House Hacking at $1,050,000! - Only $5,000 (net) out of pocket! - San Diego

[Mathew Deines]

Hello BP!

For my friends out there I am little late in writing this post considering that we closed on our first 4-plex July 10th. I have collected 3 out of the 4 rents due and I am expecting the last payment in my po box today, I will let you know how that goes.

So.... After a 5 month search for a multifamily property in San Diego that my wife and I can afford, if we only had one income. Ironically enough, that has become a reality. I was laid off the day that we were supposed to close escrow.

Now, about the deal. 4 unit building listed for $1,250,000 in a great part of San Diego, 100% rented (this is good and bad). Each unit is renting for $1,700 with room to raise the rents to $1,950. All units are 3/2, 1130 sqft. All recently updated with new carpet and paint, except for one unit. Both car ports were completely rebuilt from the ground up, new fencing, new coin operated laundry room and washer and dryer.

After a month with no action on the building, the price gets dropped to $1,125,000. I took this as a sign that the seller was really motivated, and they came back to reality. Since we were using a zero down VA loan, I had already ran the numbers and calculated the max purchase price for us including vacancies of $1,050,000. So we submitted our offer and prayed that the seller would love a low VA offer.

Two days later the seller responded with, "We regret to inform you that we have accepted another offer that better suites our needs." What does that mean??? We took it as though they accepted a lower offer with less money down. We had only offered $5,000 earnest money.

Three weeks go by, my wife and I had all but given up on the multifamily property and submitted an offer on a single family home that we could do a live in flip, and then move on and hopefully start our multifamily portfolio down the road. Our offer was accepted on the single family on a Wednesday. GREAT! Friday we get a call back from the listing agent on the multifamily, "our buyer is backing out. Are you still interested? We need $10,000 earnest money" OF COURSE!

We canceled the single family, and placed all our eggs in the multifamily. Ordered the appraisal and inspection ($900) immediately. We had final loan approval in 5 days, thanks to our awesome loan originator. The VA appraisal took 28 days!!!!! Held everything up, it turns out the appraiser took a week long family vacation in the middle and then struggled to find comps. He ended up coming in at value.

We closed Friday July 10th! After our $10,000 earnest money, we received a check for $5920 from escrow for prorated rents and security deposits, making our out of pocket expenses $4,100 in closing costs and appraisal plus the $900 inspection fee.

Sunday, July 12, we get our first maintenance/service call from the previous PM, we hadn't even had time to notify the tenants of the change in ownership. "There is a homeless guy that has locked himself in the laundry room and thrown the dead bolt." So my wife and I drive about an hour down there and he is gone by that time. The next day I change the laundry room locks and give a new key to all the tenants. Problem solved for now...

Now I am sure there are naysayers out there that will say this isn't a great investment but all the numbers worked for my wife and I in our situation. We are only 33 years old and once this building is paid off in approximately 25 years, we will be collecting between 9 and 10 thousand dollars a month in rent. And that is why we did it, plus once we move in to the building our rent will only be $750 per month :-) and that is dirt cheap in San Diego. Within the next year we are planning on saving enough to be able to buy another 4-plex on the same street using either a VA loan and refinance out of this one, but with a 4% interest rate, we will probably go with an FHA 3.5% down.

Sorry if that got long winded. Please let me know if you have any thoughts or questions.