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Updated almost 9 years ago, 02/04/2016
House Hacking at $1,050,000! - Only $5,000 (net) out of pocket! - San Diego
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.
Congrats @Mathew Deines!!!
Thanks for sharing!! Very inspirational story!!
Here's a website with information about the loan limits in each state:
http://www.valoans.com/va_facts_limits
They have this article about the multifamily aspect, but I don't see where they have the multifamily limits; the previous link I posted is only for SFRs.
The URL below will download the 2015 version of the limits for all counties in the US. You also can go to the VA website page and click on the link yourself--see my next post.
"http://www.fhfa.gov/DataTools/Downloads/Documents/Conforming-Loan-Limits/FullCountyLoanLimitList2015_HERA-BASED_FINAL_FLAT.xlsx"
http://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx -- look for the following section: (I removed the hotlines from the website and substituted text, but you can click on the XLS or PDF and get the versions downloaded right to your computer from that webpage:
2015 Conforming Loan Limits
- Loan Limits for Calendar Year 2015--All Counties [XLS] , [PDF]
- List of 46 Counties with Increases in Loan Limits for 2015 [XLS] , [PDF]
ooopppsss! Sorry, on the post above with the first words "The URL below..." you have to remove the quotation marks at the beginning and end of the URL or it won't work -- i.e., this will work:
http://www.fhfa.gov/DataTools/Downloads/Documents/Conforming-Loan-Limits/FullCountyLoanLimitList2015_HERA-BASED_FINAL_FLAT.xlsx
Thank you so very much for sharing your story! I too am a vet and am looking for my first multifamily!
You said your DTI was 58% how did that work specifically? I thought they wanted to see less! Did they calculate the rent with the increases, or was that with the existing rent at 75%. Do they subtract the taxes and insurance and then use 75% of the rent?
I have an existing rental and wanted to use the income but wasn't sure how they add it into the DTI picture.
Thank you! And best of luck on your next investment!!
Originally posted by @John Shultis:
ooopppsss! Sorry, on the post above with the first words "The URL below..." you have to remove the quotation marks at the beginning and end of the URL or it won't work -- i.e., this will work:
To make the url "Clickable" Click on the little symbol that looks like a link in the reply box. Click insert link. Then make a title and then paste the link into the second area. Click insert link.
@Debbie Thomas Our final DTI was at 56.8% using the current rents. With our projected rents of $1850 per unit, which we have already given the tenants notice of the increase, would have kept our DTI under 55%. It is my understanding that taxes and insurance are used and then only 70% of your rental income.
Thanks @Tristan Cortez
@Mary lou L.
Mary lou,
I was worried about sending anything that might have executable code that could lead to a virus or other malware being downloaded onto someone's computer or messing up the BP website, so I copied the link and pasted it here so folks could cut and paste. I'm not clear on all the rules on the BP website, so I erred on the side of caution. Thanks for the helpful comment and especially for your service!
I understand..you can't be too careful these days!
It was a privilege serving, I learned so much and am thankful for the opportunity!
Thanks for sharing...Very Inspirational! Now I rethinking how to use my VA.
Hello,
Welcome to the forum site.Here you can learn a lot.It will be a great experience.It seems
that your deal is really nice.With a family it always become tough to find a safe and nice home.I will love to have more details of your deal for future requirement.
All the best.
Thank you
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Congrats on your investment @Mathew Deines !
Just curious, how did you find the property?
I found this building on Redfin.com
Wow! This is the ultimate house hack and a great way to invest in CA where rents are low and prices are off the charts.
The beauty of this deal is you tied up a million dollar asset with less than 1% down-inconceivable! I'm not sure what your exact mortgage payment is but estimated it at $5,012/month before taxes and insurance.
If you simply hold on for 10 years you will paid off $222,000 in principal.
In other words, your $4,100 net out of pocket grows to over $200,000. That's my kind of investment.
Keep working it and stay focused on your goal. I like the FHA idea next. Owning the 4 unit is a great way to gain real world experience and is worth waaaaaaaay more than a $30,000 real estate boot camp taught by a guru who never managed an investment portfolio.
I'd be real careful getting excited and buying a mother place until you have a couple years behind you on that place. Your cash flow should be negative to begin with (jsut taxes mortgage and insurance should eat 100% of rents) and any major repair will deplete your reserves in a hurry. On a single income it's just too much risk in my opinion.
The deals will still be there when your finances are more secure. Pay this one down and refi to a lower payment before you start looking for the next one.
Good luck!
What an amazing and inspirational account, I'm really impressed - well done, and thank you for your service!
Matt,
I shop lenders all the time for my clients. When you align yourself with a great lender or agent with a great lender it will make a world of difference. I have a lender now that is doing 5% down with no PMI and with very little DTI restrictions.
Next time refer to an agent like myself. It is my job to provide my clients the best service across the board. Just make sure you don't have a bunch of lenders pull your credit. Though there is some fexibility, you don't want to chance it hurting your credit.
karl
Matt,
In looking into trying to do exactly as you've done.. I hit a firm road block. VA doesn't guarantee a loan loan for more than the single family residence county limit. In San Diego that's $562,350. I know you mentioned the higher loan limits for four plexes (about $1,080,000), but that's simply not the case. The VA put out an addendum to their policy that says they won't go that high, although FHA will.
See this link: http://www.benefits.va.gov/homeloans/documents/cir...
It's pretty clear cut. It makes me wonder how your lender got the loan guaranteed for enough without a down payment from you. In your instance, the VA guarantee should have only been for 25% of $562,350, four plex or not.
@Nathaniel Johnson: That is an interesting addendum you bring up and I was certainly not effected by it. Since I know you are in San Diego, I will you refer you to the direct lender that we used, if you are seriously interested.
@Mathew Deines & @Nathaniel Johnson
Hey guys... looks like I just hit the same roadblock! Lender is telling me VA Limit is SFR column only.
Glad you guys benefitted... guess I'll have to let the O'Side Triplex idea go... bummer : (
They now also have the following disclaimer on the website:
PLEASE NOTE: For purposes of determining the VA guaranty, lenders are instructed to reference only the One-Unit Limit column in the FHFA Table “Fannie Mae and Freddie Mac Maximum Loan Limits for Mortgages Acquired in Calendar year 2015 and Originated after 10/1/2011 or before 7/1/2007”.