House-Hack & BRRRR #1!

[Matthew Schutte]

Investment Info:

Small multi-family (2-4 units) other investment.

Purchase price: $234,000
Cash invested: $50,000

Currently a BRRRR project in process. This was originally intended to be a house-hack but ended up becoming a BRRRR + House-hack when market options didn't present themselves to meet my ideal criteria.

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

I wanted to house hack to start my RE journey. I couldn't find a desirable multifamily property in my area that wasn't in a less desirable area. I finally found a property that was in a good area but was in need of a "face-lift". I figured I can't have it both ways, if I wanted to have a multifamily in a desired area I would need to be willing to renovate and get out of my comfort zone.

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

This deal was on the MLS for 9 months and didn't look appealing at all but the location was prime and surrounded by beautiful neighborhoods. The pictures were bad, the property needed some TLC but the location and purchase price were well within a reasonable range to invest. The seller was an older gentlemen who wanted to stop managing this rental. The property was outdated, had water damage so negotiation took place to bring purchase price down and include a new AC system for the property.

How did you finance this deal?

This was financed with an FHA loan with minimal down payment. The rest of the funds were used to renovate the property.

How did you add value to the deal?

I gutted the first unit, installed new electrical, new plumbing, updated the framing, took down walls and opened the living/kitchen area. The outside was re-painted and all previous water damage areas were mitigated and updated to prevent further damage.

What was the outcome?

The property has appreciated and increased it value by roughly $100,000 just by renovating the first unit. Once the second unit is renovated there will be significant equity in the property to be able to pull out or utilize to fund future BRRRR projects.

Lessons learned? Challenges?

Start small and don't try to be perfect the first time around. The challenges were the steep learning curve and complete lack of knowledge of anything that I was doing. I think another challenge was trying to figure-out what I wanted to do in real estate while trying to learn the fundamentals of the business and simultaneously trying to work on the property that I had to move myself forward. It was a difficult time of contemplation, uncertainty, and fear.