Small multi-family (2-4 units) buy & hold investment.
Purchase price: $270,000
Cash invested: $22,100
First investment property. Purchased SFH with "accessory dwelling unit" - but it was really set up as two units. I "house-hacked" for several years, living out of one unit, renting other. Initial rents for each unit was $750 and $850. Put on a new roof, added fence, added W/D to other unit, painted, and added laminate floors.
After I moved out, I now have tenants in each unit, each renting for $1495 and $1420. (utilities included in rent). I'm managing myself for now, but talking to property manager now after going through eviction :)
Gross Income: 2915
Expenses : 477 (Elec, Water, Waste, TV, Internet)
Cash Flow: 1051
What I have not been accounting for is repairs or cap ex. I'll be getting into those details on my future deals.
- Tenants do not limit electricity usage. Utilities included price needs to include a buffer for high usage.
- Select tenants wisely. I went against all the guidance and alarm bells to get a tenant in quickly - low credit score and $3k in collections. Now I'm working on evicting for failure to pay. No surprise there.
- Carpet for 2nd floor units is best for minimizing sound for lower unit tenants. Yes laminate seems nice, but many complaints from those below.
What made you interested in investing in this type of deal?
I was attracted to the "owner occupied" aspect of property. Additional "opportunities" of the property include 1.99 acres in R-2 zone. I had an engineering firm draw up plans for another 4 potential lots on the land, which may be a good exit strategy.
How did you find this deal and how did you negotiate it?
Zillow. I randomly hit up the listing agent and was referred to another agent. I've been working with this agent since to also purchase my primary home in the area.
It was on the MLS over 200 days, and I asked for 10% off the list price, had seller pay for around $13k in repairs, and seller paid about $10k of my closing fees. They were motivated to sell. He was an older gentlemen selling off property. I should go back to to him now and see if he's got any other properties for sale!
How did you finance this deal?
VA Loan. I was active-duty Navy at the time. I did put around 10% down.
How did you add value to the deal?
Cosmetic paint. Added fence. New roof. Added W/D to one unit. Added dog run in back. Laminate floors. Painted cabinets. A few new appliances.
What was the outcome?
2 unit multi-family. Took rents from $750/850 to $1420 and $1495. Great cashflow!
Lessons learned? Challenges?
The VA loan forced me to remove the 2nd meter, and replace with a single. This is a HUGE mistake. The biggest pain is the "utilities included"; however, I'm somewhat stuck at this point unless I want to go back to the county and replace the panels. We have window A/C's, and they suck down power. Also, electric baseboards... This cost is still transferred to tenants through rent price, but if they were to set A/C's to 60 degrees and leave them going all day, there is little I can do.
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
Agent: Laura Merson in Severn, Maryland -> she is awesome and is an investor herself. Has a keen eye for "opportunities" and very patient on the hunt.
That sounds like an AWESOME House Hack to Rental investment. Congrats!
As for the 2nd meter issue, would you be able to refi out of the VA to a different style of loan? If it was possible, I wonder if it would be worth it to try.
Great info!!! I plan to house-hack myself on first RE property. These lessons learned are very helpful in hope of avoiding mistakes that you wouldn't have thought of.
@Michael Stults Very good point - but now that I'm through the VA inspection/appraisal, no longer worried about those rules. I *could* add another meter; however, its several thousand bucks, several permits, and a curious county asking why on earth would I want another meter on a SFH :)
@Mart B. Best of luck to you with your first property, I think house-hacking is the easiest way in, and makes the most sense due to good financing options for owner-occupied. Hit me up if you have any questions, maybe I've run into other issues you come across. Thanks!
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