House Hack to Live Rent Free

[Owen Schwaegerle]

Investment Info:

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

Purchase price: $575,000
Cash invested: $62,000

After listening to BiggerPockets for three years, reading dozens of books and audiobooks, being inspired by countless people who shared their stories, my wife and I made our first real estate investment purchase. It was a 4plex.

We decided to house hack so that we could live rent free. Scott Trench's book, Set for Life, resonated with us. We knew that if we wanted to achieve financial independence early, we were going to have to live in an unconventional way.

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

We live in a very expensive area. The cost for housing is extremely high! Many young people decide they cannot afford to buy a home in our area, so they move and relocate out of state or to more affordable areas. We love where we live so much that we decided we wanted to do whatever we could to plant roots and stay in our community.

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

We watched the market for years. We prospected, sent direct mail, and proactively searched for property. One day, a new listing came available. It was a 4plex for $560,000. When we saw it we immediately knew it was a deal. The listing agent was from out of the area and under priced it significantly. Usually multiunit properties in our area to go for $200-300K/door. This was priced at $140K/door - a true deal! The property was also about a 1/3 acre and had a front house and a triplex behind it.

How did you finance this deal?

As a self-employed real estate professional, my income did not count towards qualifying us for the mortgage since I had not been in the industry two years yet. My wife's income from her W2 job counted, and we could use the income from three of the units to help us qualify. Since we were going to be living in the property as our primary residence, we only needed to put 5% down, or $28,750. The rental income was about $3,500/mo, which totally covered our Principal Interest Taxes Insurance (PITI).

How did you add value to the deal?

We had to improve the units and we were able to raise rents! We had to put in about $30,000 of work to make the property better.

What was the outcome?

After we closed on the property, my wife was able to leave her W2 job and join me in our real estate businesses full time.

We had to do a lot of work. There was a ton of sweat equity that we needed to do. We spent all summer with our family, friends, and contractor working on the project to make it much nicer before we moved into it.

Lessons learned? Challenges?

The lender you work with matters! Not all lenders are created equally. One of the lenders we attempted to work with was less experienced and could not get us the loan we needed to qualify. It almost cost us the deal. We had to switch lenders midway through escrow, and the new lender totally came in clutch and helped us close the deal! Know you market! We were able to quickly analyze the deal and realized that it was a great price/door. It also almost hits the 1% rule, which is very uncommon here

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

Yes, I'd recommend Kim Rivas for financing with KD Capital Mortgage in Paso Robles. She is incredible! We represented ourselves on the purchase of the property since we are licensed real estate agents.