Living for $150 a Month Despite a 5.9% Interest Rate
How can house hackers find cash flowing deals in a high interest rate environment? Jeff White joins us to analyze current deals he’s working on that will allow his clients to live for free or close to it.

In this deal analysis, we’re looking at a first-time house hacker in Westminster who bought a $500K house with a down payment of only $3K!  We’re examining how he did it, and what his returns will be while living there and after he moves out.

This deal is part one of our recent webinar on underwriting rental properties.  Check out podcast episode #424 to learn more about all of the deals. 

Three Learning Options!
  1. Listen to the podcast “#424: Yes, House Hackers Can Still Cash Flow in Today’s Market” Denver Real Estate Investing Podcast
  2. Watch the YouTube video (at the bottom).
  3. Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.

Client Profile

One of my clients has a background in software, and we got into a great conversation on house hacking.  He asked me to help him to start looking for a home before his wife moved to the Denver area.

His criteria in looking for a property was to live for free and also do the rent by room strategy in the Denver metro area.  His price range was $400K-$600K in a rent-ready type of house, so there was some flexibility.

Investment Property Details

As we started looking in September 2022, interest rates climbed to the high 6% range in just a couple of weeks. While this made him very nervous about trying to buy, I reassured him that rates don’t matter. An interest rate is just one variable in the overall equation. The goal for a first-time house hacker is to eliminate or reduce the largest expense – housing. By accomplishing that, it will change your financial freedom trajectory immediately. 

By utilizing the rent by room strategy, he could accomplish that goal, as long as we found a house with enough bedrooms to rent.

Thus, the search began, and we toured a good 5-10 houses before we found one that checked all the boxes.

The property is a large single family house in Westminster with 5 bedrooms and 3 bathrooms in great, rent-ready condition. It even had three egress windows already installed in the basement! Needless to say, this property was ready to go.

Plus, there is room to add another bedroom in the basement to make it a 6-bedroom home in total. The cost would be about $3k to add a couple of walls and a door since there’s already a window and closet in the space.

Property Contract Details

Because this was a first-time home buyer, he wanted to explore all the loan options.  The home is in a moderate-income level tract, which made him eligible for a pre-approval for a grant loan.  He was able to utilize the program to get $10K towards his down payment and $7.5K for closing costs.

On top of that, the slower market we’re in now allowed me to negotiate another $10K in seller credits when I made the offer.  These credits allowed my client to buy down the interest rate to 5.9%. After we completed the inspection, we found some electrical issues. I was able to further negotiate another $4k in seller credits to make the electrical repairs before closing. All in all, the total cost to purchase this property was only $3k out of pocket for my client, and he will be able to live for free that first year!

The big takeaway here is to not let the high interest rate environment scare you. There are solid properties still available today that translate into great deals.

Property Financing Details

I used the Rental Property Spreadsheet to run the numbers on this deal.  First, I ran them while he’s living in the house.  Then, I ran them after he moves and rents out the master bedroom.

Property Overview

Property Overview while living in house hack spreadsheet screenshot

Property Operating Expenses

Property Operating Expenses while living in house hack spreadsheet screenshot

First Year Returns

First Year Returns while living in house hack spreadsheet screenshot

While he’s in the house, he and his wife will pay a little over $100 a month to live there.  Before he moved into this house, he was paying $1500 a month to live in a downtown Denver apartment.  Saving $1400 a month while owning an appreciation asset is a huge step.

Property Overview

Property Overview after moving out spreadsheet screenshot

Once he moves out, the returns on this property get even better.  He expects to be able to charge $850 a month for the bedroom he and his wife are living in now.

First Year Returns

First year returns after moving out spreadsheet screenshot

His cash flow will jump to a whopping $7700 a year once he moves out!

Strategies That Still Work in Today’s Market

Even though interest rates are high, don’t let that detract from finding an investment property. Remember that interest rates are just one factor that will affect cash flow and monthly payments, but they shouldn’t be the only thing you look at.  Make sure you evaluate the deal as whole to see if it makes sense.

YouTube Video

Living for $150 a Month Despite a 5.9% Interest Rate

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Start analyzing your Colorado investment properties today
Rental Property Spreadsheet • House Hacking Spreadsheet BRRRR Calculator Spreadsheet • Fix and Flip Deal Analyzer Investing Maps • Rehab Pricing Estimator
Jeff White
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