Posted almost 3 years ago

Slow House Hacking in Greater Boston

2020 will forever be marked as a “watershed” moment for many millennials. From the rise in e-commerce to work from home, the pandemic accelerated our lives by decades. Millennials, which constitute the largest segment of the US population today, are diving into the 1st time real estate market at record pace. Fueled by WFH policies, need for more space, and record low interest rates, home sales have spiked during the recession.

Personally, it’s also driven my own family to consider moving further out into the suburbs of Boston. In this article, we want to share our adventure (misadventure perhaps) in purchasing, rehabbing a home in greater Boston, in the midst of a pandemic, all while caring for a newborn!

The Hunt

When I work with a first time buyer, I always begin with the end in mind and ask about the goals driving their purchase decision. And it’s not different when we started our house hunting. Our newborn daughter has finally forced us to confront the reality of our tiny condo in JP. For someone that’s preached frugal living and house hacking for almost a decade, it’s now becoming a quandary.

Should we buy a nicely finished single family home? or continue house hacking a multifamily? It’s a question that many in the house hacking and creative investing community struggle with. Instead of a long pontification, here’s a breakdown of the pros and cons:

While exploring alternatives, we decided that a multifamily property with value-add potential was the route we wanted to pursue. But it did come with some requirements:

Decent Schools: Not that we’re shooting for the stars, but we at least want a school system that’s reputable. A good school system is generally correlated with a safer neighborhood along with other family-friendly amenities.
Public Transportation: We also wanted to be within a 15-min walk to the nearest MBTA station. Although the majority of residents here drive, we always like the option of being able to access the city and downtown without a car.
Structurally Sound: Given the age of the housing stock in Boston, it’s important to seek out properties that are generally structurally sound.
Diversity: Our preference is to raise our family in a community that’s accepting of diversity not only in race but also in socio-economic conditions.

Saving you a long story, we eventually found a duplex in Newton, a suburb of Boston that was a 15-min walk to the MBTA with decent schools. It was structurally sound but has older plumbing, electricals, and finishing. The real treasure was the detached carriage house that may be converted into a separate dwelling unit.

Take Out The calculators

Purchase price: $900,000
Conventional loan (20% down at 2.7%)
Down Payment: 180k
Monthly Payment (PITI) $3600

Potential Rental Income (Courtesy of Rentometer) $3200 (unit 2) + $2300 (unit 1) + $3200 (post-gut rehab carriage house) = $8700
Estimated Monthly OPEX = water ($200) + repair / maintenance ($860)
Projected Cash flow = ~$4040

The Scope of work

This home was built in the 1930s and has certainly stood the test of time. In fact, it’s been in the same family for over 70 years and multiple updates have been done to the property. On the front, it looks like your typical Greek revival duplex. Both the basement and the attic have been finished. In the back, there is a detached bi-level carriage house with separate utilities and parking. Though the carriage house was permitted as a livable space we believe the value-add here is to get this approved as a separate dwelling unit, effectively adding a 3rd unit to the property.

Kitchen

The kitchen is one of the most important rooms in the house because of the various functions it serves. Not surprisingly, it’s also the most expensive to renovate and furnish. Fortunately, the existing kitchen had a functional layout that didn’t require too much reshuffling. Three biggest layout changes included stacking the washer and dryer to make room for a larger fridge, removing the wall to add more light to the living/dining space, and adding an vented range hood.

Bathroom

Aside from the kitchen, the bathroom is also a labor intensive room to renovate. There is also a functionally obsolete bathroom in the attic. The tub was angled in such a way that made it impossible to use. Here, we demolished the entire bathroom, expanded the two walls outward to accommodate a large walk-in shower and vanity.

Wiring and Plumbing

One unexpected cost was the older electrical and plumbing system. Of course, we didn’t discover this until after the walls were gone but it added about 25k of additional labor cost to rewire and replace the plumbing – including the septic vent! It’s an unfortunate part of life when average housing stock is over 100 years old!

Sourcing and Managing Contractors

Anyone that’s ever owned a home has had negative experience working with contractors. The reality is, there’s a huge range of skilled labor pools. From your unlicensed uncle charlie who moonlights as a handyman to your AAA+ rated commercial contractor, you have to find the “right” person for the “right” job. For less complicated jobs such as replacing a fixture, a handyman might suffice. However, if you’re looking at a major demo/rehab, it might suit you to spend the extra dollars.

Multiple Quotes

Needless to say, get at least 3 quotes so you have a point of comparison. If the job is large enough, put together a 1 page Statement of Work (SOW). This should be a concise but clear list of jobs you want done. Make sure you use the same list for all your quotes. It’s helpful to walk your property with your GC to point out all your requests.

Referrals

I almost exclusively get all my contractors via referrals. However, unfortunately, with contractors, past performance is not an indicator for future success. In my experience, great contractors either retire early or they get so busy that they poorly scale their operations with bad subcontractors. There are also several contractor sourcing applications such Houzz, Angie’s list, Thumbtack which can help simplify the search.

Materials vs. Labor

There’s a wide range of ways you can structure the job. In cases where you want a hands off approach, you can actually have the contractor include material cost into the contract as well. Of course, they will have to make a margin on the parts. This route is perfect for those of you who just don’t care about fixtures, and matching tiles, and just want the job to be finished asap. However, if you’re as anal as me, you may opt to purchase/select the materials yourself. The caveat here is, selecting, sourcing, and coordinating delivery is a job onto its own. Be prepared to make some runs to home depot!

Payment Schedule

Depending on the size of the contract, you may have to think carefully about a payment schedule. Say for a $30k job, it’s typical for the GC to take a deposit upfront along with the signed agreement/scope of work. This typically marks the official start of the project and would trigger activities such as permitting, demolition, material procurement, etc. Make sure to withhold some funds until the final (city) inspection and punch list is completed. Ultimately, working with contractors is an art and a science. Be professional, be courteous, and pay them on time!

Final Thoughts

One thing I reflect on quite a bit now is how to reconcile house hacking with my newfound family life. I think back to my bachelor days where I could stay up all night painting the room or skip the boys night out because of a flooded basement. When spouse and kids enter into the equation, the calculus changes. It’s not all just dollars and cents but being thoughtful about how to minimize disruptions. While the project is far from over, our beautifully designed kitchen and bathrooms were due in large part to my wife’s design sensibility. So the final tip in this 1st of two part article is to involve your life partners and most importantly, enjoy the journey!