Triplex House Hack in Tucson, revisited after rehab #2

[Patrick Allen]

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Tucson.

Purchase price: $411,000
Cash invested: $125,000

A secondary update about my 2nd House Hack, now that we have both rental units stabilized as short-term rentals.

Bought a triplex with an FHA loan, securing a 2.5% interest rate and moving out of the apartment (for the last time). Property is arranged as a detached 1 bed/bath unit and a duplex: 2 bed/bath owner's unit & a vacant mirror unit.

Rehab #1 was the other half of the duplex: 2 bed | 2 bath, 1,180 sq ft
Rehab #2 was the detached SFR: 1 bed | 1 bath, 900 sq ft

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

Goals for this deal:
- secure precisely 3 units within 1 mile of Rillito Bike Path @ Dodge Blvd: easy to access all major Tucson road cycling routes
- property layout functional for STR: adequate parking, separate backyard spaces, etc
- walking distance to Brandi Fenton Dog Park & Tucson Hop Shop (best bar in Tucson)
- pay house cleaner & landscaper to periodically clean primary residence out of AirBnB income (still working towards that!)

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

Purchased off MLS in May 2021. Multiple offers received in <2 days on market.

Despite a high earnest money deposit and appraisal gap coverage, the seller chose a different buyer initially... so this deal was won off of a backup contract.

How did you finance this deal?

FHA loan, traditional House Hack financing.

Earnest money: $10,000
Used 3% Realtor Commission to contribute towards FHA down payment; cash due at closing: $1,200

Rehab #1 was financed via a HELOC against House Hack #1 (purchased a SFR in Dec 2015)
Materials were funded by multiple credit card accounts: a stressful way to do it...
Rehab #2 including materials were ultimately reimbursed by HELOC against subject triplex, after Rehab #2 completion

How did you add value to the deal?

Rehab #1: 2 bed | 2 bath, 1,180 sq ft
Updated kitchen and both bathrooms; new lighting and paint throughout.
10 week rehab, plus another 2-3 weeks to furnish for STR.

Labor: $30k
Materials: $25k
Furnishings & Finishes: $12k

Rehab #2 was the detached SFR: 1 bed | 1 bath, 900 sq ft
Updated flooring, paint & lighting throughout; added washer/dryer; rearranged floor plan; replaced broken water main line
Labor: $28k
Materials: $13k
Furnishings & Finishes: $5.5k

What was the outcome?

Despite being less work overall rehab #2 was plagued with funding issues, supply chain problems & an all-around slowly moving market of summer 2022, capped off with an appraisal which came in $100k lower than anticipated

Was able to pull out enough to pay off GC & all outstanding credit cards
Plan is to now pay off both HELOCs w/ agent commissions, having achieved financial freedom via STR income

Listings:
2/2: https://airbnb.com/h/rillitopath2
1/1: https://airbnb.com/h/rillitopath1

Lessons learned? Challenges?

So many lessons learned! Biggest lesson is that I need to buy another home next year: no staying put for too long. Need to get the next house hack financed ASAP

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Reach out to me directly for access to my Core 4!