House Hacking with an Engineer: Finding Joy in the Numbers – Even After Buying a New Build Townhome

As part of our series on new build townhomes, Chris and I sat down with investor Anthony Musco to discuss the new build townhome I helped him purchase near Olde Towne Arvada.  He wasn’t initially looking for a luxury new build, but the historic seller’s market made this play a solid option for him.  He was able to take advantage of a grant program to help finance the home, and it is the first step in a long term plan of acquiring properties and accumulating wealth. Most of the blog post below is relayed by Anthony in his own words.

Investor Profile

• Moved to the Denver metro area with his fiancée from New York City last winter.
• Software engineer who works in robotics and self-described “numbers nerd” who sees huge investment property growth potential in the local market.
• Anthony created his own spreadsheet to help him make real estate investment decisions.  Since he’s new to investing and doesn’t yet have the experience to make offhand assumptions, he used complex modeling to run different scenarios.

Long Term Real Estate Investing Goals

• $15,000 monthly passive income from renting out 15 doors, averaging $1,000 monthly net income each.

Strategy for Achieving Goals

• First 3-5 doors: 
  • Purchase 1 house hack property every 12-18 months using owner-occupant financing. 
  • Wherever possible, rent out a room or separate living space via Airbnb for passive income while living in the property.
• Subsequent 10-12 doors:
  • Purchase 1 rental property every 12-24 months using investment financing.
  • Rebalance portfolio to target >= 10% Return on Equity for each property.

Investment Property Details

Deal Overview

• 3 bedroom, 3.5 bathroom, 3 story new build townhouse 
• 10 minute walk to Olde Towne Arvada and light rail station 

Appealing Features of the Property

• Location 
  • Building is in an up and coming neighborhood that is walkable to bars, restaurants, and light rail station. 
  • Located in an Opportunity Zone, which provided advantageous financing and could be beneficial when selling the property.
• New Build 
  • Brand new, so maintenance should be minimal. 
  • Features desirable to a large swath of potential renters. 
  • When compared to an older property at a similar price point, the “upgrades” were paid for at acquisition. 
• Flexible Rental Model: has the potential to be rented out in a variety of ways 
  • Airbnb: modern finishes make it trendy and marketable 
  • Rent by Room: each bedroom has a private, attached bathroom 
  • Single Tenant:  family friendly area with easy accessibility to I-70

Investment Business Plan

This investment is predominantly a leverage play. He was able to acquire a brand new property with relatively little down, with a low interest loan and no PMI. Given the advantageous financing, he’s hoping to manage the property to maintain at least break even cash flow for 7 years, at which point the Return on Equity is expected to drop below 10%. At that point, he will either cash out refinance or sell the property to roll into an investment with better cashflow/Return On Equity.

Sourcing

• Found on Zillow

Property Contract Details

Inspection Issues

• No inspection or appraisal issues.

General Notes

• Was a bit worried about the non-refundable $10k builders deposit which was in addition to the earnest money. We were able to negotiate a 2 week refundable period to ensure that he was approved for the advantageous financing, which is really what made this deal work.

Property Financing Details

Rental Analysis

Terms of the Deal

• This property is located in an Opportunity Zone.  
  • These zones are designated areas in which the state will incentive investment through various tax benefits.  
  • By purchasing a property in an Opportunity Zone, Anthony was able to take advantage of a Bank of America grant program that offered $10,000 toward his down payment and $7,500 toward closing costs.  This is money he does not have to repay.  
  • To be eligible for the program, you must make less than $150,000 and have a good credit score.  Your income will determine where you can use this program.  
• The purchase price of the property was $559K.  He put 5% down, not including the $10K he received through the grant program, and got an interest rate at 2.75% 30 year fixed.  Anthony’s total acquisition cost was $13K, including money spent extending his rate lock since completion of the townhome was delayed due to COVID. 

Interesting Points

• New builds have the potential to appreciate immediately.  Anthony bought this property during phase one of the development.  During phase two, these units are selling for significantly more.
• Anthony is keeping his monthly reserves low, at around 1% because the property is a new build and has a 1 year builder’s warranty.  
• HOA fees are $190 a month and cover: water, sewer, landscaping, trash removal, and snow removal.

Spreadsheet Analysis

Since this townhouse will not be his forever home, we analyzed it as its intended purpose: a future rental property. 

Property Operating Expenses

First Year Returns

Immediate Goals and Plans for the Property

• Will live in the property and use Airbnb for the first floor bedroom, hoping to achieve $15K in gross revenue from May 2021 to May 2022.
• After moving out, will either mange it as an Airbnb, rent by room, or single tenant rental depending on the potential revenue and management overhead.  The goal is to at least break even on cash flow.  

Exit Strategy/ Long Term Plan

After 7 years, refinance or sell the property and use the proceeds to acquire a more traditional multifamily (3-4 unit) income property.

Conclusion

Thanks to the timing of the market, available inventory, and a little luck, Anthony was able to make a great investment with this home.  If you’d like to reach out to Anthony, you can contact him here: anthony.g.musco@gmail.com or LinkedIn.  He’s happy to share his spreadsheet with anyone who is interested; you can find a copy to download of Anthony Musco’s Real Estate Spreadsheet here.

If you’d like more information on the Denver market in general, you can reach me at lauren@envisionrea.com or 720-815-8351. For information on what house hacking is and how to get started, check out our free Ultimate House Hacking Guide.

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