Deal Analysis – 3rd Denver Nomad™ & House Hack Property

Deal Analysis Overview

In this episode Joe Massey and I discuss a deal analysis for a client’s third House Hack / Nomad™ Denver investment property that closed in the fall of 2019.

Investor Profile

• Poster child for Nomad™ & House Hacking
• 1st Property: Fourplex on the West side purchased in 2017 w/ FHA loan.
• 2nd Property: Detached single family north of Denver in Oct 2018 w/ 5% down conventional.
• 3rd Property: Buy another HH/N.

Investment Property Details

• Type: Detached house w/ mother-in-law suite
• 4 bedroom, 2 bath + MIL
• Location: Southwest Denver, near Alameda and Sheridan
• Purchase Price: $485,000
• Why we liked it:
  • Location – west side with upside
  • Perfect setup for house hacking
  • Use 5% down conventional financing

Deal Source: MLS

The majority of Nomad™ and House Hacks are found on the MLS

Contract Overview

• Finding the property: Easy. Second transaction with client and we all knew what we wanted. Client found it on the MLS.
• Under contract at $480,000 w/ 28 day close
• Inspection: Completed in 72 hours – We like to move fast.
• Inspection Objection:
  • HVAC – not functional, no AC disconnect, and not wired correctly.
  • Electrical – main panel at 150 amp and two interior subpanels at 200 and 125!
  • Roof – hail damage and needed replacement
  • Misc
  • Ask: Seller concession of $22,000 in lieu of repairs
  • Negotiated: $14,500 in seller concession!

Financing Overview

• Lender: Joe Massey with Castle & Cooke Mortgage
• Loan Type: 5% down conventional
• Appraisal: at value, no issues.
• Seller Concessions: $17,879 – (Inspection concessions, SD, Prorated rent)
  • Bought rate down from 4.25% to 3.875%
  • Covered closing costs to minimize cash out of pocket for buyer
• Increased purchase price by $5k to prepay PMI
• Cash needed to close: $23,152
• Repairs to property: $8,000 (roof, electrical work, HVAC, misc)

Spreadsheet Analysis

**NOTE: Initial Repair Costs = $17,879 Seller Concessions (Inspection concessions, SD, Prorated rent) + Initial repairs of $8,000 = -$9,879

First Year Returns

There are numerous ways to measure returns in real estate. Here are three common ones:

My favorite way to measure the return is by looking at the complete return on investment. The Return on Investment Quadrant shows the four different ways you make money in real estate: Appreciation, cash flow, debt paydown, and depreciation tax benefits. The two graphics below show the return on your initial investment in the first year. If you’re not familiar with the ROIQ, then go through the “Investment Property Analysis: Cash Flow is NOT Everything!” course.

Conclusion

Looking at the returns above, it’s obvious why our client jumped on this property! Would you buy this property? Are you willing to live with roommates? If so, then this might be the perfect type of property. However, if you’re a married couple with two kids, having roommates probably won’t work for you. Then you would focus on the Nomad™ aspect. Remember, the key to building long term wealth is NOT finding the perfect house hack like this property but rather buying and accumulating multiple properties. This is the client’s third property with more to come!

House hacking is about finding the right balance between your living situation and investing. If you need help, then reach out to me.

YouTube Video