7 Steps I Took to Land My First House Hack (& Rent it Out) With Ease

by | BiggerPockets.com

I did it! I got through the highly feared “analysis paralysis” stage and closed on my first deal. How was it? Easy as pie. Smooth as silk. A piece of cake. A walk in the park. Insert any other lame cliché here.

For those of you on the brink of offering on your first property, I understand why you might be hesitant. This is likely the largest purchase of your life. It is difficult to find the perfect property that meets your cash-flowing and emotional needs.

The bottom line? For a house hack purchase, your goal is to cash flow. You will likely not be living there for more than a year, so ignore any emotions, run the numbers, and if they work, put in an offer.

OK, so you have done away with your “feelings” of finding a beautiful property. You run the numbers and all of these catastrophic scenarios run through your head: What if I can’t find renters? What if the furnace breaks? What if the roof falls off? The list goes on.

There are countless scenarios of what could go wrong. Just ask Chicken Little. However, those crazy scenarios are the exception, not the rule.

To those of you who may feel uncomfortable making that first offer on a house hack, this is article is for you. I’ll describe the 6 steps I went through in closing my first house hack—and you’ll learn just how easy it was.

7 Steps I Took to Land My First House Hack (& Rent it Out) With Ease

Step #1: Build a team.

The first step is to build a team. As things come up (i.e. repairs, tax planning, litigation, etc.), your team will grow. However, there are only two teammates that are absolutely crucial to your first purchase: your lender and your agent.

Once I knew I was moving to Denver, the first thing I did was reach out to the BiggerPockets community and ask for lender recommendations. I then went through the process of getting prequalified with 4-5 different lenders ranging from big banks to local credit unions. By getting prequalified, I developed an understanding of what I could afford.

Once prequalified, it was time to find an agent to help with the property search and closing. Again, I reached out to the BiggerPockets community in Denver and met with 6-7 different agents. Though it was not easy to decide, I ultimately went with someone who was good with numbers and did not try to sell me with any emotional talk of purchasing my first place.

Step #2: Find the property.

The search is on.

Living in Denver, CO, one of the hottest real estate markets in the country, you get a lot of naysayers saying that cash-flowing properties are impossible to find. Maybe it’s impossible for them, but it was relatively easy for me.

My agent gave me access to the MLS portal, where I would receive automatic email alerts each time a Denver metro property within my price range hit the market or decreased in price. After a month of running the numbers and declining various properties, I found one that might work.

rental-property-pros

Related: Why I’m Not House Hacking (& the Strategy That Will Cover More of My Rent)

Step #3: Analyze the property.

The property is a completely renovated duplex. Made up of two 1-bedroom, 1-bathroom apartments, this property had been on the market for two months (an eternity in Denver), with the price recently reduced to $400k. The property was located in an up and coming part of Denver, about 1.5 miles from where I work—an easy commute by bike or foot.

I asked property owners in the area what they were getting for rents. One of them told me what they were renting their 1-bedroom apartment for, and I knew I could get a little bit more, given mine was brand new.

With the assumed rent, I ran the numbers using the BiggerPockets calculators  to see where my rents would need to be in order to cash flow (or live for free). The numbers did not work. I would be losing ~$750 per month. While this is cheap “rent” (in quotes because I would be paying myself) and I’d be benefitting from the loan pay-down, it was not good enough.

What did I do? I decided it was impossible to find a property in Denver. So I continued watching reruns of Desperate Housewives.

Just kidding. I asked myself, “How can I make this property work?”

Given the location and the new build, I knew it would be possible to rent this on Airbnb. After doing some research, I determined that I would be able to make ~$1,000 per month by renting out my bedroom while making a pseudo-bedroom in the living room where I could sleep. With an extra ~$1,000 per month, I would be cash flowing $250 per month on a duplex that is walking distance from the office.

That works for me.

Step #4: Make the offer.

After talking it over with my agent, we decided to put an offer in. My first offer… Eeeek.

We ran the numbers again and determined a price point of $360k. While not a complete lowball, this gave us enough wiggle room for the negotiation.

[Side note: I know many people say, “If you’re not embarrassed by your offer, it’s too high.” In many smaller or buyer’s markets, I agree. However, in a booming seller’s market like Denver, there are multiple buyers lined up at almost every property, so a lowball could easily be ignored by the seller.]

Over the next few days, we negotiated back and forth and ultimately settled at $385k selling price. Once the negotiation was settled and the offer was accepted, I sent over the earnest money.

Step #5: Perform due diligence and close on the property.

Immediately upon acceptance, I let my lender know that I had a property under contract, so they could start their diligence and meet the required timelines.

We got the inspection (including a sewer scope) done with only minor tweaks to the property required including the installation of a railing, grounding electrical wires, and making sure all of the doors fit properly. The seller fixed them without a problem.

The lender hired an appraiser, and the property came back at $390k. Given the sale price of $385k, that means I built $5,000 of equity immediately upon closing (woohoo!).

It took the lender 2-3 weeks to underwrite the loan.

On June 17, 2017 (one month after offer acceptance), we were ready to close. I brought a cashier’s check to the closing and sat down with the seller, my agent, and the title company. We reviewed and signed all of the documentation. After an hour and a few hand cramps, I was officially a property owner.

Step #6: Find tenants.

Pre-showing

In many (if not all) states, it is illegal to have a lease signed before the property is closed and in your possession. However, I found that there was nothing stopping me from advertising and showing the place during the closing process. This is exactly what I did and what I recommend you do to reduce the initial vacancy.

Once the property was under contract, I created a rental listing using Postlets (owned by Zillow). This service creates one listing and uploads it in a nice format to Zillow, Hotpads, Trulia, and Craiglist.

Once the inquiries started to come in, I scheduled a brief, 10-minute phone call to gauge the credibility of the potential tenants. I did not want to waste time showing the property to unqualified tenants. In the call, I asked the following questions:

  1. Where do you live now?
  2. How much is the rent?
  3. Why are you moving?
  4. What is your (and your spouse’s) annual salary?
  5. Do you like/get along with your current landlord?
  6. Do you have any pets?
  7. Have you ever been evicted?

If they answered these questions to my liking, we would set up a time for a showing.

Showing

Because the place was brand new and already in “show condition,” there was not much for me to do. I immediately began to show the property. The apartment is pretty small, so the showings typically would not last longer than 10 minutes. I would meet the potential tenants at the property, talk with them for a few minutes, and then give them the tour.

After I showed them around, I would go outside and let them explore the apartment by themselves. That way, they could talk amongst themselves comfortably without me butting in.



Related: Meet Tim: How One Newbie Investor House Hacked a Duplex With No Prior Experience

Post-Showing

Once I received interested tenants, I collected a $40 application fee to confirm interest and pay for the background/credit report. As part of the screening process, I made sure the following boxes were checked:

  1. Obtained credit report and confirmed credit score of at least 600
  2. Performed a background check and confirmed there was no criminal record
  3. Requested the last two pay stubs to confirm annual salary
  4. Called two or three previous landlords
  5. Called employer to make sure jobs were stable AND that pay stubs matched what was reported

Once the boxes were all checked, I let the tenants know that they had been accepted.

Step #7: Sign the lease with your tenants.

I closed on the property at 10:00 a.m. on June 17th, and at noon on June 17th, I signed the lease with my tenants. We met at the property, and I ran them through the lease. I also created a “layman’s lease,” which is the lease in an easy-to-understand PowerPoint presentation, without the legal mumbo jumbo.

They signed the lease, and the process was complete.

Conclusion

There you have it—my first house hack. It went extremely smoothly, with few hiccups. I know you hear all about the crazy stories that happen, but again, I would bet that this is the exception rather than the rule.

Did I get the best deal in Denver? Probably not.

But I am certainly better off than those who passed on this deal because they let their inner Chicken Little get the best of them.

My suggestion for those still looking to find their first purchase is to just do it! You’re not going to get rich from one property. So stop trying. Real estate is a get rich slow game.

Even if you lose money, you’ll learn valuable lessons along the way, and in 20 years, you will be glad that you purchased the property. Just ask anyone who has owned a property for 20 years.

Good luck!

Update: I’ve been managing the property for about three months now. My tenants are great and have caused me minimal problems.

Where are you on your journey to land your first deal?

Leave your questions and comments below!

About Author

Craig Curelop

After developing a huge love for real estate investing and personal finance, Craig decided to join the BiggerPockets team as a financial analyst. Over the past few years, he has looked at hundreds of financial models of startup companies. His experience will help BiggerPockets reach the next level as a startup company. Craig has a passion for helping others get out of their "comfort zones" to get what they want and achieve the "impossible." In his spare time, Craig enjoys traveling, hiking, exercising, and sports of all kinds.

34 Comments

  1. Jeff White

    Hey Craig,

    Good stuff! You are making a property a lot of investors turned down work in your favor by airbnbing it!! Congrats!! This article is very simple but the main lesson is to take action. If the numbers work then it is a deal. If you plan for the long-term, especially in Denver, you will probably be good.

    What’s your plan with this duplex after you buy the next one and move in there?

    Corporate rental? Traveling nurses? Etc… since you won’t have the airbnb income anymore because it won’t be a primary residence.

    • Craig Curelop

      Thanks, Jeff!

      You got that right. It’s much better to take action now than to wait for that great deal that may never come.

      I’ve got to see what works. My initial plan was to just to rent it out. However, the traveling nurse idea is interesting. I am going to have to look into that. This apartment would be perfect for that.

      Thanks for the ideas!

    • Craig Curelop

      Thanks for reading, Jimmie! I’m glad you liked it. You go that right, it’s better to take action now and get an “okay” deal and make it work than it is to wait for that “great” deal that may never come.

      Be sure to keep us posted on how you do!

  2. Joe Kim

    Thank you for this article Craig! It is simple, yet detailed enough to let newbies know about the entire process. I am getting ready to do my first house hack in a similarly “hot” area in Los Angeles, where deals that make sense are far and few between. I do however see a few that may work. I know that in your situation, the units were already finished and ready to go, but the ones in LA that seem to make sense with the numbers do need some work. I have never worked with contractors before, and do not have any major construction experience. My only concern is not being able to begin showing the property through the closing process, and instead, having to sit on the property for a few months before I can begin showing. Do you recommend finding a finished or relatively finished property, or is there another creative way to get through the renovation phase with minimal loss of income that can come in during that time?

    • Craig Curelop

      Hey Joe,

      Thanks for reading! I’m glad you liked it. I would say run the numbers and make sure that it makes sense. If you think the property needs 2-3 months worth of work, I would be sure to include those holding costs in your calculation. If it’s a duplex and one side needs work where the other does not, you can work and live on one side while renting out the nicer side.

      If the finished properties don’t work in your area, you might have to get creative. I’m sure you can make it work, just keep thinking.

  3. Jerry Thompson

    Great post Craig, I’m in a similarly “hot” market, your post was more fuel for the fire as I hone in on my strategy.
    Two questions:
    1) How did you fund the deal/What % of the purchase price did you put down, or did you use a FHA loan or some other solution?

    2) How has AirBnb been working out? There are others in my area doing AirBnb so I think it’s viable, just curious as to how the short term rental portion of your plan has been working.

    Thanks!

    • Craig Curelop

      Hey Jerri,

      Thank you! I’m glad you liked the article.

      To answer your questions:

      1. I just found the property on the MLS. Nothing too fancy. It was on the market for 2 months (an eternity for Denver) and somehow slipped under the radar for most people. I scooped it up and it’s working nicely for me. I did an FHA Loan…. 3.5% down.

      2. AirBnb has been working great. I have very few vacancies and it pays well. I also love meeting the people from all over the world that come in and out.

      Best of luck!

  4. sean dawson

    Great article, Craig. I am in the final stages of a refinance work my primary residence for capital. As soon as that goes through my place is to line up a lender. I’ve already got an agent in the wings waiting for me to pull the trigger. I’m hoping to have my first property under contract by the end of the year.

  5. Jim Celmer

    Good for you. And doing something will get you there quicker than just talking. I would like to remind you of a couple of key metrics. First it’s all about the cash flow. The government doesn’t care if your rents are late or any repairs you my have. They demand to be paid on time. property taxes and come every year regardless. The same for insurance and a note if you have one. Second have an emergency fund. There will be some volatility in earnings. Have enough for a major repair or more. My 2 cents worth

    • Craig Curelop

      Hey Jim,

      Thanks for reading! And thank you for your advice. I agree. Cash flow is king and I’m doing everything I can to make sure this property cash flows me as much as possible. I also set aside a reserve each month to be sure I can cover myself for any bad economic times.

  6. Polachai Sakchalathorn

    This is quiet motivating! Thank you for sharing your story and the steps. I’m moving to Denver as well. If you don’t mind recommending the lender and realtor to use, your help would be greatly appreciated! I’m looking to also buy 1st rental property like you in the Denver area.

  7. Wei Cho

    Hi Craig,

    Very inspiring article, it got me really excited. Just today I went to see a couple of houses with my agent. They were not the best neighborhoods but I will keep looking (I’m in Los Angeles and I totally understand the hot market situation).

    I had a question though, you said you got prequalified with 4-5 different people. Does that mean you got a pre-approval from all of them? Did you run your credit with each of them? And if you don’t mind me asking, did you do conventional or FHA?

    Thanks!

    • Craig Curelop

      Hey Wei,

      Thanks for reading! i’m glad you liked it and it got you excited. Keep looking, it’s a numbers game. The property you want will come up.

      Yes, I talked to and got pre-approved by 4-5 different lenders all of whom ran a hard credit check. This will only count as one “knock” against your credit score if you do them all within 30 days of each other, which is what I did.

      No problem at all, I did a 3.5% down FHA loan.

  8. That’s interesting using AirBnB. We’ve thought about that to rent out a spare room for extra cash in our house but wondered about dealing with the customer service? How do you handle that? We are too busy to run a “bnb” and work 50+ hrs/week. Getting rated online is way too stressful, wouldn’t you say?

    Also, how long do you plan to do this for before you move? Will your next purchase be another house hack?

    Finding multifamily units in Socal (our market) is nearly impossible – they are either in super sketchy neighborhoods, or you already have to be a millionaire LOL

    Cheers!

    • Craig Curelop

      Hey Becky,

      So the customer service part is pretty easy. I do it all from my cell phone. It’s essentially just texting. I have a standard message I send to people that are coming that explain how to get in and the rules of the house, etc.

      My place is pretty inexpensive because I really offer the minimum. A private bedroom with a comfortable bed, clean sheets & towels, and coffee in the morning (that they make). I have extra pairs of everything so I don’t need to wait for the wash to be done. It takes me about 20 minutes to change the sheets, pillow cases, and tidy the place up. Fitted sheets are the worst.

      Getting rated online is fine. Just part of the business. I mostly get good reviews, but occasionally something goes wrong and you get a bad review. It happens. Just need to learn from it and try to make it not happen again.

      The Airbnb my apartment is a short term thing. Maybe a year or two. Once I get to the point where I am cash flowing comfortably without it, I will stop doing it. But I actually really enjoy meeting new people from around the world. My next purchase will almost certainly be another house hack, I’m just not sure what my strategy will be in terms of renting it out, airbnbing, etc.

  9. Perry Dollar

    Thanks! This is very close to my plan to acquire a property in or around Temple Texas. Buy it, set it up for AIRBNB, and run it it remotely for about one year. If anyone has run an AIRBNB remotely please feel free to give advice.
    Thanks

  10. Pete T.

    Craig, Great to take action, just hope all your calculations were based off a standard renting of the units. It’s good to make more money, but you might not choose to live in such an arrangement for long or have the time for filling vacancies and set up as you grow. Each purchase should stand on its own regardless of how you use it, what you put down, etc. To compare Apple’s to Apple’s. Hope it continues to work well and provide for improvements, repairs, vacancies, …

    • Craig Curelop

      Hey Pete,

      Thanks for the advice! This is definitely a short term situation (1-2 years). When I move out and can rent out the bottom unit entirely, it will still cash flow nicely (though not as nice). I will likely do a similar strategy for my next couple of properties.

      Thanks again!
      Craig

  11. Dario Barron

    First time ever posting anything on Bigger Pockets! I am just starting to gather information and this article was quite helpful. Will refer back to this if I do get into a house hack. I am eager to see what else this site will offer in terms of information. No doubt that I will learn a lot in the next coming weeks, months, and years. Do you think a first-time house hacker should focus on finding a property that does not need any renovations?

    • Craig Curelop

      Hey Dario! Thanks for reading and I’m glad you started interacting. The BP community is great and you have a lot of people here willing to help out.

      BiggerPockets has a wealth of information between the forums, blogs, webinars, podcast, books, videos, etc. It’s a great resource to answer any questions.

      I don’t think a property with no renovations should be a make or break criteria for you. You’ll learn a lot through some renovations, especially if it’s just cosmetic. I wouldn’t get into anything that has major foundational issues, but a little bit of repairs is a good way to build equity.

  12. Jesus Moreno

    Craig,
    great article! I really enjoyed reading it. I have always been a person that, when given a procedure, cam follow directions and duplicate. So this procedure was awesome! My only question is on the following part…

    ” I then went through the process of getting pre-qualified with 4-5 different lenders ranging from big banks to local credit unions”

    My question is by getting pre-qualified with 4-5 different lenders would that not lower your credit score, because of the multiple inquiries, because in order to get pre-qualified you have to get your credit score pulled? please correct me if I am wrong. The reason I ask is because I am in this specific step of your process.

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