Owner Occupied SFR - House Hack - Full Time Rental

[Dan Amato]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $205,000
Cash invested: $60,000

I bought this house in early 2017 as an owner occupied house. I was 26, moving back to my hometown with my work on a small promotion and had been paying high rent and thought I knew everything. In reality I didn't know anything except that I hated paying rent. I just knew that I wanted a house in a good area for resale or rent and that I wanted to be able to eat after paying my mortgage. I looked at about a dozen properties in one day, found one that was acceptable for $220k, offered $205k and was under contract. Looking back, I offered too much since he never countered. A 1200 sqft 3/2 in a great school district.

Put 20% down (received a first time home buyer incentive from the state to use for down pmt or closing costs for $15k - it is a second mortgage that amortizes fully over 5 years and does not require payments) to avoid PMI. Then put money into the house - took out a wall, new floors (fake wood looking tile), had a bunch of old oak trees taken out, removed hundreds of bags of leaves, repainted the inside and so on. I did most of the work before getting educated. Then a friend told me about BP. I started listening to the podcasts from the beginning and instantly realized I should have bought a duplex or triplex; but, you can't change the past. So I put a tenant in towards the end of 2017. Then saw how great that was to have my mortgage cut in half and added another. From the end of 2017 through July 2019 I had at least one, if not two, of the extra bedrooms rented out. It was a fantastic learning experience.

I got my feet wet in the landlord arena. Realized that taking action - finding a roommate, actually screening them, following the letter of the lease (chargi late fees), calling plumbers, replacing the dishwasher or laundry machine - actually doing those things was the only way any of it would get done. I repainted the kitchen cabinets and made what is probably a $5k upgrade to the kitchen for $350-$400 in less than 4 days. I know that I put about $55k in cash into this thing from a down payment perspective + the initial big ticket renovation items. I've probably put another $5k in smaller value add projects, repairs, replacing all the fans, and maintenance throughout the time I've owned it. That's where my $60k cash in comes to/from. I have prepaid some principal but I do not count that as cash in at this time due to the fact it was completely discretionary + since I have a full time job, I was choosing to throw a little bit of spare change towards the mortgage on top of what my tenants were paying me.

I got complacent and even though I said i wanted to build a rental portfolio I never took more action. Then in June 2019 an opportunity out of state with work came and I told myself whether it worked out or not I was going to take action and make this a full time rental. I gave my tenants 30 day notices per the lease and got after it - over the next 5 weekends I worked to get the house, including the landscape, in full rental shape. I interviewed 3 property managers and chose one. The house was listed the last week of July and leased out by August 9th. The $200 in monthly cash flow is what I estimate to make going forward.

Like Brandon and others have said on the podcast....it doesn't matter if you make money on your first deal or not. It's all about the learning and confidence it builds. They are so right. I am very proud of this property. I really had no idea what I was doing going in - I thought I knew everything - in reality I knew nothing. Luckily I was practicing sound fundamentals from a buy right perspective without even knowing it - good location, modest house, good schools and affordable. I realized I could have made what would likely have been a more fortuitous decision in buying a duplex, triplex or fourplex but I pulled some levers and made this SFR work for me.

I am now on the warpath for something where work is taking me. Stay tuned.

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

Honestly when I went into this investment it was from a place of hating paying rent. I'd come from a city where I was paying high rent and was moving back home. I thought I knew everything about real estate but in reality I knew nothing. Luckily I knew enough about the market (my hometown) to know that if I bought this house or others I was looking at, it would be great for resale or rental based on location.

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

My realtor and MLS. She advised writing a letter with the offer. I thought that was ridiculous (because I thought I knew everything) but I did it anyways. My dad advised me not to ever offer full price so I offered $15k less. Seller accepted.

How did you finance this deal?

I used a traditional 20% conventional mortgage. In addition, my MLO knew of a first time home buyer incentive from the state and found me $15k cash to use for down payment or closing costs. It got put on as a 2nd mortage that fully amortizes over 5 years with no actual payments.

How did you add value to the deal?

The money I saved thanks to the $15k from the state was put back into the property immediately - took a wall out, new floors, repainted the whole thing. Took 7 old dying oak trees out. Bagged hundreds of bags of leaves. Had the backyard sodded. Finished the fence. One of two sheds removed. Eventually replaced dishwasher and clothes washer. Repainted kitchen cabinets. Replaced many lights and all fans. Floors, fence and trees contracted. Everything else for most part DIY.

What was the outcome?

I have turned this into a cash flowing full time rental after house hacking it for about 2 years.

Lessons learned? Challenges?

So many. Taking action was biggest lesson learned. Every time I would actually do something - decide to post an ad for a roommate; pick up the phone to interview property managers when I decided to make it a full rental due to new job out of state; repaint cabinets - every single time something good came out of it. I made mistakes literally every step of the way but none of them killed me and the outcome always ended up positive. IF YOU'RE NOT UNCOMFORTABLE, YOU'RE NOT GROWING.

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

Alison Pedersen - Remax Realtor. Cindy Branch - Region Bank MLO.