All Forum Posts by: Brett McManus

Only recommendation I would have here is to look into state funded programs to see if there are any grants/deferred payment/etc. that could cover your down payment. I was surprised to have found a few of these in my local area and was able to leverage one recently combined with seller payed closing credits to get into a property no money down. 

Not sure what Florida has to offer but worth checking out as many of these programs go unnoticed!

Sounds great, @Mitchell Toney. Happy to chat through it any time. 

No problem, @Moises R Cosme! Thank you. 

Sounds great @Kurt Baltutat! I wish them the best of luck. 

Goal of Post:
In writing this post I am hoping to inspire and provide actionable next steps for the many individuals I see like myself,  who are recent college graduates with ambition over the moon, yet are strapped by lack of experience and capital to get started. Here is a big ol' CHEERS to you for kicking off your REI!

Investment Info:

Multi-Family Duplex currently being House Hacked in Minneapolis, MN

Purchase price: $265,000

Duplex was purchased in April of 2020, 8 months after graduating from college and relocating to Minneapolis, MN for my first job. Leveraging an FHA loan combined with a very competitive market forced me to pay $10k over asking price but ended up getting a final appraised value of $280k!

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

After my father completed his first BRRRR back in NY, I became inspired by REI and that power it can provide. After spending some time on BP, I determined that BRRRR would be very difficult for a first-time investor just getting started out of college. I ultimately landed on House-Hacking after realizing it would be the most actionable way for me to get started with my current financial situation/experience.

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

The first & BEST thing I did was find a KICK A$$ Agent in my local market with experience in REI and setting new buyers up in House Hacks. After crunching the numbers on a few MLS properties & conducting a few walk-through's, this property came up and hit all of the criteria I was looking for. Our original offer was actually shot down for another however, a few days later the accepted offer fell through and we were able to renegotiate. Ultimately we landed on paying slightly over closing (still worked with my numbers) and most importantly, getting seller paid closing costs which when combined with a State funded program (more to come), was one of they key factors for walking away from closing with keys & $400 cash in hand. 

How did you finance this deal?

This deal was financed through a very standard 3.5% down FHA loan that I worked on with a local mortgage broker. The 2nd key factor in making this deal happen was leveraging a State Funded Down-Payment Assistance program which provided me with a loan for an additional $8,000 used to cover the balance of my cash to close that will live interest free through-out the life of the loan. This state funded loan combined with seller paid closing costs allowed me to close on this property entirely walking away with the keys and $400 cash from leftover credits. 

How did you add value to the deal?

*Pictures Below*

One of the best parts about this deal was its true "good bones" nature with plenty of opportunity to add value through small DIY projects that allowed me to increase my repair knowledge at relatively low risk. All of these activities were performed by my girlfriend & myself with a bit of past experience, and TON of YouTube videos, and a 6-piece Dewalt Power-tool starter set (and a few other tools).We were able to perform tasks like repainting the apartment, adding a back-splash in the kitchen, and some outside work like small landscaping, removal of brush/overgrown areas, and a pergola for ourselves and tenants to enjoy. Coming up we plan to make the basement a more enjoyable place to do laundry (currently a dungeon) and eventually performing similar work on the upstairs unit once we roll-over tenants (inherited long-term tenants on a 2-year lease). 

What was the outcome?

The outcome of this process has been acquiring a great "base-hit" property at true no-money down with plenty of potential to add value, fantastic inherited tenants, and solid cash flow potential once we move out and place tenants in our currently occupied unit. Above all the GREATEST OUTCOME has been the lessons we have learned along the way. Books & podcasts are important to gain a baseline understanding but you truly will learn the most after getting your first "tuition property" and the many lessons that come with the process which I will outline in the next section. 

Lessons learned? Challenges?

1) Start your journey with a high-performing agent in your corner. My agent is truly the one who made this first deal come together and I can't say I would have made this happen without him working on my behalf. From showing the right properties, to pinpointing the right neighborhood, and finally negotiating the best deal possible catered to my current situation. All starting from just 1 text message sent on a Saturday afternoon. 

2) PLEASE research first-time home buyer programs in your state. My father first told me about the program NY offered after I recently relocated to MN. I figured this was something specific to NY but turns out MN had an even better program that no one seemed to even know about (including my mortgage broker!). After a bunch of research and hesitation, I pursued this program and it ultimately became one of the key factors to making this deal happen and even better, getting paid at closing to do it. 

3) Start analyzing deals NOW. I'm not going to lie, there are a ton of areas I got lucky on this deal including the appraised value coming in $15,000 over sale price and theoretically covering the $8,000 loan I owe to MN at time of sale or refinance. I could have easily ended up $8,000 additional in the hole and you can bet I am taking the time to use BP calculators & analyzing home sale prices in my area to set myself up for future success when luck is not in my corner. 

What is next for me? (This is not a section of the template but often a question I have when reading similar posts form others)

1) Leveraging current times to educate myself for future deals. At minimum I would like to follow a similar process to purchase my next property once my homestead requirement of 1 year is up. The only difference? This time around I plan to have much stronger deal analysis skills as well as better knowledge of neighborhoods in my area, where are the strong deals coming from, etc. In daily practice I currently wake up each day before work, listen to a podcast/webinar, and analyze at least two deals either in MN or NY (where I have family to potentially help me invest remote).

2) Networking/Sharing my plan/Finding partners? My hope is to continue sharing this story and learning the stories of how other both in my area and on BP have found success through REI. The idea is that I can find inspiration to drive future investing strategies and who knows! Maybe a partner to invest in a home run deal I find through my daily property analysis.

Hope this has been helpful for some of you, feel free to reach out with any question!

-Brett

Hey Ben, 

Appreciate the enthusiasm as you are in a very similar situation that I was just a few months back. I too was ready for my first deal with inspiration to BRRRR from posts on these forums as well as BP Podcasts. The reality was that as I began taking action I realized a few things:

1) BRRRR has some risks associated to it that can be easily overlooked by new investors (calculating ARV, managing rehabs, etc.)

2) Hard money is freakin expensive (not the low money down I needed)

3) Lack of experience makes it very difficult for HML's, Contractors, and Property suppliers (wholesalers) to take you seriously.

Instead of this I took the advice that many offer to beginners on these forums and hunt down a Duplex to house hack. In doing this I was able to purchase a great starter property within 3 months of this mindset change by doing the following:

1) Connecting with a local agent/investor who was able to set me up with an MLS search that could fuel properties to be analyze with BP calculators.

2) Working with local mortgage brokers to understand FHA owner occupant loans which combined with a state funded new-buyer assistance program (and negotiated seller paid closing costs) allowed me to close with only $2,000 out of pocket.

3) Ultimately close on a base-hit property with virtually no money out of pocket, source my first tenants, do some basic cosmetic work to boost rents, and gain a TON of relatively low risk knowledge that will better set my up for future BRRRR investing.

Although BRRRR is an amazing strategy, I highly recommend exploring house hacking in order to hit the ground running and get some experience under your belt.

Although some due diligence needs to be done in order to ensure you do not get hosed..... Do not drive yourself crazy trying to ensure it is a home run. 

I closed on my first Duplex this past April. Am I getting $500 per door? no. Am I loosing money on it? Also, no. Although this first property isn't allowing me to quite my day-job, the knowledge I have learned from screening tenants, performing small fix-it jobs, and ultimately finding/funding the deal has been PRICELESS. I am confident the skills acquired during this first purchase will set me up for great success in my next and help build a solid foundation for long-term investing. 

A couple hundred dollars in your account each month may not seem like much, but I can tell you my college degree sure didn't pay me that and still managed to set me up for success in the later future. If the numbers won't break you and the opportunity is there, go for it!

Hang in there! Day after closing I walked into my first duplex house hack unit to find the upstairs tenants washer overflowed and my dining room ceiling was now sitting on the floor. 

After a couple of sleepless nights and wondering what I got into the tenants actually offered to pay for the damage and have been terrific since. What doesn't kill you makes you stronger. 

Very good, appreciate it, @Paul Welden!

Hi BP!

Having just closed on my first Duplex, I am beginning to start down the track of how I want to tackle deal #2. This first property was purchased with an FHA loan and I am owner occupying one side with the other rented out to a long-term tenant I inherited.
I have been leveraging the current times to research BRRRR but like many other 22 y/o investors just wrapping up their first deal, it might be a bit of time before I accumulate enough funds to comfortably float a hard-money loan. This being said I have started taking a look at utilizing a 203k loan to purchase my next owner-occupied duplex as a way to implement principals of BRRRR (or really just building equity) while maintaining lower out-of-pocket costs.

My question to the group, is there something I am missing with 203k loans that might make them not as appealing to other investors as BRRRR?

I understand PMI would be a piece however, I would think this could eventually be refinanced out assuming you use the 203k funds productively to raise value? In another lens, is it due to the fact that it requires owner occupancy and many investors are not interested in this? Overall, I am still continuing to look into BRRRR but would love to understand if 203k could be another tool in the belt when the right deal comes along.

Thanks!