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Deal Diaries: A Scary Single-Family Home… And the House-Hacked Fourplex That Saved the Day

BiggerPockets
6 min read
Deal Diaries: A Scary Single-Family Home… And the House-Hacked Fourplex That Saved the Day

BiggerPockets member Dion McNeeley started investing before he found BiggerPockets, making a few mistakes along the way. Here’s how he revamped his investing strategy once he started learning from the pros—and eventually became a pro himself.

Before I found BiggerPockets, I was living in a single-family house, tired of losing sources of income due to things I couldn’t control. The Marines downsized after Desert Storm, and the police department laid me off in 2008 due to the recession.

I already had a rental property before I dove into BiggerPockets’s wealth of knowledge. At the time, my brother had rentals—but I wasn’t sure I could handle being a landlord, working full time, and being a single dad with three kids.

My first deal was a struggle, and you can read about it below. But once I found BiggerPockets, everything changed. Rentals gave me control of my income: I started house hacking, adding units every few years. Now I have 11 units, cash flow a bit over $5,000 per month—and have no housing costs.

If I didn’t find BiggerPockets, I would still have to work. I do have a W-2—but only because I love what I do. Life is a lot more interesting now that work is optional.

I’m still hunting for the next deal and will keep adding houses just because it is too easy. There’s no reason to stop.

Below, I’ve outlined two deals: One before BiggerPockets, and one after. (With a bonus duplex deal in the middle.) Hopefully, these deals show the difference in a new person trying to do it on their own—and someone who has taken the time to learn the content that BiggerPockets puts out for free.

The single-family home—that almost turned disastrous

  • About the property: Single-family house on a lake, with access to a private boat launch, basketball courts, and tennis courts.
  • Mortgage: $1,088
  • Rent: $1,400… eventually

So I moved into an apartment and rented out the house. I had not found BiggerPockets yet—and I made every mistake I could think of. I rented to a friend. No lease, just a handshake. He was also a single parent, so I could relate to his struggles. When he started to pay rent late, I let it slide. Payment came later and later… then stopped completely.

When I went to the house to have a face-to-face conversation, I found out that he had rented the house out to someone else and was keeping the rent. He had also started some projects but did not finish. One project was to remove the banister on the stairs, another was to build half a wall. I had made no money and was losing money on the mortgage—and now there were repairs needed.

I tried to give up having rentals.

I tried to give the house away.

Unfortunately, it was 2011. The housing market was at the bottom. I owed more than the house was worth, so I couldn’t even give it away.

I tried.

I even found a person who wanted it—but she had bad credit. The lender she found told her if she made 12 payments they would offer financing. She moved in and was at least covering the cost of the mortgage. At 10 months, she lost one of her jobs and could no longer qualify. For another year we tried to get her to take over the loan, but we couldn’t work it out.

Once she decided she couldn’t buy the place, we set the rent at $1,400, and she became a tenant.

Later, I learned about Section 8 housing in a BiggerPockets episode—and found out they will pay $1,825 in rent for my house. Now, the house that had been so troublesome is now paid off and rented to a Section 8 tenant. I have had zero issues ever since.

The tenant is a single mother on disability with four kids. One of the kids has special needs. I am really happy that these kids get to grow up in a nice place in a good neighborhood.

The duplex that changed everything

  • Purchase price: $325,000
  • Loan: Five percent down conventional loan
  • Rent: $1,200 per side

I found BiggerPockets and learned about house hacking. I purchased a duplex, which I found for $325,000. I used a five percent down conventional owner-occupied loan and I moved into one side, renting out the other.

I had been paying $1,500 per month for the apartment, so this duplex lowered my housing costs from $1,500 down to $300—increasing my saving rate by $1,200 per month. My tenant in the house inherited a house and moved out. So far, she’s the only turnover I have had.

My property-search criteria

After listening to everything BiggerPockets put out—podcasts and books and more—I knew exactly what I wanted. Acquiring this place was actually pretty easy.

I was house hacking my duplex. The other side was rented out and covering all but $300 of my PITI. At the same time, I had three real estate agents set up auto searches for me. I gave each one the exact same criteria… and somehow, they still each found me totally different deals.

My criteria is very specific and has helped me have very little turnover and no late or missing payments. Here’s what I’m looking for:

  • Small multifamily, with side-by-side units—I don’t want tenants above or below each other. (This results in less noise complaints.)
  • Two or more bedrooms per unit.
  • A garage for each unit. More space for storage equals more stuff—so tenants are less likely to move.
  • Washer and dryer hookup in-unit. Tenants don’t like shared laundry or using laundromat.
  • More than 10 miles from my current properties, but within an hour’s drive.
  • Close to workplaces. I request that the property is near at least two of the following: A base, port, hospital, college, Boeing or Amazon terminal. This way there are several economic drivers and tenant sources.

With these criteria, I’m ready for anything: a prolonged government shutdown, pandemic, or stock market crash. Even COVID-19 had almost no effect on me—I had no missed or late payments. However, in April I did offer $200 off to all tenants, since people were nervous. More than half of my tenants said, “Thanks, but no thanks.” They declined and paid full price.

My “Rocinante” fourplex

  • About the property: Four side-by-side units—each with their own garage
  • Asking price: $595,000
  • Purchase price: $590,000
  • Down payment: 20 percent
  • Total cost of acquiring the property: $143,000, including closing costs and immediate repairs
  • Rent per unit: $1,300
  • PITI: $2,700

Before buying my Rocinante fourplex, I had one single-family house and three duplexes.

Here’s the story.

A fourplex popped up in one of my agent’s auto-searches. At first glance, it did not look like a good deal. The price was right, but the listing agent put in no details. There was one bad picture—and it showed a roof in need of replacement and decks in bad shape.

Luckily, I went to Google Earth and looked at the street view. There, I could see clearly that this was not your typical fourplex. Around my area, most fourplexes are just big squares with two units above the other two. One carport and one uncovered parking spot per unit. But this fourplex was all side-by-side units—with a garage for each unit.

The asking price was $595,000. Most fourplexes in my area go for $700,000 and up, so I made an offer at $600,000 with $50,000 earnest money—and my offer was accepted. The listing agent said there was another offer slightly more than mine, but the seller liked the amount of earnest money I put down. I feel it is safe to make larger earnest money amounts with an inspection and appraisal clause.

I had a professional inspection done. I took select pages from the inspection report and the paragraphs defining the issues and sent them to the listing agent, asking for $30,000 off. The seller countered at $10,000, and we agreed to $590,000. I would have been okay with $600,000, but it never hurts to ask.

I only had two issues come up during the purchase:

  • The roof. I had trouble getting insurance on a place that needed a new roof. I was able to get an expensive policy for one month, giving me time to get the roof fixed and then get a much better rate on insurance, which broke down to $815 per year.
  • The owner-occupied requirement. Two tenants were month-to-month and two were on longer leases. I understand that often a renter doesn’t have the money saved up to move and this can be stressful. I offered to help out by paying the deposit at the tenant’s new place. This worked out for both of us—it helped him and protected me. There was no way the tenant could take the money and then not move.

The cash flow

Here’s how my monthly income and expenses break down.

  • Repair fund: 10 percent
  • Vacancy allowance: Five percent
  • Trash, water, and electricity: Paid by tenants
  • Total monthly expenses: $3,480
  • Total monthly income: $5,200
  • Monthly cash flow: $1,720
  • Cash-on-cash return: 14.4 percent—$1,720 x 12 = $20,640, divided by my cost to acquire ($143,000)

This property hit my cash-on-cash return goal. I’m always aiming for 10 percent or better. And this doesn’t include possible appreciation or principal paydown—or the fact that due to write-offs, depreciation, 1031 exchanges, and a stepped-up tax plan, I will pay virtually nothing in taxes.

A lot of people talk about the debt snowball. Rentals create what I like to call the “income snowball.” Each new place adds to the cash flow, net worth and puts money to work. After buying and moving into the fourplex, I was able to then rent out the unit of the duplex I was living in. I was paying $300 per month, and now that place is cash flowing $800 per month.

I can’t thank everyone involved with BiggerPockets enough for the knowledge they share. I am still learning, but love to share what I have figured out so far.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.