Househacking Approach / Takeaways from 1st Fail
We recently put in an offer on a duplex that eventually fell through for several reasons. Wanted to share some takeaways in the hopes that it might help someone else.
The property and our offer:
We put in an offer on a duplex that was below market value -- asking price was 225k, market price in the area would be close to 300k for something similar, in decent shape. I jumped all over it - it has 3 bedrooms on the top floor and 3 bedrooms on the lower floor, and looked like a lucrative house hack if the condition of the home panned out.
From looking at photos, and visiting the property, I could tell it would definitely need work: new siding, some roofing work, interior touch-ups, etc. I figured the biggest expense would be siding and I've got an investor willing to come up with cash (thanks dad) for some initial rehab work. We offered 235k and asked seller to pay closing costs, and they accepted our offer, contingent on inspection.
Results:
The property was in rougher shape than I imagined and had some major blemishes that would cost quite a bit of time and money. There was a hole in the roof letting water in, and a heating unit in the top that doesn't currently work, which is a big deal in Minneapolis this time of year. Water damage, unfinished flooring, potential plumbing issues, and foundation movement, as well as aged siding. I figured we'd still be looking at about 25 - 50k after purchasing it, and we don't have cash to throw into a property for that kind of rehab. It will make a great investment for someone willing to invest the money - just not a fit for us right now.
Takeaways:
For our first house hack, we've got two ways to go: 1) purchase turn-key. or 2) purchase a fixer-upper with strong fundamentals (i.e. the carpets are stained, and the place stinks, but the roof is in good shape). I will be looking for more of a turn-key investment for our next one. If we do find one that we can put some elbow grease into, I'll be up for it as long as there aren't big fundamental issues that would take a lot of upfront cash.
If I could offer any advice, I would encourage new house-hackers to look for investments with a small upfront capital outlay - remember the point of doing a house-hack is to offset your rent or mortage expense with rental income and potentially earn some additional income. Too much upfront work can kill your cash on hand and affect your ability to swiftly move on to property #2.
Best of luck out there house hackers! Happy to hear your ideas and strategies.
Nick