Getting Started On Four-Plex Row

After three years of reading, researching, and saving money, I finally have just barely enough to buy my first property. I thought all the reading I'd done would have prepared me in full, but I was wrong. Thankfully I found an investor/realtor through church that has helped me through the process so far. If you're a beginner like me, find someone like this in your area and buy them coffee, lunch, or a new puppy to entice them a little bit. 

Originally, I was looking for a duplex to house hack (live in one unit and rent out the other) in Northeast Minneapolis. Everything good on the MLS was gone within hours, and I was getting frustrated. I wanted this location because it's close to work and it's also a super hip area (even though I'm not a hipster). My agent set me up on the MLS but I was waiting to hear back from multiple lenders on how much I could get pre-approved for. 

*SIDE NOTE* Apply with as many lenders as you possibly can within a 30-day period. While this seems counterintuitive, the rules have changed and your credit score will only be affected as if it was pulled once, even if you apply to one hundred lenders in those 30 days.

Onward... then came the big let down. Because I'm a musician and work full time, I do my own taxes to save money. Turns out doing them yourself can come back to bite you in the butt. Apparently the online program I used (for free) put all my tax write-offs on the wrong form, therefore counting against my income. Between mileage, meals, gear purchases, etc., it looked on paper like I made about $15,000 less than I actually did last year. Therefore, I was unable to qualify. Even though I had 3.5% FHA down payment ready to go, I couldn't even house hack! Thankfully, one of the lenders my agent recommended has been in the game long enough to get creative and find a way to get me pre-approved. 

My agent came to me and said he found a four-plex. Granted it was out of the area I was looking, the price was right and three of the four units were rented. I was eager to get started before the big law changes on October 3rd, 2015, so I said "I'm in." After inspection, I found out the place was fairly neglected and needed some work. Not to mention each of the units smelled horrible from cats and was dirty/cluttered (more on that in another post). After trying to negotiate the price down, the seller wouldn't budge and I was still willing to take the hit and pull the trigger when low and behold, I called another four-plex down the road from an ad I found on Craigslist acting as a potential renter for the open unit. Turns out it was owned by an agent that works for the same company mine does. I chatted a bit and told her I'm an investor looking at a property down the road. I found out that her partner was ready to sell their property but she wasn't, and thought maybe next summer she would be ready. After passing that info to my agent, he somehow convinced her to sell a couple days later. I still want to know how that conversation went down...

(*SET YOUR CRITERIA AND STICK TO IT!* - Notice in the last paragraph I did what a lot of people do, they buy emotionally. I was so eager to start investing that I almost bit the bullet and bought a property that would have needed a ton of work, and a higher mortgage than it would've been worth. Once your criteria is set, do NOT compromise no matter what. That's how you get in trouble.)

Since the seller on the previous four-plex was too stubborn to recognize the neglect and work that needed to be done on the property and wouldn't bring the price down, I cancelled and went with the new four-plex. Keep in mind the new property was a bit more expensive, but it was also completely remodeled in 2011 and all the major items were replaced. The units are in MUCH nicer shape and three of the four units are rented. Once I move out in a year (per FHA rules) the property will cash flow very nicely as it will already be more than covering the mortgage with the three units filled. Hopefully by that point I'll have enough saved to move in to that duplex I was looking for in Northeast! 

A Tip For Beginners: As I've been learning along the way, your appraisal and inspection fees can be higher than anticipated so you need to have at least $1000-1500 extra in the bank on top of your down payment. If the seller isn't paying closing costs, you probably need at least an extra $10,000 on top of your down payment. It's always more expensive than you anticipate so make sure you work with a great lender that will explain how much you need out of pocket before or at closing. And find a great agent that is good at negotiating. It's not typical in this market right now that the seller pays closing costs, but my agent was able to get me the price I wanted on the property with the seller also paying closing costs. 

Have a good tip for beginners? Share it in the comments below!