Under Contract for 3rd Househack!

[Jacob Lapp]

What’s up everyone!

I haven’t been on the forum in a while and wanted to share my most recent deal we just got.

A lot of experienced investors have been hesitant to buy in this hot market. And for someone looking to just start out this is a tough time to do so. I see a lot of buying at the peak of the market with fear of missing out or hopes of continued appreciation or raise in rents.

I want to share this story to hopefully give some hope and some things I did that got me a great deal in this market.

The listing... I feel that the listing agent did a great disservice to the sellers in this case but I was able to capitalize on it. The property was listed with one picture of the front of the house that looked like it was taken on a flip phone. The property was listed as a duplex with 2 2bed one baths. In my market the rent is in high demand and could fill these apartments for 1200-1300 a month in less than a week.

May 2 the property was listed for 260k, 2 weeks later was dropped to 235k, 1 week later dropped to 220k. At this point my interest is peaked. I call the listing agent and find out that it has 2 brand new gas heaters, relatively new roof, updated electrical and plumbing. (Built in 1920 so these upgrades are huge). Also has a decent sized garage that would rent for $150 a month. The property is currently occupied and tenants are paying way below market. $800 a month each.

We go see the place (no lock boxes) and had to find a time that fit both tenants schedules. The bottom unit is in reality a huge 1 bed apartment. This is where we will live and to my surprise the place was in excellent condition. Beautifully finished wood trim, crown molding etc. Floor and walls all in good shape. When we move out we could easily rent for $1100.

The second floor unit is in the same good condition very well laid out. Lots of room. Then I see the door for the 3rd floor and expect an unfinished attic. SURPRISE 2 more big finished bedrooms and a 3rd unfinished room/ attic that will make a perfect 2nd bathroom. With this additional bathroom the rent will be anywhere from 1900-2100 a month.

Total income from both apartments and garage will total between $3150 and $3350. After our year of residency.

Slight work is needed but nothing crazy. I’m assuming 10k for everything including the new bathroom (Doing myself).

After seeing it I call the agent. I know 220k is a great price but wanted to see how motivated the sellers were and asked if they were flexible. She tells me that they are looking to make this deal a part of their 1031 and would need to settle by July 9th (4 weeks away) and that if we could make that work they would be flexible...

I offered 200k with a 6% seller assist. And they countered 208k with a 4.5 seller assist and I accepted!

So for financing I am putting 15% down with a conventional owner occupied loan. With closing costs almost eliminated by the seller assist it will be sub 35k cash to close.

Plus 10k for rehab.

PITI sitting right around 1170 a month. Tenants pay gas, electric and trash. I am responsible for water and sewer. Estimating high at roughly $100 a month.

I consider my reserves when buying as part of cash to close and this includes all big ticket items if everything went bad in the same day. Both heaters and roof roughly 15k and then pull and replenish reserves from cashflow as needed.

Down payment 35k

Rehab 10k

Reserves 15k

Total cash 60k

Income met in the middle 3250 a month

Expenses PITI and utilities 1270 a month

Even though I am managing myself I want to factor in property management in the future

10% of 3250 = 325

Total expenses $1595

Cashflow 3250-1595= 1655

Coc 1655x12 = 19,860/60,000=33.1%

If I did the usual COC calculation and factor 25% of net income for maintenance, cap ex vacancy and property management. And didn't include reserves of 15k in cash side the equation would be

3250x.25= 812.5 + 100 + 1170 = 2082.5 expenses

3250-2082.5= 1167.5 cash flow

X12= 14,010/ 45000= 31.1% COC

So pretty similar!

Key take aways

Find the motivated seller! All 3 of my deals have been from the MLS and have gotten significant discounts on all of them because of listing agents who don't understand multi-family or are just lazy. Do your own due diligence and work the numbers to your favor.

This deal is going to put our “passive income” or cashflow close to $3000 a month while living in the one unit for free. Which by far exceeds my average monthly expenses! All off of 3 years and 3 owner occupied multi-family house hacks!

I hope this gives hope to someone and if anyone has questions feel free to reach out!