This deal was an absolute project to get done, and not everything has gone according to plan. It was well worth it, for the sole fact that I learned a lot. This mostly came from some hard realities that I had to face by not being as detail oriented as I should have during due diligence. Even with the setbacks, the property will cash flow well even as a house hack.

Finding the Deal

I found the property on the MLS while doing a casual scan of what inventory was in the area (Newport, NC / Morehead City, NC / Havelock, NC / Cape Carteret, NC / Jacksonville, NC / Camp Jejeune / MCAS Cherry Point). I came across the subject property, a 1.6 acre parcel with a manufactured home, an in-law suite apartment on top of a commercial auto garage, and a commercial workshop listed for 220k. It was over 6,500 sqft of commercial and residential space which had been on the market for over a year. Curious, I took a drive to do some reconnaissance. I was even more impressed with the property as I drove by. I decided to knock on the door to see if the owner would entertain a quick showing. She was delighted that anyone was showing interest in the property and gave me the full tour as we built some rapport. My intuition told me I'd found something worth looking into, so we discussed potentially doing the deal off market in order for the seller to save a RE agent commission. She pulled her listing from the MLS a couple weeks later.

Negotiating

Running the numbers were tricky. I had to research rental comparables for 3bd/2bth manufactured homes and 2bd/1bth apartments in the area for the residential units, while the commercial units were assessed by what income I could receive in a worst case scenario. I considered the going rate for personal, RV, automotive, and boat storage and the opportunity cost of running a small storage business myself. However, I knew it was likely that a contractor, plumber, or landscaper would find the commercial space attractive. I came to the conclusion that 195k was a reasonable offer, factoring in the updates and utility meter separations that each unit would need. The offer was well received and we were under contract. Due diligence began with a home inspection, walk-through's and quotes from contractors for repairs and meter installation, and gauging the market's interest in renting the commercial units. Both contractor and inspector came to the conclusion that there were roof leaks, sub floor rot, and mold, along with other minor repairs. I brought these issues to the seller, and after haggling for a week, we came to a new price of 175k. I know my rehab costs would be higher with more out of pocket expenses, so I asked for 7k in closing cost assistance and increased the sales price to 182k.

Looking back, I did two things wrong. I did multiple contractor walk-through's for the auto garage and warehouse in lieu of a formal inspection, thinking that would suffice. I also under estimated the cost of what I may find under the flooring and behind the walls. If I had known that the commercial spaces needed to be 100% rewired, and that the residential space needed new sub flooring, sheet rock, and tons of mold and rot remediation, I would have been more set on a lower price. However, I didn't have that information at the time to use as ammunition to justify that lower price.

Closing and Future Plans

Using my VA entitlement, I scored a 30yr 3.375% Loan. I had to bring about $500 to the closing table. The contractors who were slated to start work on the house expressed interest in renting the commercial and residential spaces. I had my property manager draw up commercial and residential leases to begin on the day of closing. The apartment unit will be renovated as well, and I will be moving in before the required "within 60 days" mandated by the VA.

When we started the rehab, my costs went from a 30k estimate to a 60k estimate. There is no guarantee that I will see all of that money turn into equity. I say that because the property is one of a kind and hard to value in the first place. Once the work is complete, I will have it appraised once more and see if there is any equity for a potential HELOC. I will hold indefinitely. It will take me about 5 years to recoup the rehap capital that I anticipate putting into it. At the end of the day, I traded capital for cash flow and an education. I'm not thrilled about it, but I can live with it knowing that I will make better decisions next time.

Here are some numbers:

Price: $182,000 w/ 7k in closing costs

Loan: $188,000 (VA funding fee financed)

Current Appraisal: $182,000

Rehab Estimate: $60,000

ARV: TBD

Rent Roll: $2,500 ($3,100 following the house hack)

Cash to Close: $500

Expenses

Mortgage 30 yr @ 3.375%: $830 mo

Property Taxes: $776 yr

Insurance: $3,400 yr