MY FIRST INVESTMENT- A TRIPLEX HOUSE HACK IN MIAMI

Hi Bigger Pockets Community,

I am excited to announce that I am days away from joining all you investors out there and I hope to be of assistance to those looking to become an investor. 

Some background:

I am a 27-year-old commercial real estate agent at Marcus & Millichap in Miami, FL. My team and I focus on the sale of Single Tenant, Net Leased Assets. If you are unfamiliar with this product type, it is most easily described as a property, such as a 7-Eleven or Wendy's. These tenants rent their spaces using net leases, in which they pay for X amount of the expenses all the way up to NNN in which, as the landlord, you sit back and collect rent while the tenant pays for all utilities, property taxes and any kind of property repairs and maintenance. This property type is appealing to doctors, lawyers or anyone in a profession where they make enough money to invest, don't have time to manage and like to make their money work harder than it would at a bank. 

 Now that you understand my work, let me explain my investment process and ideology. I have no issue with putting time and sweat equity into a property. If I can do some work to make my dollar work harder, I will. Being that I am not yet married and still young, I am very comfortable with a house hack because it allows me to save money on the expensive rents down here in Miami. Before Bigger Pockets, I had always thought about buying an apartment in downtown Miami, renting out half the unit and eating an unruly $800 per month HOA fee. I would have been paying a mortgage and using the other tenant to cover HOA. Not exactly a wise way to try to grow. After having my eyes opened by bigger pockets, I started spending my weekends driving the market, getting familiar with Miami and all of its neighborhoods (I had only lived here for less one year at this point) and trying to figure out the market segment that I wanted to break into. After I had my location down, I started my hunt for the deal that would make financial sense for me. The issue with Miami is that it is a very expensive place to break into and finding any kind of deal was a daunting task. After sending out more than 1,000 mailers and countless nights of research that would last until 4 am, I found a property. It had been on market for 1 day. I know the common practice is to try to find off-market deals but, via www.redfin.com I found this property and was able to immediately view current rents and get an understanding of the property.  

I had already toured a few properties with Redfin, none of which met all of my criteria but this one caught my attention.  It is a legal triplex, which sounds like it's not a big deal but to find a legal triplex in Miami, well that is much harder of a task than one might think. 

The property has 3 meters, individual water meters, a pool, yard, and parking. There are three long-term tenants whose profiles I am comfortable with for now and the icing on the cake, it is just a few blocks from Calle Ocho, the main street through the Miami neighborhood known as Little Havanna. 

Time for some numbers. The property has two - 2/1's and a 1/1.

Break down: 

Unit 1: 2 bed, 1 bath, 950 square feet, $1,400 per month in rent, with moderate renovations, can fetch $1,650

Unit 2: 2 bed, 1 bath, 800 square feet, $900 per month in rent, needs paint, plaster, flooring and a kitchen remodel. All said and done, I will be able to get an extra $600 per month. This is where I plan to start.

Unit 3: 1 bed, 1 bath, 650 square feet, $1,350 per month. I am baffled by this unit because the rent is at the top of the market. I can't ask more and with a full reno, it would only fetch $50 more. For now, it will stay the same because the return on my money to make an extra $600 per year is not worth the investment. Put in cap rate terms, if I put $15,000 into this unit, my return on that money will only be 4%, that means it's not working hard enough. 

The Plan:

From here, I should be closing on the deal by Friday, 11/17/17. Once I close, I will finish off the year at my apartment and move to the unit 2 in January of 2018. I have chosen Unit 2 because the rent is way below market and with some sweat equity, in a matter of 2-3 months, I should have all the renovations done and have it rented out. I have factored this to be a 6-month process and will be living in the unit while working in it. Looks like a mattress on the floor and a microwave will have to do until the renovations are complete. Once I have the unit rented out, I will move down to unit 1 and give it the same attention as I did to unit 2. 

My goal is to get this property to a solid cash flow within the first year. If I am able to do this and get the property into a better condition then I will talk to my bank to see A; how much it I would be able to pull out with a re-fi cash-out and if the numbers make sense then I will be looking to pull out my equity and hop into another property. The issue is that I only have 25% equity in the deal because I am acquiring the property at 75% LTV. I think the next step will be to pull out any equity then acquire a triple or quad under an FHA loan with 3.5% down. 

Please do not hesitate to reach out, ask questions, voice any concerns or just pick my brain.

Thank you for reading,

Pierson