Househacking Approach / Takeaways from 1st Fail

14 Replies

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

@Nicholas Johnson great advice for house hack.  It makes less sense to take advantage of your low down option and then sink the equivalent of 20% into repairs (unless you can get the money back).

What part of town?  That's a very low starting point for that many bedrooms

@Tim Swierczek for sure. With time and a greater base from which to invest, I would be open to pursuing deals like this in the future. Eventually I could do some BRRRR type of investments also - it would be possible to find a line of credit or borrow hard money but that affects credit and I'm not looking to borrow at high interest - pretty risky given my financial position.

@Bruce Runn My thoughts too. This one was in NE Minneapolis

I'll connect as I have a thought.

I think that is good advice for purchasing any property not just house hacking 

@Nicholas Johnson I know the one in NE that you speak of. We’ve been in it.

Totally agree. My house hack only needed siding, carpet and paint to get it live able.

@Nicholas Johnson Good intel on the house hacking efforts. I am helping a friend do this now. Maybe driving for dollars or some other way to drum up your own leads could get you the place you're looking for at a lower cost and with less competition. Another thing to try is to look on craigslist for duplexes for rent and look for the ads that seem to be written by more "mom and pop" outfits and send them a message asking if they are looking to sell the duplex or if they have any other properties for sale.  I think this is a great time of the year to buy also. Good luck out there.

@Kurt Pauley I appreciate the tips on finding off market deals - that’s an area I need to explore. There’s a duplex out there, just need to find it!

I guess all of these larger issues came to light after you went under contract and had the property inspected?  Sounds like you had a good inspector that spared you from some real headache and potential financial turmoil.  Thank you for sharing.  I haven't yet bought my first house hack but when I do, I'll definitely be considering what I can do myself and what would require specialized contractors.  HVAC, plumbing, framing, foundation work, etc., that's a red flag to me unless it comes at a GREAT price!

@Adam Rothweiler Yeah for the most part the issues came up after bringing it under contract. I knew there was going to be work needed. From the pictures online and from walking around the property the day the listing was posted, I found tattered siding and a roof style that was flat - which is a little bit of a red flag. Flat roof + Age = water damning potential. I've fixed flat roofs before that had moisture build up, but this roof had a hole in it. Yes, a hole... where squirrels can play. I think you're wise to consider the fundamentals of a property. And for the first house hack, yes you need to look at your cash on cash return but when you're doing a low money down financed deal, it behooves you to consider the cash that you need to put into it to make it liveable. Best of luck on your househack search Adam!

@Nicholas Johnson Thank you for the well wishes!  I do want to comment on the flat roof comment being a red flag.  Don't let that turn you off to opportunities.  There are some fairly inexpensive fixes to flat roofs.  First off, flat roofs are never supposed to be truly flat, which I'm sure you know.  Builders and contractors don't always execute this very well, but there are ways to create slope in order to achieve positive drainage.  One of them is EPS foam board, which is a rigid foam board that can be tapered to create slope (code in most areas require a roof to have a 1/4" : 12" slope).  The hole in the roof, yeah that is a problem haha I'll let you know I'm an exterior general contractor and if you have any questions about exterior components of a property I'd be more than glad to answer them to the best of my ability for you!

Driving for dollars is a super awesome way to land a house hack deal. That's exactly how my wife and I found our personal residence. BTW, motivated sellers are not always under a time restriction, which allows you as the house hacker to go after traditional financing. Driving 4 $$$ has much less competition as compared to other direct mail lists. On that note, you will find much less competition sending mail to multi-family properties! Stay consistent and you will find the right opportunity.

@Nicholas Johnson

You did a great job sharing the details but your battle isn't lost yet. If you go to your local REIA and network, you might be able to find someone interested in that, you just need to negotiate the price down a bit. It's fantastic practice negotiating with sellers and listening for their reasons to sell.

If you wholesale the deal for even $5k-10k profit (do-able if your numbers are correct) then you will build up your warchest to do DM to find moree deals for your first house hack.

Keep it up and don't quit, 225k with 50k in repairs with 300k ARV doesn't leave much profit for a flipper so if you can negotiate price down a little and assign or do a double close with an all-cash investor, you might make a little money.

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