Multi-Family Property Analysis: How Much Would It Cost You To Live In This House?

Joe Dickerson Group
Joe Dickerson Group
Published on September 5, 2017

A few weeks ago, I wrote this Beginner’s Guide to Real Estate Investing in Oakland, in which I detailed how to invest in small multi-family properties using a technique called house hacking, in which you live in one unit and rent out the other(s), having your tenants help pay down your mortgage.

However, though it all sounds good in theory, I know that it can be quite daunting to take that first step. How do you find the right property? How do you analyze the numbers to make sure it makes sense? How do you deal with being a landlord?

Believe me, I know. There are a lot of questions to ask and answers to seek. But don’t let that stop you. Fear of taking action is due to lack of information.

The more you learn, the less anxious you’ll be, because you’ll have removed those unknowns. So, let’s take the first step.

Learning by Doing

One of the best learning tools I’ve found over the years is just analyzing properties. Lots of them. Find ones you like, find ones you hate, and start familiarizing yourself with the numbers. Tweak the levers and see how your monthly payment would change, and what your return on your investment would be.

So, let’s go find a property, right now. For this analysis, I’m going to use Redfin.

Since we’re talking about house hacking, let’s focus on multi-family properties, so you can live in one unit and rent out the other(s). 

To filter out the single family homes and condos, just click More Filters, then select the Multi-Family filter.

Ah, that’s better. Now we can see all the multi-family properties. Let’s choose a property. How about this one:

Step 1: Gather Basic Property Info

Listed at $638,888, with 4 bedrooms and 2 bathrooms, this multi-family property in east Oakland is moderately priced and located in a decent up-and-coming neighborhood east of Lake Merritt and west of Fruitvale.

One of the first things you should do is scroll down to read the Property Details section.

From the Multi-Unit Information section, you should look for a few things:

1. How many units are there? 2

2. How many bedrooms and bathrooms are in each unit? 2 bedrooms, 1 bathroom in each unit

3. Are the units vacant or occupied? Vacant

Pro Tip

If there are rents listed, that usually means the unit is currently rented out. If there are no rents listed, read the rest of the details to see if it specifies vacant or occupied. If there’s no mention, then scroll back up to the photos and description at the top for clues as to whether one or all the units are vacant.

Because this property is fully vacant, you can easily house hack it. That is, you can live in one unit while renting out the other.


Step 2: Analyze the Numbers

First, before we get to the numbers, a couple of disclaimers. Keep in mind that I’m not an accountant, and Redfin’s calculators are approximations. However, this should be a great high level look at the numbers.

Let’s start by taking a look at the monthly payments. This is where Redfin’s Payment Calculator comes in handy. Redfin automatically fills in some default values, but you’re going to want to play with these.

Pro Tip

Tweaking the numbers to see how a different interest rate or down payment would affect your monthly payment is a great way to learn about the relationships between those figures.

In this case, I adjusted the interest rate to 4% and the property taxes to about 1.5%.

This spits out a monthly payment of $3,356. That is, if you were to buy this property for the list price of $638,888 and put 20% down, your monthly payments would be approximately $3,356. 

Yikes, that seems pretty steep!

But here’s where the beauty of house hacking comes in. If you live in one unit and rent out the other, your tenant would help you pay your mortgage. Let’s just see how much your tenant might be paying.

Step 3: Find Rental Comps

To find comparable rentals, hop over to Craigslist and search for rentals in that approximate area; in this case, we’re looking in east Oakland, south of Highland Hospital.

Here’s a 2-bedroom, 1-bathroom nearby listed for $2,395 per month.

Let’s say, to be safe, that you are able to rent your unit out for $2,200. 

$3,356 – $2,200 = $1,156

That means that you would be paying $1,156 per month to live in one of the 2-bedroom units, which is not bad for Oakland.

But wait, there’s more! Not only is your tenant helping to reduce your monthly payment, they’re also helping you to build equity in your home.

Every mortgage payment increases your equity in the house. And over time, though your mortgage stays the same (because for a traditional 30-year fixed mortgage, the payment does just that – it remains fixed), you can increase the rent, meaning your tenant will be paying more and more of your mortgage.

And if you were to move out and rent the other half for $2,200 as well, you’d be totalling $4,400 a month in rents.

$4,400 – $3,356 = $1,044

That means your property would have a positive monthly cashflow of over $1,000 a month, or $12,528 a year. That is, your tenants would not only be paying your mortgage, but you’d be making money every month. Not bad, right?

Now imagine that you purchase this property today, then house hack another multi-family property in a few years, and on and on. This is a GREAT way to get your start in real estate investing.

Step 4: Rinse and Repeat

So there you have it. A simple property analysis of a multi-family home in Oakland. Your homework? Go try another one for yourself. Then let’s meet up for coffee, talk real estate, and visit a few of these properties!

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