First Deal Overview and Lessons Learned - House Hack

[Chris Montes]

Lessons Learned

Don’t be afraid to make mistakes 

In Outliers, Malcolm Gladwell talks about the 10,000 Hour Rule. The principle holds that 10,000 hours of "deliberate practice" are needed to become world-class in any field. Over the past year, I’ve spent countless hours listening to real estate pockets, reading real estate books/articles, and researching potential deals. Let’s call it 1,000 hours. That leaves me 9,000 hours away from being world-class... of course, mistakes will be made! In real estate and life in general, it’s important to remember that mistakes are opportunities to learn from. Having this mindset provides you with freedom and peace of mind throughout the chaos of your first investment. During this process, you will have to make difficult decisions without enough information, don’t let analysis paralysis hold you back! Einstein said it best, “A person who never made a mistake never tried anything new.”

Play to your advantages

The beautiful thing about real estate is… there are thousands of ways to be successful. High-risk tolerance? Consider flipping houses. Sitting on cash? Consider making a cash offer using the BRRR strategy. So, what is my advantage? Flexibility. Since I'm 26 and work from home full time I'm not confined to a specific city or particular quality of life. With only $20k in the bank account, I couldn't put down 20% for a conventional loan. Luckily, there are other options. If you're willing to live in one of your units for a year you can qualify for an FHA Loan. Using an FHA loan, I put down 3.5% and got an interest rate that was 1.5% lower than the 30-year conventional loan. In the BiggerPockets community, this is referred to as house hacking.

Property Details: 

Location: Long Island, New York 

Purchase Price: $330,000
Down payment: 3.5%
PITI: $2,450 (Includes PIM)
Invested Capital: $65,000
Appraised Value: $425,000

Rehab Overview:

• Main Floor: 
  • Living room and bedrooms: repainted walls, added base and crown molding, cleaned up framing around doors and windows
  • Floors: sanded and stained
    
• Basement (apartment):  
  • Demoed entire space
  • Added a kitchen, bathroom, washer/dryer room, and legal master bedroom (Egress Window)

Tenants Overview:

I found my tenants using FB marketplace. The first 24 hours I listed the property I got about 50 hits. I did my own vetting and narrowed it down to three potential tenants. The first family I showed the house to fill out the application on the spot. Following a credit check, background check and reference check I sent them the lease and they signed it the next day.

What’s next?

More deals! I've already started looking for my next investment. The plan is to use a HELOC against the first property and use that as a down payment for the next deal. More specifically, I'm looking for an out of state multifamily unit with cash on cash returns of >10% and a cap rate around 6%.