Posted 24 days ago

How to Live for Free (And Then Some)

How To Live for Free (And Then Some)


How to House Hack a Four Family on an FHA 203k

Hey BP,

Not that I’ve done anything truly unique here, but to be honest, I’ve actually only heard of a few people pulling this move off (as you might discover when you start asking lenders about it). Coach Carson would be one, and perhaps some of his interviewees, but while everyone knows about the 203k rehab loan in theory, almost no one is ever willing to pull the trigger on it (I know this is true from my experience as an agent - everyone talks).

It’s now been almost 18 months since I actually closed on this thing, but I still wanted to share it with BP that it might help a person or two trying to get started and I’m happy to answer any questions because I’m sure I’ve forgotten a thing or two since.

DISCLAIMER: I'm long winded with the pen, so skip to relevant sections if you don't want to read the full post ;)

So I bought this property in June of 2017 for $188,800 (there was an $8,800 credit to me at closing to cover up-front PMI and other pre-paids). FYI, a 6% CCC (closing cost credit) is acceptable for FHA loans, normally only 3% on conventional.

It’s a four family property, with 2, 2 Bd Apts and 2, 1 Bd Apts, and about 3,050 Sq. Ft. in all.

18 months later I still have two of the tenants that came with the place. They’re solid enough: one pays on the first of every month and one pays late, but always with a late fee (so I can’t say I’m unhappy about it).

The other two units actually opened up while I was buying the place. In fact, I helped the former owner serve the upper tenant (who, it turns out, was running a dog rescue out of her apartment and not paying rent), and then the lower rear tenants split up and their lease ended just a few days after I closed on the place.

That was okay for me though. After the eviction was finalized I got to work on that upper front unit (which was the worst of the bunch, without question), and I lived in the lower rear. The lower unit needed some clean up (paint, flooring, etc.) but not as much to begin with.

I decided to use most of my nicer stuff to furnish that lower rear 1 bedroom unit to put on Airbnb. It was a gamble, but one I’m happy I took. Now I’m considering doing this with another unit. I’ll show a few numbers further down.

Because of my tendency to be long winded,  I’m going to break the deal down by components to keep it simple.


I found this deal using tried and true old school methods. To be honest, the neighborhood I was after I had sent a few hundred mailers, written some offers on the MLS (I got outbid, as usual), and made plenty of phone calls. I was having no success and was really down on my luck.

But, one day I was walking my dog up the street (because I was formerly renting in this neighborhood) and this property stood out to me almost as if it was calling me. Never had noticed it much before, but that day I said “I want to buy that place.”

So I made a mental note of the address, went home and searched the tax records for the owner. It was held in an LLC so I searched that on the Department of Financial Institutions website and found the owners name. I googled him and I had a number. I called and asked, “My name is Josh Martin and I live up the street, and I was just wondering if you’d be interested in selling your property?”

After a pause, “Well, yes,” he said. And we arranged to meet at the property two days later, and I put it under contract.


To be honest, I was a pretty lousy negotiator on this deal, for a few reasons.

  1. 1. His asking price was tax assessed value. Nothing in my market sells for tax assessed value and it’s generally somewhere between 40-60k under retail. So I was happy to hear this.
  2. 2. I was desperate for a deal, and even if it wasn’t the home run I was looking for, it meant getting in the game instead of on the sidelines, and it was at least a single or more likely a solid double.
  3. 3. I had an ARV of 225k (it appraised at 235k) so I knew there would be some equity, at least enough to get started.
  4. 4. There are virtually no four unit properties available in my market, so I had to take what I could get.


Like a lot of newer investors, I didn’t (and still don’t) have a lot of cash. So what I did was borrow 10k from my aunt on a 1 year term just a few months before I found this property, believing I could somehow leverage that into a property.

That 10k, with the $8,800 credit from the seller, gave me the down payment and escrow reserves needed to close on the place.

But, because the property did not pass our initial FHA inspection (I was pre-emptive about this and had a HUD consultant come out instead of waiting for the appraisal - I would’ve lost a lot of time had I just stood around waiting), I had to move the property into the 203k loan. I had to shop through a few different lenders and a few different HUD consultants because while everyone knows about this loan few have the skill set and experience with it to close them. Some lenders I talked to simply didn’t want to deal with it because “they never close.” Well, let this be a first I thought ;)

In all, the 203k is an expensive loan product and carries a higher interest rate. Seemed to me everyone wanted $700. $700 for contractor verification, $700 for HUD consultant, $700 for processing, etcetera. I don’t have the closing statement in front of me but I’d be happy to share with anyone who wants the actual numbers. Just be mindful that your closing costs are likely to be closer to 5k rather than 2k on this loan.

And we did close it in 60 days, with much credit to me for hassling every involved party to get this thing moving. With security deposit transfers and seller credits, I believe I actually brought less than 5k to closing. It was a 30 yr fixed rate loan at 4.75% (about a point and a half higher than the traditional FHA - this was June of ‘17).

The scope of work on the project after transitioning to the 203k was $28,500. That was twenty odd windows, two new furnaces, miscellaneous electrical work, and a fence out back. That made my total loan amount about $215,000.

The next section details what I did and what the GC did, with a few take away lessons.


General Contractors work for a certain type, and was even required on this project given the scope of work, but keep in mind they’re expensive and will step on everything 10-20%. I overpaid for several items, as I’m now aware.

For example, my GC was himself an HVAC guy. He installed two furnaces at almost 4k a piece. Ouch! I’d pay closer to $1,800 today but at the time didn’t know any better and also didn’t have the freedom to sub it out myself.

But, I limited what the GC would be doing on the project to the minimum and had previously discussed me doing work and using the repair escrow for materials. He worked with me on this so I put everything on a home depot card and then paid it off when he reimbursed me.

I didn’t start this project with much in the way of remodeling experience, but after this project I’m pretty sure I could tear anything apart and put it back together. I swear to god, you could learn open heart surgery on youtube.

After the repair portion of the loan closed out and there was no more oversight, I really got to work on things. (Honestly, I wanted to pull permits but the city doesn’t let you on multi family property even when it’s owner occupied, so I just had to use a Master Plumber as a consultant and roll with it).

Here’s a few before pics of my first bathroom remodel (who the hell installs a toilet like that?!) 

Uw3 K G51cvxny L5ilv J Pd I8w Um2 Tp2 I Iw Gz Gt C5 Sgc Hk Q0 Fcg Vp Fqg Qu G0zobu E Kfig Htv X Mm I Qh Cq3 B3x Ymst Pb R1 Fn Nv Y0jrek Ne Nb Nc Q5 Ru Ed C0i Vi8 B8u Taerqu Fz Nz SpCswj G73koe Ljk4t3g Iu O2i5 Crg Cv Yg1 Mg7 No 7e Nvae0ztd Ce L Roa M2x Pn3ug Fl Mb Beg X Tpn6 R Iwrf Ok43 To Pk7 Ls1 E2 G3z2s Dc Snhz Qlx Ucw La7vtdm Rxi C3 Cp Nx G Xg Mg

And one of me in a state of total overwhelm after tearing out the bathroom, lol.

But alas! After a few weeks of late nights watching youtube, many hours of trial and error, and rather stupid refusal to hire anything out, I finished it:

There was a lot more work I did too, but I don't want to overwhelm with pictures and details. The biggest project, in March of 2018, after dealing with several plumbing leaks from the time I closed on the place, was that I remodeled the lower rear bathroom and replaced ALL of the plumbing in the house. Again, youtube is a godsend. Here's one of that bathroom (now my Airbnb):

E N4i Cv0m Pb W Cgr B2 Fu Sdyqh2 F Dc Yh Di Hrl Xp2b1h3k5 Af Ywq Nzv Kt Lhs Bz5k4r1 F O Oys Ps2 Ul5 In 6 Jvb Jgnd Lmr R Fj9 831mml0rp K9p66 Wlq3oh8c Nz Ay Dos5e L6q Em5 YT Obm Z Tmjok Hg H G Ig Azunce0 Fddq F5 Ak3 Vj Xt Ak1v Zs66 Z2ho1s Hl V Bg919w F595 Gyk Qv Gs4v Pn Vo Pgf Uu9 Qqbokr Cf K0 No5 E Fo L 12 Fz5td A3 Lb Fj  U8b V Bv Ti Kpi Mo66s Bn

DIY Takeaways:

1. You can save massive amounts of money by doing work yourself. The lower bathroom and plumbing project cost me less than 4k. If I had hired this out, I bet I'd be looking closer to 17,5k.

2. Don't be scared. If you have a can do attitude and basic problem solving abilities you can figure these things out. As a kid because I didn't tinker with motors and things my folks said I wasn't 'mechanically inclined' - whatever that means. But that's nonsense, and it turns out I actually like doing this stuff.

3. It does take time. That upper bath took me 5 weeks. The lower 2.5. If you're working full time be prepared for projects to take a while, so you should factor in the cost of hiring out vs. your time invested. For me, I saved 5k a week doing some of this work, so I was happy to trade the time.

4. It's not scalable, really. As an investment strategy I'm happy to continue moving and fixing places up (again, I like it) but you can only spread yourself so thin. Do your best to build your numbers around hiring it out, then if you do work you just save money.

5. It's not necessary. If you buy with the right margins and have an accurate scope of work, then the lack of ability to do these things should not bar you from getting in the game. On this one though, because it was a thinner deal, I would've paid too much to hire all this out, so I had to learn.


  I used to be obsessed with doing pro formas for potential purchases, and I still do them, but I realize that actual performance can vary quite a bit from a pro forma, especially when you introduce something like Airbnb into the mix.

  But, for the sake of argument let's look at what the numbers will be when I move on to the next project:

GSI: $3,175 (2 2 Beds at $825, 2 1 Beds at $725, 3 parking spots at $25)

Vac @ 5% $150 (I'm so proactive I don't plan to deal with much vacancy).

GOI: $3,025

Taxes: $420

Utilities (Water and Sewer): $150

Maintenance (@10%): $300

Management (@10%): $300

Insurance: $100

NOI: $1,755

Current Mortgage (Principal and Interest): $1,020

Cash Flow: $735

Bear in mind this is a pro forma, results vary. Now let's look at how it's performed with me living on site:

With Airbnb on the one unit I'm averaging about $1,300 a month. I have the one bed rented at $650 w/ parking, and the two bed at $775 w/ parking. I also have my spare room in my apartment rented to a friend for $450.

So, I live here, self manage, do repairs, and my gross rents, averaged, are about $3,200.

Minus the mortgage (PITI) gives me $1,437. I pay utilities on two units (because of the Airbnb) and that's about $300 a month averaged out.

So I'm living here, not paying rent, building equity, adding value, sitting on about 25k in equity, and making around $1,000 a month depending on expenses :)

And that's how you live for free and then some. I'm not sure why anyone would do anything different ;)


Thanks for reading if you made it this far! And ask any questions in the comments you might have!

And I didn't want to dive too far into either my Airbnb, agent, or wholesaling experience, but I'll write what are hopefully helpful posts about those topics in the near future!

Currently I own and operate an investment and wholesaling company that we're fighting to grow. Hopefully my next posts will chronicle some more deals.

So I'm looking for my next project and actually might have just found it. This time a vacant tax foreclosed four family! That would be a real test, and I wouldn't even be considering it if I hadn't done this one and the one after.

Thanks BP! Love you guys and would've never got started without you!

Comments (5)

  1. @Joshua Martin That wasn't as long winded as you think. I was toward the end before I knew it. Great informative story. I hope to do something similar in the future as I scale up.

  2. This is a great post. I was a landlord for 11 years but got out of the game for a bunch of reasons that don't seem to make much sense anymore. I'm very interested in getting a 4-plex. I really respect your hustle in hunting this bargain down.

  3. Great post man! Really inspiring to hear your journey, especially since I'm not "mechanically inclined" but too stubborn to accept that. Best of luck to you!

  4. Thanks Tyler! I appreciate it!

  5. Thanks, this was an awesome write up!