House Hacking my First Deal for $230k Profit

[Tim McGarvey]

Investment Info:

4-Unit apartment building in Oakland, CA purchased in 2017 and sold in 2022.

What made you interested in investing in this type of deal?

This was my first deal I'd ever done. I was reading books, listening to podcasts, and lurking around the BP forums for around 2 years before I was ready to take down my first property. In the ultra-competitive Bay Area it is difficult to find 1) find value and 2) afford the price points. I was working a 9-5 doing construction management so was constantly moving around to different job sites. Oakland was a central location with relatively low price points (sub $800k at the time), although higher crime that surrounding areas. I identified a few up-and-coming neighborhoods that I could afford and would be willing to live in to house-hack. I was looking for 2-4 unit properties to help offset the mortgage payment.

How did you find this deal and how did you negotiate it?

I used a real estate agent to identify potential properties and negotiate on my behalf. I was outbid on about 10 properties. On Christmas day, I got a call from my agent saying one on the buyers backed out of a deal and they wanted to see if we were still interested. Fortunately, we were the only ones ready to make an offer and got it under contract the next day for slightly under contract. We were lucky but prepared.

How did you finance this deal?

FHA loan with 3.5% down. Purchase price was $700,000. I spent about every penny I owned at the time and funded the repairs out of pocket. I wouldn't recommend doing that again - there were a few stressful months while I paid for repairs directly out of my incoming paychecks. I've been thinking a lot about cash reserves since this.

How did you add value to the deal?

I lived-in and renovated 2 of the 4 units over a 12 month period. I essentially lived in a construction project for a year. I could have done it more quickly but chose to do many of the repairs on my own. Great learning experience but I wouldn't do it again. Now my time is more valuable :) One of the units was previously renovated, so after the first year I had 3/4 units renovated plus exterior painting and other improvements.

The final unit was under rent control with long term tenants. They were paying around $650 for a $1600 market rate units. Welcome to the Bay Area!

I was able to increase rents from $4,600 to $6,000 and improved the quality of the building significantly.

What was the outcome?

I stabilized the property and moved out after the first year. I hired a property manager and it became a relatively passive asset for a few years. It cashed flowed a few hundred dollars a month but my "on-paper" returns were washed away by increasing taxes, labor/repair costs, high vacancy, etc based on owning in a C-class neighborhood in a tenant friendly city.

I sold the property for $957,000 in 2022 and am re-investing the proceeds into better performing assets in North Carolina.

This project got me in the real estate game and was the correct decision for me at the time. I took the equity and experience gained and will leverage it into more profitable and more scalable investments. 
Since moving out of the building I've been building an out of state investing business.

The icing on the cake was the check at the sale, but the confidence I gained though this project was the most valuable part of it.