Investment Info:

Buy & hold investment in a west-side of Cleveland, OH suburb (initially a house-hack). This property is a duplex with one 2 bedroom/1 bath unit, and one 3 bedroom/1 bath unit. 

Purchase price: $191,000
Total Cash invested: $24,000
Total Monthly Payments: $1,155 (In year 6 when PMI drops off, it will be $1,084)

I graduated college in May 2020, and I purchased this house with intention of house-hacking for one year to live free in a desirable location. I planned to move out after living in the property for a year, and rent out both units with the intention of cash flowing. My goal is to accumulate more residential properties before scaling into larger multi-family. 

What made you interested in investing in this type of deal?

I intend to start a real estate company, acquiring residential properties prior to scaling into commercial. I also wanted to take advantage of the lower down payment requirement on residential loans for small-multi families (2-4 units) 

How did you finance this deal?

I financed this deal using a conventional mortgage with a 2.675% interest rate, and 10% down payment.

How did you add value to the deal?

I updated the property (DIY + Family/Friends) by removing existing wallpaper, painting over the previous green colored walls with a light grey color, painted the trim white, replaced kitchen cabinet handles, and purchased stainless steel appliances. I rented the upstairs unit (2 bed unit) to a painter and his wife, and he painted the upstairs unit light grey as well (for free and bought the paint!). 

What was the outcome?

I listed the units for rent, and received 7-12 applications for each unit after having one weekend of showings per unit (more applications for the 3 bedroom unit). I was able to rent the 3 bedroom unit for $1,225 which covered my monthly mortgage payments by ~$70, and allowed me to live in the top unit for free essentially. However, my job relocated me to a different state, so I rented the 2 bedroom unit for $875. My monthly profit (before reserves, capEx, vacancy, etc) is $945. I exceeded the 1% rule, but fell pretty short of the 2% rule sadly. 

Lessons learned? Challenges?

A lesson that I learned is you obviously pay a premium for MLS properties. I have to get creative, so I do not continue to pay a premium for properties. I did not have the confidence to take on a large rehab at the time, but now understand thats where the money is! I definitely have learned from this mistake, and am willing to put in the work/take the calculated risk of buying a property that needs more work now that I have larger reserves saved! I am actively searching for a single-family, or small-multi family in the Cleveland, OH area for my next investment property.

Tyler Scruggs, (Newbie) Investor!