Project 3 Done! House hacking with no (net) money down!
What a relief! Have you ever had your expectations exceeded? Well that just happened on my last project and I have an overwhelming sense of joy from it. I just completed a live in rehab which I intend to rent our later - and I did it with no (net) money down. Here are the numbers and how it all went down.
Project Totals
Purchase Price - $78,090
Acquisition Costs - $11,470 (Hand Money, Closing Check, Home Inspection, Appraisal)
Rehab Costs - $39,300 (Materials, Labor, Interest)
Holding Costs - $0 (More on this below)
After Repair Value - $148,000
Original Mortgage - $70,280
Equity - $77,280
Refinance Numbers
Cash Out Refi - $45,000
Home Equity Loan - $14,000
Bottom Line
Total Cash In - $50,770
Total Cash Out - $59,000
Net Out of Pocket - $-8,230
Going Forward
New Mortgage - $118,400 @4.25%, 30 year
Home Equity Loan - $14,000 @5%, 15 year (estimated, not complete yet)
Equity - $15,600
LTV - 90%
Rental Analysis (est.)
Gross Rental Income - $18,000 ($1,500/mo.)
Taxes - $1,500 (Annual)
Maintenance & Repairs - $1,800 (10% of gross rents, annual) Should be very low as this was a complete rehab.
Prop Mgmt - $1,800 (10% of gross rents, annual)
Vacancy - $900 (5% of gross rents, annual)
Insurance - $500 (Annual)
Utilities - $0 (SFH)
Lawn - $0 (No yard)
NOI - $11,500
Debt Service
Mortgage P&I - $6,989 ($582/mo.)
Home Equity Loan - $1,329 ($110/mo.)
Cash Flow - $3,182 (265/mo.)
CCR - Infinite
Self Managing
Cash Flow -$4,945 ($412/mo.)
CCR - Infinite
I purchased this property to owner occupy in May of '14 with cash that I saved up from my J.O.B. I really capitalized on my ability to owner occupy with a low down payment of 10% and the low interest rate that came with it. I bought the property off the MLS for what I felt was only a little bit less than FMV. This was by no means a screaming deal when I purchased it.
I spent a few weekends doing demo work myself (which I enjoy) and getting the design plans all together. I also did painting, hung cabinets, plumbing in the kitchen,and general b!t#h work. Other than that I hired out all of the other work, electrical, carpentry, plumbing, tiling, etc. I estimate that I did about 300 hrs of labor at $15 an hour because I am not particularly skilled in trades. I also work really slow. I can't help it - I'm an engineer - we do things slowly. I didn't total this into the calculations above because as a young investor, we need to work with the resources we have today, so that things we do in the future can become easier. That's what investing is all about.
I also didn't calculate holding costs into the deal because I was living in the property. I consider this "rent". No matter what, we need a place to live so I didn't factor these expenses into the calculations.
I financed the rest of the rehab with whatever resources I could get. I racked up $25k in 0% interest credit cards, I borrowed $5k from my Dad, I borrowed against my 401(k), I sacrificed eating out and cable TV, I did whatever I needed to get the project done. I made it happen and you can too!
The most stressful thing about this whole process was the dirt. Dirt on my clothes, dirt in my dishes, dirt in the shower, dirt on my makeshift furniture. Dirt EVERYWHERE. This is by far the most painful thing to deal with on a daily basis. Things got better as the project progressed, but please don't underestimate this if you plan on doing a live in rehab like I did.
That being said, here are the numbers again if I paid someone for my labor and if I didn't occupy the property during the rehab.
Project Totals
Purchase Price - $78,090
Acquisition Costs - $11,470 (Hand Money, Closing Check, Home Inspection, Appraisal)
Rehab Costs - $43,800 (Materials, Labor, Interest)
Holding Costs - $6,450 (Taxes, Insurance, Utilities, Mortgage Interest, 9 months)
After Repair Value - $148,000
Original Mortgage - $70,280
Equity - $77,280
Bottom Line
Total Cash In - $61,720
Total Cash Out - $59,000
Net Out of Pocket - $2,720
Future plans are to complete a similar project where I don't live in it. The biggest challenge will be larger upfront down payments, and smaller LTVs on the back end. It will be paramount to find a screaming good deal for this strategy to work in the future and I'm up for it. If I can rinse and repeat 8 more times I should have enough cash flow to quit my J.O.B. and focus on real estate full time. I hope this inspires you to possibly work a similar strategy!