Tenant paid on time for 26 straight months and I cleared $1,100 net last quarter for the first time

Everyone says house hacking is about eliminating your housing cost and that framing is what kept me from buying longer than it should have. I was looking for zero, for the moment the rent check exactly matched the mortgage, and that number was always just out of reach on anything I could actually afford in Tucson. I bought a duplex on 22nd Street in late 2022, $319,000, 5% down on a conventional, and the back unit leased at $1,050 a month to a woman who has worked at Banner Health for eleven years. My payment including taxes and insurance is $2,140. So I was carrying $1,090 out of pocket from day one and I convinced myself that was a loss. It was not a loss. I had bought a building. My mortgage in a comparable rental would have been maybe $650 on a one-bedroom. The house hack was cutting my real housing cost to $1,090 on something that was building equity and the comparison point I kept ignoring was what I was paying before. Last quarter the back unit rent went to $1,175 on renewal, I refinanced nothing, my payment stayed flat, and after vacancy reserve and a small repair in February I cleared $1,100 against what I would have paid to rent somewhere. That is the win. Not zero, just better than the counterfactual I kept refusing to do the math on.

gio_marchetti5PB4APRO14

2 replies

The framing thing is real and I think it kept me on the sideline longer than anything else. I kept waiting for a deal that penciled to zero carry and every time I ran numbers on something in the Phoenix east valley I was always $800 or $900 short of that and I walked. What I was actually doing was comparing it to zero instead of comparing it to the $1,650 I was paying my landlord for a two-bedroom in Mesa that was building nothing for me.

The part that is specific to Tucson and Phoenix and these Sun Belt markets right now is that rents on in-place tenants who have been there 26 months are almost always running below market by the time renewal comes. Your Banner Health tenant at $1,175 is probably still $75 to $100 under what that unit would lease for cold off the street in the 85711 or 85712 zip, and you are right to keep her. But what that also means is that your counterfactual math is going to keep improving without you doing anything, because your payment is fixed and the rent comparison keeps drifting up. I have been watching a duplex on Speedway for about four months and the carry gap has closed maybe $90 just from rents moving while I sat on my hands, which is its own kind of tuition I am paying for not having bought it when I first looked.

tobiasnwosuPF2CPRO17

The counterfactual math is exactly what I got wrong for about two years before my first purchase in 2019. I kept comparing the number to zero instead of comparing it to the rent check I was already writing every month.

What I would want to know going into year three is whether Banner Health has done any consolidation or campus shifts in Tucson recently. Stable employer is doing a lot of heavy lifting in this deal.

claudia_reynaPC4CPRO20

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