Hit a Goal I Set 3 Years Ago!
So I found BiggerPockets in around November 2016 and listened to every single podcast in a matter of months. I just dove right in but at the time, I had just found out that I would be going back to grad school as a full-time student from August 2017 to October 2019. At the time I started listening to BiggerPockets and absorbing all of their content I made a goal of having a property to househack under contract by the end of 2019, the year I graduated. As I got further along towards that time frame I kept on going to meetups, absorbing content and books(61 books/audiobooks in 2019 not including school work) and made the goal of also closing on that property within 3 months of graduation. With that being said, although I'm a bit delayed on this post, I'm proud to say that after having a half dozen or so offers declined and a lot of patience from my awesome agent @Justin Brown, I finally got an offer accepted on a triplex just outside of Allentown, PA in December of 2019 and closed on January 14th 2020...exactly 3 months to the day of when I graduated. Goes to show that speaking things into existence really is powerful is you have your goals set and the processes in place to make them happen.
So now for details on the deal. Its an old stone farmhouse built in 1854 in a great school district that was converted into 3 apartments years ago. Great bones, but as you can see in pictures a bit outdated. Rents were low and it was fully occupied with leases until May 2020 when it hit the market so very few people were interested at an initial asking price of 425k. They kept on dropping the price and it eventually got down to 319k. There weren't any pictures of the inside on the MLS, but with it being a multi-family and in my area, my agent and I decided to go take a look. It seemed like due to the high purchase price and low rents of $800, $800 and $650, not many people were interested. We realized when we viewed the property was that one tenant had actually moved out, leaving the perfect opportunity for me to owner occupy the 1BR apartment and continue to rent the rest. What many newbies don't realize is that closing costs on a purchase can make or break your initial cash on cash return so if one can eliminate that, all the better. A tip I learned by working with a great lender @John Capehart was that conventional loans only allow the buyer to get 3% in seller assist for closing costs whereas FHA loans allow for 6% of the purchase price to be covered by the seller for the buyers closing costs(usually about 5% of the purchase price in my area). After a bunch of back and forth, the seller was firm on wanting to net 300k and we settled on a purchase price of 314k, with 14k in sellers assist which covered all closing costs. Units were in good shape, just a bit dated. I started getting the rehab done on my unit with paint, flooring, new recessed lighting and new carpet on the spiral stairs done so far. Still need to paint doors, cabinets, stairs, replace a vanity and toilet etc. I also will be turning my 1 bedroom apartment into a 2 bedroom apartment by putting up a wall on an 8x10 section off the living room with a sliding barn door. In the unit next door, one of the tenants was already practically living with her boyfriend and was willing to break the lease early, paid for all of March and actually moved out in early March giving me the chance to do some minor upgrades, have showings right away and get it rented to limit vacancy. I had planned on putting in about 5k in rehab and hoping to get $1100 in rent but I decided to beta test my market by putting up a posting for the unit at $1095 with additional pet rent hoping that the pet deposit and rent might pay for the new flooring once I get rid of the outdated carpet(which is still in great shape). I ended up getting a ton of demand and found what looks like will be a great tenant at $1095 + $25 a month pet rent for her one cat with only some paint touch-ups, some new recessed lights, and a new sink. The tenants in the 2BR/2Ba unit asked if I was planning to raise rents and when I said yes, they said they would look for a new place and ended up finding a place to break their lease early too. GREAT! Their unit will be hitting the market soon and should get $1300 a month. Details and pictures below.
Purchase Price - 314k with 14k in sellers assist towards closing cost
Down Payment - 3.5% down ~ 11k
Loan details - FHA 3.55% interest rate over 30 years
Monthly PITI - $2059
Unit Details
Unit A - 1 Bedroom, 1.5 bath with washer/dryer. $650 at closing, leased at $1120 a month($1200+ after cosmetic rehab following next tenant turnover)
Unit B - 1 Bedroom, 1.5 bath with washer/dryer Previously rented at $800, vacant at closing and currently occupied by yours truly. With about 5k in updating, more some sweat equity and adding the second bedroom(to possibly airbnb when not home), should rent for $1250 when I move out at the end of the year.
Unit C - 2 bed, 2 bath with washer/dryer. Rented at $800 at closing. Tenants moving out soon and going to list at $1300(plus pet rent) essentially as is which already has interest from people that viewed Unit A. Could get more if updated and has the potential to be subdivided one day into 2 separate 1BR apartments because it's huge.
Gross Monthly Rents
At closing - $1450
After stabilization - $2420
After I move out - ~$3700
ARV - ~400k. Very few comps with how old the house is. Its 3240 sq ft and bought at $96.91 per foot and there's a recent also outdated multifamily comp that sold for $113 a foot. Almost everything else in the area is new construction selling for a minimum of $130 a foot and up. Likely wouldn't look to recapture equity until all units are rehabbed. I'm looking to rent the other units as is right now just because of the time commitment of a rehab, the fact that there is still plenty of useful life left in the outdated fixtures and I think my time and cash would be better served finding the next deal considering this one will cash flow/pay my PITI as is.
And here are so pics of the property with a couple before and afters. Still plenty of work to do but looking forward to it!
