OK, so you have done away with your \u201cfeelings\u201d of finding a beautiful property. You run the numbers and all of these catastrophic scenarios run through your head: What if I can\u2019t find renters? What if the furnace breaks? What if the roof falls off?<\/em> The list goes on.<\/p>\n There are countless scenarios of what could<\/em> go wrong. Just ask Chicken Little. However, those crazy scenarios are the exception, not the rule.<\/p>\n To those of you who may feel uncomfortable making that first offer on a house hack, this is article is for you. I’ll describe the seven steps I went through in closing my first house hack\u2014and you’ll learn just how easy it was.<\/p>\n The first step is to build a team. As things come up (i.e., repairs, tax planning, litigation, etc.), your team will grow. However, there are only two teammates that are absolutely crucial to your first purchase: your lender and your agent.<\/p>\n Once I knew I was moving to Denver, the first thing I did was reach out to the BiggerPockets community<\/a> and ask for lender recommendations. I then went through the process of getting prequalified with four to five different lenders ranging from big banks to local credit unions. By getting prequalified, I developed an understanding of what I could afford.<\/p>\n Once prequalified, it was time to find an agent<\/a> to help with the property search and closing. Again, I reached out to the BiggerPockets community in Denver and met with six to seven different agents. Though it was not easy to decide, I ultimately went with someone who was good with numbers and did not try to sell me with any emotional talk of purchasing my first place.<\/p>\n The search is on.<\/p>\n Living in Denver, Colo., one of the hottest real estate markets in the country, you get a lot of naysayers saying that cash-flowing properties are impossible to find. Maybe it\u2019s impossible for them, but it was relatively easy for me.<\/p>\n My agent gave me access to the MLS portal, where I would receive automatic email alerts each time a Denver metro property within my price range hit the market or decreased in price. After a month of running the numbers and declining various properties, I found one that might<\/em> work.<\/p>\n The property was a completely renovated duplex. Made up of two 1-bedroom, 1-bathroom apartments, this property had been on the market for two months (an eternity in Denver), with the price recently reduced to $400K. The property was located in an up and coming part of Denver, about 1.5 miles from where I work\u2014an easy commute by bike or foot.<\/p>\n I asked property owners in the area what they were getting for rents. One of them told me what they were renting their 1-bedroom apartment for, and I knew I could get a little bit more, given mine was brand new.<\/p>\n With the assumed rent, I ran the numbers using the BiggerPockets calculators<\/a> to see where my rents would need to be in order to cash flow (or live for free). The numbers did not work. I would be losing ~$750 per month. While this is cheap \u201crent\u201d (in quotes because I would be paying myself) and I\u2019d be benefitting from the loan paydown, it was not good enough.<\/p>\n What did I do? I decided it was impossible to find a property in Denver. So I continued watching reruns of Desperate Housewives<\/em>.<\/p>\n Just kidding. I asked myself, \u201cHow can I make this property work?\u201d<\/p>\n Given the location and the new build, I knew it would be possible to rent this on Airbnb. After doing some research, I determined that I would be able to make ~$1,000 per month by renting out my bedroom while making a pseudo-bedroom in the living room where I could sleep.<\/a>\u00a0With an extra ~$1,000 per month, I would be cash flowing $250 per month on a duplex that is walking distance from the office.<\/p>\n That works for me.<\/p>\n After talking it over with my agent, we decided to put an offer in. My first offer\u2026 Eeeek.<\/p>\n We ran the numbers again and determined a price point of $360K. While not a complete lowball, this gave us enough wiggle room for the negotiation.<\/p>\n [Side note: I know many people say, \u201cIf you\u2019re not embarrassed by your offer, it\u2019s too high.\u201d In many smaller or buyer’s markets, I agree. However, in a booming seller\u2019s market like Denver, there are multiple buyers lined up at almost every property, so a lowball could easily be ignored by the seller.]<\/p>\n Over the next few days, we negotiated back and forth and ultimately settled at $385K selling price. Once the negotiation was settled and the offer was accepted, I sent over the earnest money.<\/p>\n Immediately upon acceptance, I let my lender know that I had a property under contract, so they could start their diligence and meet the required timelines.<\/p>\n We got the inspection (including a sewer scope) done with only minor tweaks to the property required including the installation of a railing, grounding electrical wires, and making sure all of the doors fit properly. The seller fixed them without a problem.<\/p>\n The lender hired an appraiser, and the property came back at $390K. Given the sale price of $385k, that means I built $5,000 of equity immediately upon closing (woohoo!).<\/p>\n It took the lender two to three weeks to underwrite the loan.<\/p>\n On June 17, 2017 (one month after offer acceptance), we were ready to close. I brought a cashier\u2019s check to the closing and sat down with the seller, my agent, and the title company. We reviewed and signed all of the documentation. After an hour and a few hand cramps, I was officially a property owner.<\/p>\n Pre-showing<\/strong><\/em><\/p>\n In many (if not all) states, it is illegal to have a lease signed before the property is closed and in your possession. However, I found that there was nothing stopping me from advertising and showing the place during the closing process. This is exactly what I did and what I recommend you do to reduce the initial vacancy.<\/p>\n Once the property was under contract, I created a rental listing using Zillow Rental Manager. This service creates one listing and uploads it in a nice format to Hotpads, Trulia, and Craiglist.<\/p>\n Once the inquiries started to come in, I scheduled a brief, 10-minute phone call to gauge the credibility of the potential tenants. I did not want to waste time showing the property to unqualified tenants. In the call, I asked the following questions:<\/p>\n If they answered these questions to my liking, we would set up a time for a showing.<\/p>\n Showing<\/em><\/strong><\/p>\n Because the place was brand new and already in \u201cshow condition,\u201d there was not much for me to do. I immediately began to show the property. The apartment is pretty small, so the showings typically would not last longer than 10 minutes. I would meet the potential tenants at the property, talk with them for a few minutes, and then give them the tour.<\/p>\n After I showed them around, I would go outside and let them explore the apartment by themselves. That way, they could talk amongst themselves comfortably without me butting in.<\/p>\n7 Steps I Took to Land My First House Hack (& Rent It Out) With Ease<\/h2>\n
Step #1: Build a team.<\/h3>\n
Step #2: Find the property.<\/h3>\n
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\nRelated:<\/strong> Why I\u2019m Not House Hacking (& the Strategy That Will Cover More of My Rent)<\/a><\/em><\/p>\nStep #3: Analyze the property.<\/h3>\n
Step #4: Make the offer.<\/h3>\n
Step #5: Perform due diligence and close on the property.<\/h3>\n
Step #6: Find tenants.<\/h3>\n
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