My 1st investment house hack

[Farrukh Amini]

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Jersey City.

Purchase price: $196
Cash invested: $50,000

A compact two-family house with one 1 bed/1 bath apartment and one 2 bed/2 bath apartment and a small backyard.

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

House hack - Lived in the bigger apartment for free while renting the smaller apartment which covered 90% of my mortgage payments. Based on the population trends in the NYC surrounding areas it was clear that this location would be hot in a couple of years. The property is located within 5-10 minute walk to the main transportation hub that gets you to NYC in 15-30 minutes.

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

MLS. The property was in pretty bad shape and, in the market for 6 months. The Journal Square market was not as hot as the surrounding Downtown or Grove st neighborhoods, so all the attention of investors was elsewhere. We lived in Jersey City for about 5 years by then and knew what the population growth and trends were. The property was listed for 226k and we negotiated it down to 196 by leveraging the fact that there was no demand.

How did you finance this deal?

A traditional mortgage with 20% down.

How did you add value to the deal?

Invested cash to rehab and update the property.

What was the outcome?

The value of the property went up 50% in just 1 year (mid 2015) and 100% in two years after the purchase (2014). Ended up refinancing in 2017 with cash out and investing on another multi-family rental property in Jersey City.

Lessons learned? Challenges?

For the 1st time buyers, I'd recommend doing some research on what to look at during the inspection and going in educated. If your inspector is incompetent or doesn't care, it might cast you. I didn't know much when I purchased this property and trusted the inspector to do the due diligence, but he missed a few important signs of pipe leaks and bursts, which ended up costing me money and stress.

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

My RE agent is a rockstar and to this date we work with him. Highly recommend Steve Salzer at Keller Williams City Life of Hoboken, NJ.

[Farrukh Amini]

Originally posted by @Yinna Wang:

So:

196k purchase price

50k downpayment 

50k reno

Then property appreciated 100%, so now its worth 392k

You did a refi, pulled out 80% of 392k which is 313k. Paid off the original mortgage of about 140k. Which left you about 173k for the next deal.

Does that sound about right? I’m planning on doing something like this with my property as well so trying to follow the math/logic. There’s definitely a few bits missing like closing costs, cost of refi, etc. 

Also, how did you follow your appreciation, did you get the property re-appraised? 

 I rounded up the numbers a little but to be more exact, when I purchased, 20% down was 39.2k, closing costs were about 7.5k which put my total cash invested at 46.7k. 

Then I immediately started rehab on the apartment that I needed to rent out. I spent around 16k for rehab. Got a tenant after 3 months of closing that paid $1250/m. Mortgage was $1475. 

Then I slowly finished (over the next 12 months) the apartment that I lived in which required more work. Spent close to 36k because we found damage from termites on one side of the house. 

Fast forward to 2017, refi appraised the house at $390k. I could cash out 80% of the appraised value minus the balance of 146k which allowed me to take out 166k. Since I was still new to this and didn’t know if I would be able to invest all of that money, I decided to be conservative and take only what I needed. Ended up cashing out 113k minus 7k in refi closing costs got a check for 106k.

After cash out my monthly mortgage payments became $2050. 

Within a couple of month got another two family house (246k + $60k in rehab costs, with 25% down put my monthly payments at $1600) rehabbed it and rented. Gross income for the two new units is $3300 plus $1450 for the unit that I rent in my first property gets me a total of $4750, minus the two mortgages $2050 and $1600 leaves me with a profit of $1100/month and I live for free in my 2 bed apt.  Of course there are miscellaneous expenses that come up here and there which will eat into the profit but overall the math makes sense. 

Hope this is helpful. Feel free to pm me for more details or any other questions you might have.