House Hack & BRR in Nashville

[Winston Parks]

Hey BPers,

BP and I have an on again and off again relationship as I go large amounts of time not reading and participating... That said, I found BP when I accidentally landed into CRE several years ago and it is an amazing resource for people at all levels. I bought a house in 2018 and just finished the refi and HELOC so below are the details of how I did the infamous house hack and BRRRR (not sure what you call what I did)

Purchase Price: Listed for $430K Offered $430K

I overpaid here as the house was probably worth between $385k to $405K but its Nashville so I had to shoot. It also had the bones I wanted, was in the exact part of town I wanted to be in, and had an alley. I offered full listing price to get under contract and negotiated from there settling at $412K

Down Payment (10%): $41,100

I went for a conventional loan and the lender would let me put down 10% and not have to pay PMI...

Above I mentioned the house had the "bones" I wanted and an alley. The bones was a 575 sf detached garage off the alley and that played a huge part on what I was to do. Soon after I purchased I contacted several GCs in the area including one guy who did a DADU two doors down from me. Literally no one would give me a budget and were too busy or the project too small. I started to get lazy and we lived in the house for about four months prior to a long vacation and then came back ready to renovate. I contacted a GC I do a lot of work with and he sent up a few guys to do the work from 1.5 hrs away. They got paid a little more than usual, but not Nashville prices.

We closed in the detached garage to create a DADU (Detached Dwelling Unit). Received all permits and did everything by the book. The only trade I could not do was electric and frankly I am glad the city wouldn't allow me to do that. We sketched out what we wanted the design to be and came up with a 1 bed 1 bath apartment design. 

We gutted it completely although that didn't take much effort as it was a garage and started.

The project started January 21st and ended April 12th. It took longer than it should have because I made changes, had to wait on supplies, took three days to find sewer, etc. The typical excuses for construction, but still moved along nicely. 

The buildout of the garage with new roof, new everything and B materials came to:

Electric: $2,800

HVAC: $2,650

Gutters: $1,200

Labor & Materials: $44,466

Permits: $250 ( I think less )

Appliances for new apt: $2,475 (paid for on Lowes and HD cards with no interest)

Total: $53,841

I could have stopped here, but I got the fever and made some changes to the main house which I believed would greatly improve it astetically as I intended on AirBnBing the main home and living in the smaller apartment. I opened it up between the kitchen and living rooms, added shiplap to the ceilings, painted the cabinets (myself), and put in new countertops. (this was a horrible decision and I actually got bamboozled by Home Depot, but you live and learn)

Wall Demo & Trim: $2,000

Paint and New lightings: $2,240

Backsplash & Other: $745

Material & Fuel: $1,106

New Stove: $400

Countertops: $4,176 (This was $1,900 more than it was supposed to be, but no one cared.... :( 

Cost for main home reno: $10,627

Total Cost for the renovation of main home and completing 575sf DADU: $64,468 (not bad right?!!)

Now soon after all this came to closure, the trees that I thought were so lovely almost ruined it all. A very large tree fell about 20' away from my new apartment causing a deductible payment and thoughts of tree work.

Deductible: $1,000

Other tree work: $1,600

Now that I had done all this, I just couldn't get the landscaping to look good at all. After two or three attempts I gave up and called a professional.

Landscaping: $3,412

So.

Purchase Price: $412,100

10% cash downpayment & small closing costs: $41,100

Additional Cash at Closing: $2,348

Payment of new DADU: $53,841

Main house remodel: $10,627

Other: $6,012

Total out of pocket Cash Spent: $113,928

All in Cost of House with DADU: $484,928

Monthly payment: $2,218

Loan Amount:$370K

So starting March 2019, we began AirBnBing the main house and living in the newly built apartment in the back. In reality, we juggled staying in the unfinished apt and AirBnB because I gave a hard date of March 15th and had guest coming that weekend. I refused to cancel and made everyone suffer since they were not done on time. The AirBnB had been going very well and averaging a gross $4,600 per month (March 2020 made a year)

At this point, we moved into the apartment and were living rent-free while putting $1500 in our pocket each month. I loved everything except the fact I had so much cash in the house that I wanted back in some way. 

In March 2020, I struggled to decide if I wanted to do a refinance, cash out refi, or HELOC. I decided to do both a refi and HELOC rather than a cash out refi.

New Appraisal Value as of April 2020: $594,000, this means in the 18 months I owned it I was able to increase the value by $109K by value add and appreciation! The refi loan amount came out to right at $370K meaning I had $224K in equity. The refi alone reduced my monthly payment to $2,049 per month (Property taxes went up due to DADU) from the $2,218 before which was nice. Now to access the equity because what good is it if you cannot touch it. 

I decided against the cash out refi simply because I did not want that high of a loan on that home without knowing for sure what I would do with the money. So right after I closed the Refi I closed on a HELOC two weeks later for $100K (what I asked for)

So, I look at it like I paid $14k to make the $109K in equity, live rent-free and actually make over $1500+ each month (Pre-Rona), and have two units I can rent out. Should I rent out the doors long term I can get conservatively around $5k per month total putting about $2K in my pocket monthly..

I started relatively slow, paid more for the house than I should have, paid more in project costs than I should have, and many unexpected costs arose out of no where, but in the end its totally worth it. We sacrifice today by living in a smaller unit, but that isn't forever. We have about four months of reserves in the BnB account so we will not have to come out of pocket for a little while still. And even if we do, we are living well below our means and can make the payments without issue. 

Hopefully this adds value to someone and they can repeat this. Let me know if you have any questions and happy hunting!