing economy however, these stats may point towards the backlog of building permits being decreased over the next 6-12 months.
Big Picture: Building permits are often monitored to project housing market trends, but starts are the “actual” indicator of economic housing data. While less permits is not promising for the long-term, burning down the backlog of houses to be built should be positive.
A graph for nerds like us:
Interesting Stuff
Book: The House Hacking Strategy by Craig Curelop — it doesn’t get much better than BiggerPocket’s resources, and this is one of the best books on house hacking.
Quote: “It is far better to have understood why you failed than to be ignorant of why you succeeded.” —Alex Hormozi
Video: The Ultimate Guide to House Hacking — the video was made for 2021, but the principles are evergreen, and Lili creates a lot of great content.
What'd you think of today's email?
Pop Quiz Answer: 20%. Cash in the deal = $5,000 (5% x $100,000), Annual net cash flow = $1,000, Cash on Cash Return on Investment = Annual net cash flow / cash in the deal = $1,000 / $5,000 = 20%.