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This deal analysis is part of a new series we’re launching on YouTube called Drinks and Deep Dives with Chris Lopez.

You can find the podcast for this deal analysis within the podcast episode called DDD: Stocks vs Real Estate and 2 House Hack Deal Analyses. Tune in Wednesdays at noon MT to join me live for the next one.

Investment Property Details

Deal Overview 

The house was purchased in February 2021 and provides ample opportunity for house hacking.  It’s a single family home in the Montbello neighborhood in northeast Denver.  In total, it has 6 bedrooms and 3 bathrooms.  

Appealing Features of the Property 

The house has a great setup for house hacking: the main floor has 3 bedrooms and 2 bathrooms and the basement has 3 bedrooms and 1 bathroom.  Both floors have a full kitchen.  

Investment Business Plan 

My client plans on living in one of the basement bedrooms and renting out the other bedrooms.  He may only rent out one basement bedroom to keep the house from feeling too crowded.  

Property Contract Details

Contract

The house was listed for $365K, but because of the competitive market, we went quite a bit over asking at $390K with an appraisal gap and limited inspection.  We got our offer in fast, which made it even stronger.

Inspection Issues 

There were some issues with the roof, for which we were able to get a seller credit of $6K.  The buyer will need to spend an additional $6K in repairs, including an egress window for one of the basement rooms and replacing the flooring in all of the bedrooms. 

Property Financing Details

Stabilization: Plan v Reality

We estimated that he could rent out the primary bedroom upstairs for $800 and all of the other bedrooms for $700.  If he rented out all five of the unused bedrooms, he would bring in a rental income of $3600 a month.  Realistically, he will likely only rent out four of the bedrooms (all three upstairs and one basement bedroom).  

Spreadsheet Analysis

Note: The spreadsheet automatically estimated PMI at $6053.  Since my client did not have to pay PMI, I zeroed it out by removing the initial repair costs, which are also around $6K.  

I ran the rental income numbers assuming he is living there and only renting out four of the five other bedrooms.

Property Operating Expenses

First Year Returns

While living in the house, my client will be making about $500 a month.  In the long term, he has a lot of opportunities with the extra kitchen in the basement.  He could either rent it out to one large family or two separate families on each floor.  

Immediate Goals and Plans for the Property

He plans on living in the property for one year, then moving into his next property and renting out this house entirely.  

Analysis

Because he only had to put down 3%, he’s making around 200% on the money he invested while living in the house.  A traditional down payment of 20% would have resulted in more cash flow, but his overall return would drop all the way to 50%.  

This is the power of leverage that people need to keep in mind when they look at returns in real estate.  It’s not just a matter of the purchase and sales prices of a property.  Factors such as hold time, tax benefits, cash flow, and debt paydown all affect total returns.  

Conclusion

Currently, it would be hard to find a home like this for under $400K.  But that doesn’t mean that there aren’t worthwhile properties that make sense for an investor.  Higher price points can still yield returns, so it’s important to run the numbers to understand how buying with leverage will impact the numbers.  For help finding a property and creating an investment strategy, scroll down to schedule a Real Estate Investment Consultation.

YouTube Video

Drinks and Deep Dives: Denver Room by Room House Hack and Triplex House Hack in West Wash Park