First Property Rehab House Hack

[Jared Baker]

Hello BP!

So I am very excited to write this post so hopefully you can make it through the whole thing and leave me some constructive comments at the end.

So first off I just graduated college and started a W-2 job in Wisconsin.  Although the work is good, I do not want to be chained to this W-2 paycheck the rest of my life.  So as such I have taken steps to begin my real estate investing.  The first thing that I did was read Set for Life.  Most of the living frugally stuff in the book I was already doing and still am doing (just finished the book a week ago)  however, after reading the book I realized that I would have to work this whole year and save as much as I could to afford a down payment on a moderate duplex to begin house hacking.  However a very fortunate (at least I think it is) opportunity has arisen.

My uncle is looking to invest in a duplex because of his current situation he for some reason has a large chuck of cash sitting in a savings account getting less than 1% return.  He is aware that real estate can offer better returns than the savings account and this is something he is pretty set on but isn't educated on.  Now, I am by no means an expert, but I have spent the last year reading posts here on BP and looking at housing prices, so I would say I have a slight bit more knowledge than he does on real estate investing.  

So here is the plan and I am hoping to get some input on it:   As I stated before my original plan was to just save for a down payment on a duplex and start house hacking myself.  As such, I would have saved as much as I could and continued to pay rent up until the time I could find a suitable duplex that I could add some value to.  However, I recently learned my uncle wanted to purchase a duplex so I talked with my dad and we came up with a rough plan.  I would like some input as to make it the best plan possible so it would be something my uncle would at least consider.  This plan would be my uncle providing capital and I would provide the labor.

Plan of Action:

• My Uncle and myself would agree on a criteria of the property to be purchased.
  • Something that has damage so we can improve the value of the property as well as something that can achieve the desired rents
• Once the criteria is decided we would both split up and each contact a separate RE agent and begin looking for said property (I think this would widen our pool of available properties as some agents might now of properties that will be up for sale soon, but not listed right away)
• Once a property is found my uncle would put up the capital to purchase and fund the rehab.
• After determining the estimated rehab cost, my uncle would give my between 30-40% of the rehab cost for me to be able to buy material and get started on rehab.
• We would both have say as to what the money will go towards ie: types of fixtures, cabinets, doors, ect.
• I would live at the property rent free only paying for utilities out of my own pocket.
• I would spend my time fixing up the first unit (the one I am not staying in) so it can be rented out as soon as possible.
• Once the first unit is done, I would move on to the unit I am staying in.
• Once the unit is completely done, I would either stay in the unit paying reduced rent or none at all, while pursing another property to buy-possibly making the same arrangement as this one.
• Once the property is completed and done to a satisfactory level of work I would receive a lump sum of possible 10-15% of the materials cost to act as my "labor cost"
• Once the units are rented I would then take over as the property manager, taking care of screening tenants, collecting rent, paperwork, and repairs.  As such I would charge a 5-10% fee of the rent as my fee for doing that work
• After that I hope to either find my own or possibly continue to partner with my uncle depending on how he would finance this first deal.

So BP, what are your thoughts on this preliminary arrangement?  My plan is to make a formal document to present to him with prices and all the details laid out so there should be very little question as to how has what role.  Any input is appreciated!!

Thanks!!