How I Accidentally Became a RE Investor & My House Hack Details!

[Justin Eaton]

Soo...this crazy real estate investing journey began by me investing in real estate on accident. Without knowing it, when I bought my first fixer upper house in 2013, I was executing a simultaneous live in flip and house hack. At the time, I just needed somewhere to live and made somewhat of an impulse decision to buy a house in a town near where i grew up that i knew nothing about. Fast forward 5 years and 1 month after the closing on that first property and i've completed 11 flips, one wholesale deal, one BRRRR on a single family property and a newly purchased house hack duplex. For the purposes of this article, i want to focus on my first deal (the accidental one) and my most recent live in investment property which is the house hack duplex. For reference, both of these properties are in South Jersey in a town called Magnolia, New jersey.

Lets take a quick look at the numbers on the first live in flip / house hack:

Purchase price: $55,000

Renovation budget: $82,000

ARV: $139,000 (Somehow got almost 100% LTV, not sure how and never bothered to figure it out)

If you care to take a look at the listing CLICK HERE! I have closing this Friday! 

I bought this property with an FHA 203K loan. By doing some of the work myself i was able to pocket $15,000 from the rehab costs (shhh) which i would later use as my buy in to a partnership to do some flips. I had a friend move in with me into one of the bedrooms and they paid $500/month. After PITI, it cost me approximately $850/month to live in this property. I have closing to sell this property this Friday for $147,500. Tax free capital gains of course because i occupied the property the entire time. (Tax law requires you to live there for a minimum of 2 of the previous 5 years.)

Somewhere along the line within a year of living in this property i started to learn about real estate investing and i was hooked. I got together with a partner and we started flipping houses. I also began listening to the BP podcasts, reading BP articles, forums, and various real estate related books. I actually found BP randomly by searching real estate investing forums back in 2014.

After reading @Brandon Turner book "The Book on Rental Property Investing" I learned what house hacking was and learned a ton about rental properties. This book is the bible for any beginner who wants to invest in real estate via rental properties. Next, I read @Scott Trench - Set For Life, it really intrigued me even more about the benefits of house hacking a multi family property. Scott's book also taught me a lot about being more frugal and i became more cognizant of where my money was going each month. I decided that i needed to find a multi family property to house hack and also find ways cut down on some of my monthly expenses and expenditures. Thanks guys. 

Anyway...I had scheduled some appointments with my realtor to see a couple duplexes in my town and neighboring town. I remember this day specifically as it was the day after the NFL draft in Philly (April 21, 2017) and i was really hungover. While touring one of the duplexes in the town i was living in, i started to feel sick so i hurried through the house just to get the showing over with. The house was a little out of the price range i was looking to spend in anyway so i didn't plan to put an offer in (asking price $189,900). I never ended up making any offers after these showings but i did keep an eye on this duplex i hurried out of. I would walk my dog past the property occasionally and check the listing online for a price drop. One day i was looking online for the house and realized it was not longer on the market and i assumed it sold. I looked up the tax records to see the sale price and there was no change of ownership or record of sale. I decided to send a letter to the owner of the property to see if we could come up with an off-market deal. I ended up buying the property for $160,000 in late February of 2018.

Lets take a quick look at the numbers on the house hack duplex:

Purchase price: $160,000

Renovation budget: $21,000

ARV: $215,000

Rents:

First floor: $1,250 before being fixed up, but i am occupying and its already fixed up.

Second floor: $850

Three garage bays: $95/each

Total expenses after re-fi (PITI): $1,815 (NJ taxes are unreal!)

Total income: $1,135

Cost to house hack: $680 / month

I bought this property with a construction loan thru my flip LLC for 20% down on the purchase price and the reno was 100% funded by the loan. I then re-fi'd with the same bank and transferred the deed into my personal name. (Why did i buy it this way? Being that the property was a duplex and my history of being an investor, the bank would not give me a low money down loan (5-10% conventional) until i sold my primary residence for the fear of me turning around and renting it out. Seller would not have waited around for me to sell my house and i would have lost the deal.) During the re-fi, the property appraised for $220,000, 30 year 4.5% fixed rate mortgage at 85% LTV i was able to pull out $37,000 which is approximately what i cost me out of pocket to purchase. Therefore, i will have almost no cash staying in the deal.

My plan is to live in this property for 2-4 years and then rent it out. By that time i expect the cash flow to play out like this:

First floor unit: $1,400

Second floor unit: $900

Three garage bays: $330

Total expenses (PITI + 5% vacancy 5% repairs (1st and 2nd floors only)): $2,045

Cash flow: $585 / month.

ROI: Infinite (no money in the deal!) 

ROE: 21%