Investment Info:

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

Purchase price: $520,000
Cash invested: $100,000

My wife and I bought a single family home with a detached garage. Using some of our own funds as well as the FHA 203(k), we renovated the house including an addition and converted the garage into an Accessory Dwelling Unit. Currently we are house hacking by renting out the main house and living in the ADU. Once we refinance the house the projected rents from the ADU, we anticipate cash flow (before vacancy and reserves) of about $850/month.

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

We really wanted a property that was a fixer and had the detached garage. This way we could add value in adding units and keeping our costs down through house hacking.

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

We found it through the MLS. We were one of 17 offers (priced artificially low for a bidding war). Because it was a fixer and knew that plans were going take time, we offered a free 30 day rent back, no home warranty needed, and offered $1,500 above any bonafide offer (knowing that it would still need to appraise). We entered escrow $68,000 above the asking price but was able to negotiate the priced down by $47,000 through inspections/using our FHA 203(k) as a reason for price reduction.

How did you finance this deal?

We used the FHA203(k) loan and had to invest some of our own money. The down payment actually came from a line of credit from my condo that had appreciated well. Effectively we did $0 down.

How did you add value to the deal?

We remodeled the home, and did a 350 square foot addition. Plus we converted the garage into an Accessory Dwelling Unit (rentable guest house).

What was the outcome?

Once the work was finished, we did an FHA Streamline Refinance, which lowered our bills by over $300/month. Currently my wife and I live in the ADU and we rent out the main house. We pay below market rents for our unit while building equity in the main house.

Lessons learned? Challenges?

At the time I was the first in our circle to do an ADU from scratch so there was a lot to learn there. The biggest challenge was the City and our lender. The City caused so many delays because they were short staffed (for example taking 10 days from when you call to come out to inspect rather than 2-3 days). The lender also took a long time to get us the checks needed to pay the contractor, which forced my contractor to have a skeleton crew rather than going full board.

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

As an agent, I worked with my broker who was stellar. The negotiations were amazing as we ended up closing on the home for less than what our initial offer was.