3rd house hack closed w 5% down product

[Mark F.]

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Bergen County NJ.

Purchase price: $1,050,000
Cash invested: $75,000

Three family house hack in Bergen County NJ using new 5% down product. Studio (occupied), 2 bed 2 bath and 3 bed 2 bath both vacant. Excellent neighborhood that commands high rents. Utilities are not separated as of now. Heat will be soon. Electric will be done in the future.

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

Wanted one more house hack before getting our SFR. The timing with the 5% loan product released was impeccable. Wanted more than a duplex as I already have two.

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

I saw it on the MLS/Redfin. It had been sitting for almost a month. Class A neighborhood. 3 unit amongst all single families. I couldn't believe it wasn't UC yet. Told my realtor and we think because it was priced too high, UST hadn't been removed and no separate utilities. We offered 10% off ask and seller removes UST. Seller accepted, wanting small amount toward UST removal. We agreed. They had other offers at the same time but my realtor developed rapport with sellers realtor and they knew we were serious and more likely to close. The seller was a contractor who lived in it with his wife and took excellent care of the house which makes us feel great about the purchase.

How did you finance this deal?

New 5% down product. Other house hacks I used VA loan and FHA so timing on this was perfect. 6.5% rate. Appraised at PP. I feel if we had to sell in a few years, after separating utilities, we could get more. Especially not listing in the dead of winter.

How did you add value to the deal?

Sellers removed UST (cost was $20k for them), already 3 gas meters and installing two other boilers to separate heat. Two vacant units need light updating; paint touch ups, updating light switches, outlets, lights, etc. Replacing 2 bdrm kitchen for max rents. Upping studio to market rent ($350 below market currently). Adding a washer/dryer for studio to use too. Made sellers fix a few important things and left us with the small stuff.

What was the outcome?

Starting reno now but expect to rent 2 bedroom unit at market. On the numbers, once we leave it will cash flow nicely especially once we refi down to hopefully a 5.5% rate next year as its owner occupied. Expect high rent growth and appreciation due to the excellent area. Went from 4 doors to 7. Very excited about this asset and have a high quality place for a close family member. Puts our total RE portfolio valued at 2.5 mil which is crazy to type after buying first duplex in 2020.

Lessons learned? Challenges?

First purchase with an oil tank removal; expect it to be more than quoted. Would not shy away from a UST as long as sellers remove. If using an attorney, get a good one. Sellers attorney was total trash and everyone hated them due to lack of communication. In the end, that attorney cost them thousands in negotiation (or lack thereof). Learned about time of the essence letter and how a seller can force you to close in 10 days. Always expect more reno when you do a walk thru of occupied unit vs. once they vacate. No biggie but still surprised on final walk through.

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

Lender communication was trash but fees were excellent (Universal Financial Mortgage Group). Attorney (had two different ones on previous transactions) was good and would use again (Jonathan Lasser). My realtor/mentor as usual was aces (Thomas Corrente of Terrie O'conner Realtors).