House Hack/BRRRR with Lessons Learned

[Thomas Smith]

Investment Info:

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

Purchase price: $209,000
Cash invested: $8,300

House Hack/BRRRR Deal
- Purchased 11/2018
- Occupied the lower unit
- Started renovations on upper unit 1/2019
- Completed renovations on upper unit 1/2020
- Minor renovations in lower unit
- Refinanced 9/2020
- New appraised value - $260,000
- Total renovation costs $7,500
- New mortgage (PITI) - $1,312
- Monthly living expense - $312 split with my fiancé
- Our unit will rent for $1,150+ when we decide to move
- Total rents $2,150+
- $42,000 in equity after refinance

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

I knew the easiest way to get in to real estate investing was to house hack a small multi-family property with a low down payment option.

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

We originally found this deal on the MLS listed at $219,000. Our negotiation tactic was a bit unorthodox. We had some good friends that lived across the street and put in an offer on the house to buy as an investment. They backed out after the home inspection revealed some foundation issues in the basement. They shared their home inspection with us, and we offered $199,500 with no inspection. After negotiations we settled on $209,000.

How did you finance this deal?

We used an FHA loan and put 3.5% down.

How did you add value to the deal?

The upper unit was vacant when we moved in. We spent about 12 months slowly doing the renovations ourselves, with the help of some family and friends. The upper unit received new flooring, paint, light fixtures, closets, retiled bathroom with new fixtures and vanity and a full gut kitchen remodel. After we completed the upper unit, we finished some miscellaneous tasks in our lower unit. These included paint, flooring, painting the kitchen cabinets and subway tile backsplash.

What was the outcome?

We were able to refinance out of our FHA mortgage to a 30 year fixed conventional mortgage. We dropped our monthly payment from $1,600 t0 $1,312. Our rate dropped from 4.625% to 3% and our PI dropped from $147 to $28. Our appraisal came back at $260,000 and our lender did 85% LTV as owner occupied. Our tenants are paying $1,000/month.

Lessons learned? Challenges?

We learned that we need to better prepare for our next renovation. We did the work during our free time, which was hard to come by. We learned which renovations we were good at and which ones we will contract out next time. We also found out that it's harder to find tenants in the middle of winter in Buffalo!