Investment Info:
Townhouse buy & hold investment in Bluffdale.
Purchase price: $362,000
Cash invested: $22,500
How does house hacking help buy commercial properties? For us, with several hundred units under management, construction, or contract, house hacking might seem like a drop in the bucket. We bought this home with the intention to move in right away, and that didn't work out as planned. We furnished it from our own home, roughing it ourselves a bit now, so it is currently a short/mid term rental. The extra income all goes toward investing in more commercial projects.
What made you interested in investing in this type of deal?
We love new construction, it often appreciates faster than other types of properties (think of it as raw land renovation!) As we intend to live in this townhome, downsizing from our current house, we wanted something smaller that would rent out more easily as short or long term when we travel or live abroad. This townhome is 2250sqft 4/2.5, walkout basement 1/1 unit, so plenty of room for our large family. The smaller home is more rentable, giving us more income to invest, flexibility to travel.
How did you find this deal and how did you negotiate it?
We found this builder through our Realtor when we first moved to Utah, but ended up buying a larger home intending to rent out the walkout basement. We never did, so it was too large for us. On the REIA website, we saw this same builder and reached back out. We chose a brand new community for less competition and bid on a unit. In the ensuing months, new units averaged 10-30 bids each, so getting in early was the key to winning a unit.
How did you finance this deal?
We used a personal mortgage, but as a real estate professional, our W2 income is offset by our passive losses, and we didn't qualify. Our mortgage lender worked with us and a new CPA to redo our business taxes to show more income without increasing our tax burden. In fact, our refund ended up so large we used it as the down payment on this property with some to spare, so we didn't feel like we came "out of pocket" on this purchase. Feels like zero down!
How did you add value to the deal?
Buying new construction in a hot area meant it shot up in value even during construction. The same townhome, now less than a year after putting it under contract, and three months after closing, is selling for over $100,000 more than we paid! With only $22,500 down, from a tax refund, we can refinance after the loan seasons to pull out our down payment plus more, with a minimal increase in payment due to low interest rates.
What was the outcome?
We weren't able to rent out our larger home as planned, so we ended up renting the townhome out instead while figuring out what to do. We don't want to sell our current home yet, as this market is appreciating so rapidly. So we plan to refinance out our down payment, the payment will go down, and live in it for another few months to a year. Eventually we'll move into the townhome and sell or rent the current one. Like double house hacking! Both houses have walkout basements we could also rent.
Lessons learned? Challenges?
We learned to have a backup plan! Our original intent to turn our larger home into assisted living didn't work out smoothly, so we are still living in it, with the townhome rented out, while we make backup plans. We'd like a smaller house that rents more easily when we travel, even long term travel, and this larger home is also appreciating so fast we aren't ready to sell it yet. It creates a limbo situation with half our furniture in the new house, half here, and not knowing where we'll be.
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
We worked with our Realtor Shaun Mather and the builder sales agent from Edge Homes. We also worked with Derek Smart of Interap Lending and Clyde Jones CPA to be able to qualify: they worked wonders with our tax preparation to more accurately show our rental income versus expenses.
