Deal Analysis - West Highlands House Hack

Property Deal Analysis Overview

Our client is a young working professional purchasing his second investment property through the house hacking approach. He wanted his next purchase to provide a balance of investment and lifestyle.

Location was one of the main focuses along with the ability to add value to the property to increase the rents by finishing out the basement into a separate unit. The neighborhood will continue to appreciate, and the property is zoned and large enough to add an additional dwelling unit (ADU).

This property closed Q3 2020.

Investor Profile

• Single young working professional
• Building a rental property retirement portfolio through house hacking
• House hacker approach worked best
• Wanted to live in an area that provided personal enjoyment as well as appreciation potential

Deal Quadrant: MLS

Read about the deal quadrant and finding Denver Investment Properties.

Investment Property Details

• Type: Detached Single Family
  • 3 bedroom, 2 bathroom
• Location: Berkley Neighborhood in West Highlands
• List Price: $580,000
• Purchase Price: $580,000
• Why we liked it:
  • Great Location
  • Room to make upgrades over time to increase value
  • Separate entrance for basement, space to add an additional kitchen to create split level rental opportunity
  • Zoned for additional dwelling unit (ADU) with the right sized lot for adding square footage
  • Long term opportunity to develop into a new build

Property Contract Details

• Finding the property: pre-marketed as a coming soon on the MLS, loophole to work around the new coming soon rule, went under contract sight unseen and was able to do the visual inspection within 24 hours. This house would have gone for over $600,000 if it hit the market. The sellers were under pressure to sell the home because they had already bought a new home in North Carolina.
• Under contract:  at MLS coming soon price and secret sauce
• Inspection Concerns:
  • Old furnace & no AC
• Inspection negotiation outcome:
  • New furnace (seller credit)

Property Financing Details

• Lender: Conventional
• Loan Type: 5% down conventional
• Appraisal: at value, conditions of submitting pictures of the remodeled basement.
• Seller Concessions: $3,500
• PMI: Prepaid
• Interest Rate Buy Down?: Yes

Spreadsheet Rental Analysis - While Living There

Property Operating Expenses - While Living There

First Year Returns - While Living There

Spreadsheet Rental Analysis - After Move Out

Property Operating Expenses - After Move Out

First Year Returns - After Move Out

Download free rental property analysis spreadsheets like the ones above.

Conclusion

The spreadsheet shows a positive cash flow of $1021 once he moves out after year one. He’s evaluating the best way to bill for utilities. To be conservative, we’re assuming he’s paying for the utilities and not collecting additional income. The analysis doesn’t include a property management fee as he is willing to self manage, while accounting for a 5% vacancy rate and 8% repairs and reserves. He also plans to build out the basement with a kitchen to help increase the rent rates, which would increase rents by $200-$300/mo.

YouTube Video: West Highlands House Hack

Podcast: Play in new window | Download (Duration: 28:07 — 32.2MB)

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