House-hacking a fourplex

[Randy Mattila]

Investment Info:

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

Purchase price: $1,015,000
Cash invested: $150,000

We sold our first house-hacked (C class) fourplex and did a 1031 exchange to buy these two (B class) fourplexes in a MUCH better location. We did this deal only using the money from the sale of our previous property. This was a huge blessing because it allowed us to keep all the money that we had saved since we bought our first property and because we didn't have to use it as a down payment on this one we put it towards our reserve fund and towards our down payment on the next deal!

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

My wife and I had already house-hacked a fourplex to begin our investing journey. We wanted to continue doing so as long as we could to save up as much of our income as possible. We are still at the age where it's not an inconvenience to do so and our family (one daughter) is still small enough that we do not need the extra space that a single family house would provide.

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

We found this deal off-market through our network of investors that I met by becoming a board member of the Benton Franklin Rental Owners Association (BROA). This organization proved vital to preparing us to become great at self managing our fist fourplex. I dedicated a lot of time to attending the BROA meetings and being involved in the association. After a few years I was asked to serve as a board member and I accepted the position. This deal was a direct result of that decision.

How did you finance this deal?

One of the two fourplexes which we are currently house-hacking was financed with an FHA loan at 3.5% down (since we sold our other FHA property) and a 3% interest rate. The second fourplex was purchased with a convention loan at 25% down and a 4% interest rate.

How did you add value to the deal?

I believe the real value that was added was the discount we received on the purchase. We were able to purchase each property about $125,000 below what they would have sold for if they would have hit the MLS based on comparable sales at the time of closing. The reason we were able to make the purchase below market was because the sellers knew us personally through BROA and they were selling off their portfolio to retire stress free. I would also consider them our one of our mentors.

What was the outcome?

With the additional cash flow that 8 rentals provided we were able to afford to keep the sellers property management in place. The property manager was also a board member of BROA and they taught me much of what I know about property management. I trusted them and our end goal was to have all of our properties professionally managed some day. Therefore it worked out great to leave them in place. We doubled the cash flow of our last property even with the added expense of property management.

Lessons learned? Challenges?

I LOVE living in this neighborhood. Location, Location, Location! We no longer have problem with vandalism, police activity or neighboring landlords mismanaging their properties. These new fourplexes were built in a "master planned" fourplex community with an HOA that keep everything neat and orderly. Our residents have access to a pool, hot tub, clubhouse, gym and basketball courts. The entire community looks like it's run by one company even though each building is individually owned.

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

Randy Hubbs with Investment Housing Specialists is the man to speak with if you are interested in investing in the Tri-Cities area.