First deal finally closed - FHA Mixed Use House Hack

[Michaela Manco]

So, after what seems like an eternity, my first deal finally saw a closing table this week. It's a 3 unit (2 residential, 1 commercial) mixed use property that was purchased with an FHA loan. The commercial space was formerly a dog grooming salon but the space is very functional for other uses. This property had many hurdles. The first being that the property tax information entered into MLS was incorrect, the true taxes were double what was reported. The real issue came when we got to the appraisal stage. As previously noted this is a mixed use property consisting of 2 residential apartments and one commercial space. When the appraiser came to the property the listing agent told the appraiser that I was intending to convert the middle floor residential unit and the basement commercial unit into one larger unit. This was what the listing agent had in the listing that could be done, and in my initial walkthrough I had known right away that that was not my intention for this property. With this information the appraiser appraised the property as a duplex. I was using rents to qualify for the loan, so this was a problem. My lender went back and forth with the appraiser to get the appraisal corrected, and instead we had to get a second appraiser to come out and do another report. A week and a half after the second appraiser came out, we closed! I received the incorrect set of keys at the closing, so it truly was a nightmare from start to finish.

Here are the numbers:

Offer: $240,000 with $5,000 back for closing costs

Total Purchase Price: $245,000

Seller Credit: $5,000 for incorrect property taxes in MLS

Cash to Close: $8,575

Market Rents (According to Appraisal, Supported by rentometer and my own comps through Craigslist, Zillow, etc.):

Residential unit 1: $900

Residential unit 2: $1200

Commercial Unit: $800

This is a property that I can live in with the rents from other 2 units covering full PITI, and will have a nice cash flow even with so little down when I move out. There is also very minimal work to be done with this property. One of the residential units needs paint retouching and the commercial unit needs to be repainted and a good scrub down to remove any lingering doggie odors from the former business that was there. If you have any painting tips I'm all ears!