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Posted about 3 years ago

How Being A Good Person Landed Me An Awesome House Hack

The strongest theme that runs through my real estate investing success is that I am at my most profitable when I treat people well. This is my first investing story and the first example of getting a solid return on compassion. Note: This is not a blog post about the specific financial advantages of house hacking or what makes a property a good for house hacking. There are plenty of posts about these topics on Bigger Pockets. Now, let me paint the picture for you...

In the fall of 2013 my wife Leslie and I were newlyweds and I was obsessed with finding a multifamily for us to owner-occupy as our starter home. I hadn’t found Bigger Pockets yet or heard the term “house hacking” but I had recently read “Rich Dad, Poor Dad” and a handful of other books by Robert Kiyosaki and the Rich Dad Company. Leslie was working full time in the publishing industry. I had a 25-hour-a-week job as a professional youth minister, I wanted to contribute to our new family finances on a equal level to my wife, and I had done the math: owner-occupying a 3- or 4-family and managing the other units would do more for our finances than any other side hustle I could find.

Having dragged our agent, let’s call her Brooke, all over Cincinnati and having lost the first property we got under contract due to inspections, we were finally at a fourplex that had my wife giving me the “oh my gosh you mean I can have THIS?” look. She’s only given me that look twice in over seven years, and those are the two places we’ve called home since 2013. I’m glad the seller and the listing agent weren’t there to see how excited we were at the prospect of buying and living in this place!

The person who was there to take us through the apartments, let’s call him Sam, was the property manager and the nephew of the owner. Since all four units were occupied at the time, it was customary to have someone in Sam’s position take prospective buyers through occupied apartments. Having gotten “the look” from my wife while in the unit we’d eventually live in for five years, as we were getting ready to leave, I thanked Sam for taking us through and I asked him for his number. “If we end up buying this property,” I told him, “it seems like you’d be a great guy to help us take over management.” He thanked me for the compliment, gave me his number, and we headed home to get excited about writing an offer and to call Brooke to set up the paperwork.

Brooke recommended that we come in low because the comparable sales she found didn’t support the seller’s asking price and the property had been on the market much longer than most buildings like it. It was listed for $175,000 and while the seller had accepted an offer during the first two weeks it was for sale, that contract was released for undisclosed reasons and it had been on the market for over three more months without any other accepted contracts or any price reductions. I knew that the numbers worked if Leslie and I bought it at the asking price but I was more than happy to follow Brooke’s advice if it meant the deal would be even sweeter. We came in at $135,000. The seller countered at $174,000, just a thousand dollars below list price. We came up to $150,000 and the seller countered at $172,000. The listing agent told Brooke that the seller thought we must not really be interested because we came in so low, that the accepted contract had been another young couple like us without any investing experience and their contract hadn’t worked out, and that there had been plenty of buyers who wrote low offers that got the same response from the seller. To Brooke’s credit: this was 2013 so the comps really were low and writing lowball offers was usually a good strategy because real estate was still recovering from the Great Recession and a lot of people were selling their rental properties due to financial distress. Brooke wasn’t sure what to do next, so I did the one thing no other buyer had thought to do.

I called Sam and asked if I could take him out to lunch. We met at Panera, ordered “You Pick Twos,” and got a table where we could eat and chat about the property and the seller. We weren’t even two bites in before Sam started unloading on his uncle. Apparently this guy wasn’t treating Sam fairly or paying him well enough, at least according to Sam, and Sam was ready for his uncle to offload all of his rental properties so that Sam didn’t have to deal with him any more. He told me that the seller was a former GE engineer who had taken early retirement and moved to Florida because he’d built up a portfolio of rental properties that was making him more money than his job as an engineer did (#goals), and now he was selling his Cincinnati portfolio to build a portfolio down in Florida. Sam confirmed what the listing agent told Brooke about lowball offers and he said that the first young couple released their contract simply because they got cold feet. It would have been their first real estate purchase, just like us, and they backed out even though there were no major inspection or appraisal issues. No wonder the seller was wary of us!

Sam had finished his lunch and was moving towards getting up and leaving. “It’s a pride thing for him,” Sam explained. “It’s a great property and the cashflow is good, but he bought it real cheap in ‘08 and now he’ll only sell it if he can say that he doubled his money. He told me he won’t take a dime under $170,000.” I couldn’t keep the grin off my face as I thanked Sam again for taking the time to meet with me. I had hit the jackpot. Here I was, thinking that I had been negotiating against the seller’s bottom line; and now I knew to turn my attention to his ego.

I called Brooke before getting up from that table at Panera. I told her to rewrite the offer at $170,000 with the seller covering all of my wife’s and my closing costs, buying us a home warranty and anything else she could think to have him buy, lining up the perfect closing date, and making ready for us the apartment we wanted so that we could move right in as soon as we had closed. This would make the deal as sweet as possible for us while giving the seller the purchase price that would let him brag to his friends about how well he had done with his investing. He accepted all our new contract terms that same day.

The day after we closed on the purchase of that property, our first home together and our first real estate investment, Leslie made Sam a pan of brownies and we took it to him as an expression of our gratitude for letting me buy him lunch and listen to his stories about his uncle.

Fast forward seven years: we still own that 4-plex, the rents have almost doubled, the property value has more than doubled, and we’ve been able to use equity from that property to buy two others. The total value of the three properties today is over $1,000,000. In around 16 years we’ll have built enough equity in these properties that we can use it to put our 18-month-old daughter through college and hopefully put future children through college too. Over $1,000,000 in appreciating cash-flowing real estate was made possible because I thought to buy a property manager a “You Pick Two” and let him tell me his story. I don’t think I’ll ever be able to calculate our return on that $8 and that hour of my time.



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