Flipped house, paid off debt, bought duplex, increased cash flow!

[Chris May]

I've been dreaming about writing this post for over a year now, and am so excited (and relieved) the time has actually come. My wife and I began our real estate journey almost 3 years ago with the purchase of our first home, and yesterday our first tenants moved into our duplex in an A neighborhood in Oakland, CA. It's been an exhausting journey,  but I can definitely say all the hard work was more than worth it. 

Everyone we told about our plan to thought there was no way we could pay all the transaction costs on the sale of our home, buy a multifamily with the proceeds, and still come out ahead. Well, I have to say that knowing your numbers and trusting yourself really pays off, even if you have to face an avalanche of naysayers in the process (our friends and family all thought we were crazy). In the end we accomplished exactly what we set out to do.

Sorry for the long post... I'm almost writing this more for me than for the BP community. I can't believe it's finally my time to share.

We bought our first home with hazard pay money, I made from a temporary work assignment in a less-than-ideal foreign country. When we bought the house, we planned on being there for the medium term. However, with the market booming in the Bay Area, and our house appreciating 15-20% per year, we decided the opportunity to use the market to our advantage was just too good to pass up. We ended up doing what we've coined the "slow flip"--flipping a personal residence over 2 years to avoid paying capital gains taxes and getting all the beneficial tax deductions in the meantime. I spent pretty much every weekend from mid 2015 to mid 2016 working on the house and there were times I questioned why we were doing all this.

We finally got the house on the market in June 2016. At first it didn't sell within the 14 day days-on-market typical in the East Bay Area, which can be the kiss of death for listings around here. Basically, we mispriced the original listing (should have been 25% under expected offer price, but ours was only 15% under). Lesson learned. Don't be greedy. We ended up raising the price (probably counter-intuitive to anyone outside of the area) to slightly less than what we had hoped for, but still enough to accomplish what we set out to do. The listing process was way more of a headache than we had anticipated (one offer fell through, and another buyer with financing issues that took 78 days to close) but ultimately we closed on an offer right at the new list price.

I built a pretty elaborate spreadsheet for modeling the numbers on prospective properties. We really put our agent to work, and were looking at 2-3 multifamily properties every week, and putting offers on about one per week. I can't stress enough how much that spreadsheet paid off. We knew exactly what we were willing to pay, and it kept us from getting caught up in this crazy hot market and paying more than we should.

After almost two dozen offers, we ended up getting a duplex in a very desirable part of Oakland--an area we've wanted to live in for years but thought would be impossible. We submitted an offer, but lost out to an offer "substantially" higher than ours. The sellers asked us if we wanted to be in backup position but declined. To us, it didn't make sense to obligate ourselves to a property when we had already moved on in our heads. That turned out to be a very smart move. The original offer fell through, and when the sellers came knocking on our door we took $50k off our original offer price, and they accepted it!

We're now house hacking, living in the unit that needs work and renting out the nicer unit. Compared to our house, we're building twice the equity every month at about 60% of the monthly cost to us, and now have most of our non-real-estate debt paid off. We were also able to take a two week trip to Europe a couple months ago with some leftover cash! Needless to say, all our hard work paid off and our financial picture is much better than it was just a couple years ago.

It's been a ton of work and moving 3 times in a year (out of the house, into two temporary apartments, and then into our duplex) was horrible, but I learned so much about the business and couldn't be more pleased with where we are now. I'd do it all again in a heartbeat.

If you're still at the beginning stages be smart, know your numbers, put in the hard work and stick with it! It will be worth it!