Sub2 RentbyRoom Austin

[Alejandro B Yoon]

Investment Info:

Single-family residence buy & hold investment in Austin.

Purchase price: $320,000
Cash invested: $45,000

Off Market Sub2 3 bed 2 bath property with additional garage conversion in Austin, Texas. 40k entry, 280k remaining loan balance secured a 4.38% rate. Loan matures in 2052. I have a 5 year balloon (Feb 2029) to refinance to take the loan off of the seller's credit. Seller wanted to dispose property off market since there was a murder in the home in 2019.

Home overall is relatively turnkey, Previous owner built a custom deck in the backyard, installed new countertops, HVAC 2020, Roof 2019.

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

I didn't want to wait to buy another home with a primary home loan. Also a 20% down loan in Austin, Texas with higher rates wasn't appealing or would make sense. I was hunting for deals for around a month or so with only 43k cash.

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

The seller is an alumni from my college (20 years older than me). I met found his website and he had a few deals he was selling, I spoke to him and found out he was in a cash crunch to finish up some spec homes in San Antonio he was working on. He has a portfolio of 100+ homes, with the adjustable rate loans killing him. Was motivated and wanted to close quickly. I negotiated from a 50k entry fee to 40k.

How did you finance this deal?

Only my own cash. I am an aggressive saver and the stock/crypto market had been doing well since I was buying last year after my first Househack.

How did you add value to the deal?

Improvements to be made within the first year after property stabilizes with tenants is gutters

The loan that I am assuming (4.38%) has tremendous value, I will be barely cashflowing, but my return on equity from principal paydown is some 12%+. I also will be renting by the room, to make sure I am cashflow positive while I own the home. I am very bullish on the Austin, Texas market for the future, I plan to continuously improve the home and eventually pull out equity during the next boom cycle.

What was the outcome?

This home is now a rent by room rental, creating significantly larger cashflow and allowing me to sleep on the couch when I visit Austin every few weeks. Projected rental income is around $2,850-$2,950, with current PITI at $2,277. After utilities, net cashflow will be around $200-$300 a month.

I currently have the place clean and furnished, I have 2 leases signed, with 2 additional rooms waiting to be rented. I am very confident it will be fully leased within the next week.

Lessons learned? Challenges?

Never stop looking at deals, I made lowball offers on two other homes off market before I got this one accepted. I spent many hours on those homes/apartments doing my due diligence, only to have the seller say no and accept someone else. It can be frustrating, but the practice had made me faster and more efficient in underwriting a deal.

I don' t see a need to purchase more homes, I plan to have my next deal be a 5+ unit property.

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

N/A. I represented myself and had an attorney create the contract. Nothing special.