How I Made $463,400 Off of my First Househack

I was able to turn roughly $6000 into $463,400 in 5 years. 

How? Househacking!

I bought my first duplex for a little over $6000 down. I had to liquidate my IRA to even get the $6000. I had very little money saved, a thriving small business and a desire to build wealth.

This led me to househacking. I bought a duplex for $183,000 and my Realtor the seller to pay for all of my closing costs and fix a few things to pass the FHA inspection. I then borrowed $3000 to replace the carpet and paint the unit that I was going to move into because it was pretty rough.

I rented out the upper unit, rented out a room in my unit and turned the porch into an Airbnb room. We had awesome cool guests from all over the world and I was able to make around $500 a month to live there.

With the savings from not paying rent and my extra $500 a month I had a good thing going. I also got very aggressive about saving and saved over 70% of my income. 6 months later I had saved roughly $45,000!

I went looking to get into a bigger building but couldn't afford anything in MSP so I called my father who was a Realtor in Louisville and got him to start sending me some buildings. We were able to find a small 6 unit building for $350k. Only problem was I didn't have 20% down or anything else the bank wanted. He was able to get the seller to seller finance the place at 15% down. I filled out a lease application as a loan app, it felt surreal. A month later I was the proud owner of an apartment building.

About a year and a half later another 6 unit on the same street popped up. Of course I was interested so I had my Realtor (father) look into it. Turned out this guy had 2 buildings on the same street. We asked him if he would sell both as a package and he said yes!

I quickly realized I needed to sell my first duplex to get the funds. As I was now a licensed Realtor in MN this was very easy. I had fixed it up, got pictures taken and listed quickly. I was able to sell that first duplex for $327,000 ($144,000 gain), do a 1031 and brought the remainder in cash that I had saved to cover the down payment. I was also able to refinance my original 6 unit into the same loan and use some of that equity as down payment. My initial 6 unit that I bought while househacking turned into 18 units.

I thought I was made. I had 18 units that I could improve and raise rents on. The numbers looked great... on paper. I quickly realized that managing small commercial class C multifamily could be a huge pain. Not only was it painful but it was not so profitable. The consistent repairs, capex from old buildings and vacancy (both physical and economic) ate away at the cashflow pretty quickly. 

I continued to try to find solutions and over a few years tried 4 different property managers and always had issues. At the end of the year I barely made any money, but I had created a ton of equity. These buildings were too small to have onsite property management or maintenance also so costs were high on everything.

As my real estate portfolio had grown I decided against holding onto a property that was a pain to manage and I was nowhere close to. I truly believe if I had the right manager and could keep a closer eye on it things would have been different, but, I don't have the desire to fly to Louisville every other month to check on 18 units.

I bought at roughly an 8 cap and sold at a 4.25 cap. That first househack really paid off!