How I Bought the Most Efficient House Hack in America [Part 4]

[Spencer Cornelia]

Challenge: If you can find a house hack in America with better numbers than what I’m going to present to you, please share.

My ability to purchase this house all began with my first real estate purchase, my condo next to the Las Vegas Strip.

Since the Vegas market saw rapid appreciation between the time I purchased my condo, September 15 2016, and the time I sold my condo, February 28th 2019, I was given the rare opportunity to sell at a massive profit in such a short time frame.

Because I was able to take out a HELOC to use for a 4plex and 2 flips, I had two mortgages to pay off at closing: first mortgage and HELOC. Even with closing costs and bogus HOA fees to pay, I walked with nearly $30,000 in cash.

My good friend in Vegas bought a property for $175,000, renovated it, and lived in it for two years. I was amazed at how beautiful the numbers were for a house hack. When I went to his house for the first time in August 2018, I knew I had to purchase the house if he ever wanted to sell.

I had two hard money loans outstanding, and my current DTI was probably 2 because my w2 income isn't high and the lender wouldn't account for the 6 roommates' income I'd have if I were to buy his house.

So I had to wait until I exited my two flips, exited my condo, and had financing approved before I could buy his house. This presented a timing issue as well as a logistical issue, as I didn’t want to hold off on moving forward with rehab projects in order to buy this house.

The timing appeared to be off as he was interested in selling a few months earlier than I anticipated. And my second flip had been delayed for about 60 days which meant it was even more unlikely that I would be able to buy his house.

A couple weeks ago, myself and a close group of friends were set to meet up at a popular bar in town. After an hour, it was just me and him and he mentioned that an investor's VA called his number and discussed buying his house.

The investor was interested in a lease purchase agreement because he was a wholesaler and didn’t have the ability to qualify for a traditional mortgage.

After discussing the details, I asked him if he would consider offering me a similar deal. I could be the investor buying the property.

He was cool with it.

I went home that night and couldn’t sleep. After a couple months of thinking I couldn’t buy his property, I realized it was now a potential option.

We met a week later to go over terms. We agreed that $300k was a fair purchase price. He was thinking of listing the house for $289k. Since he was offering such good terms, I was fine paying more for the house. Also, by not listing on the market, I saved him at least 6% on agent fees, and the stress of selling a house (dealing with buyers, flakes, offers below list, etc.). To add, Zillow has it estimated at $310k so I believe I bought it at slightly under value or right on appraisal value.

The numbers:Purchase Price: $300k

Down Payment: $25k and remaining $35k in installments (because he’s doing me a huge solid and is allowing me to pay over a 3-4 month period)

Balloon Payment: not specified but gentleman’s handshake that it will be around the 12 month mark

Monthly Payment: $1500

His PITI is around $1000 so he is cash flowing $500 per month from this deal. The principal paydown every month will be added as equity for me. In one year, I'll add roughly $2800 in equity.

Because my income from 2019 will be about 4x what my 2018 income was, I anticipate being able to get a 30 year loan on this property in 12 months when taxes are filed, even if I have an outstanding hard money loan.

The House

The garage is a converted unit with its own private bath. Two rooms downstairs share one bath. Two rooms upstairs share one bath. The Master upstairs has its own bath. The room next to Master has its own bath. In all, the property is a 7 bed, 5 bath 2,400 square foot cash cow. My buddy rehabbed it while living there, brand new roof, new kitchen, upgraded bathrooms.

I decided to furnish the rooms that are currently not occupied. I spent $2,100 to furnish 3 rooms and add a fridge to the garage. 4 rooms were already taken and will be furnished as the tenants move out.

The Numbers

Monthly PITI payment: $1,500

Electric: $225

Internet: $125

Security: $50

Maid: $100

Total: $2,000

Income

Rooms that share bathroom: $550 x 4

Converted Garage: $600

Room with private bathroom: $600

Master: $650

Total Income: $4,050

I will be sleeping in one of the bedrooms that shares a bath so my total ‘house-hack’ income is ~$3,500

Total Net Income as a House Hack: ~$1,500 per month

This is the exact property I needed. As I look to expand my rehab business, having a huge cash flow every month will allow me to easily handle multiple hard money loans at one time.

Yes, I understand that this is a lot of people living in one house. It will be a fun experiment with people management and a great way to meet new people. The house definitely does not feel like a college dorm as I initially expected. Everyone has their own space, different schedules, and keeps to themselves which allows the house to never feel like a problem of housing too many people.

This is Part 4 of my journey to real estate success.  Part 1 can be read here.  Part 2 can be read here.  Part 3 can be read here.