All Forum Posts by: Jeff Schemmel

@Grant Nielsen

1.) interview multiple lenders, only those experts in multi-family transactions, and understand their first time buyer offerings. They will vary quite a bit and there's a lot of free money out there that can be used to minimize your down payment.

2.) get a full loan estimate to understand your full cash to close and PITI (payment)
3.) make sure your lender is clear on whether you need to show reserve funds beyond those required to close.  This is common, and you want to make sure you fully understand this before entering into an agreement.
4.) make a good list of the deferred maintenance items.  Roof, windows, flooring, appliances, major mechanicals, etc.  You want to make sure you have enough reserves to handle any of these if they were to fail.  Make a list of their replacement cost, remaining age left, and get a good feel for which ones are urgent, and which are not.
5.) make sure you've got a newer roof on the building.  if not, prepare for insurance headwinds.  Insurance is quite strict on things like a roof over 15 years old, really old electrical, and certain types of asbestos-containing siding materials.
6.) understand whether or not you'll be inheriting tenants with the purchase.  you'll want to read my past article on questions to ask in due diligence.  If you want I can provide this for you directly.  For example, you'll want to know what's in the lease agreements, when they expire, and if there are any outstanding tenant disputes, unpaid rent/utlities, or evictions in process or to be started.
7.) make sure you understand the utility situation.  Water/electric/gas. Ideally they're split, but its' most common that electric and gas are split but not water.  So you will want to factor these cyclical expenses into your analysis and know between the metering and leases what you're obligated to pay as a landlord and what the tenants are obligated to pay.
8.) depending on municipality, there may be some rental licensing requirements.  Get an idea of what is required of you as an owner occupant and when you move out in that municipality so you're aware of how the property currently meets those requirements or what is needed to conform.

if it wasn't obvious by this preliminary list of advice, you really need an excellent real estate agent who truly understands owning this type of property and the strategy you plan to employ.  Househacking is one of the best ways to begin investing, but i really think you should view it as a difficult endeavor!  It's good, but not easy-street.  Get your Agent/lender team on it, and get their advice before proceeding.

Investment Info:

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

Purchase price: $479,800
Cash invested: $6,000

Contributors:
Adam Tafel

Purchased a Duplex with 3rd floor non-conforming unit that has a kitchen/bath/large bedroom. Househacking 2nd floor and working to make the 3rd floor conform. Room for a garden level unit in the future + second side lot can be split/built on. Plan to build another triplex next door in the next 2-3 years.

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

Wanted a househack with extra bedrooms, larger unit. Wanted some value-add, and wanted to put low money down.

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

Adam Tafel sourced this one off-market. I represented myself, seeing it the same afternoon it was first available, and offering the same day. Seller preferred an owner occupant, and needed some flexibility to find their next home and take their time to move out so I added a rentback to the deal.

How did you finance this deal?

7/1 ARM @ 5.75%. Offered with my commission rolled-in to keep my down payment super low, and seller paid my closing costs @3% of the purchase price. Collected rent from main-floor tenant and rentback from the seller prior to move-in. Total cash invested ~$6,000 after rentback/rent collection factored in.

How did you add value to the deal?

I plan to have a survey and split the lot, then refinance out of the ARM in the 3 year horizon. I plan to use the value of the 2nd lot, and some personal cash to obtain a construction loan to build a triplex, add parking, and a garden level unit to the existing building to create 6 units total.

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

Adam Tafel sourced the deal, and Reyna Rosseau with Cross Country Mortgage financed the deal.

Great book, I still refer to it all the time.  It's not easy, but your trade experience may help you along the way!  I'm about to start my 3rd househack, and all of them have challenged me.  It's a long game.

@Adam Tafel is a great guy to call about this.  DM and I can connect you if you'd like.

I recognize this one!  I have a few people to talk to about it.  Thanks for posting.

@Tucker Mortier also a fan of Cory Inspects, and congrats on the first of many great deals that i am confident you'll put together.  You are tenacious, my friend :)

@Jesi Young I am looking forward to your blog!

@Tony Schmucker happy to weigh in on Saint Paul!  I live here and househack as well - can provide a first hand perspective.

@Matthew Posteraro I'm a big fan of starting with the 5% options. I see little benefit in the FHA as an option as long as the 5% conventional loans are available now. The only real advantage to using an FHA loan is to offer only 3.5% down payment, which in my opinion is barely justified as an advantage. There are quite a number of things that can make utilizing an FHA loan more difficult such as more barriers during appraisal, appearance of low qualification/little cash, typically longer closing period, likely higher interest rate, and PMI cannot be dropped without a refinance if 3.5% down.

That said, just chain 5% down conventional loans, and make sure your duplexes pay for themselves.  Keep in touch with your lending partners for each one so you can understand whether you need departure residence income to qualify for the next or not.

Finally, if you're investing with a Significant other, I recommend considering a "leapfrog" strategy where you buy one, then your partner buys the next, and so on.  Ideally you would put only one persons name on the mortgage unless you absolutely had to have both to qualify.  Just some basic stuff you should try to follow if able.

@Heather Bailey they will ask you what style of renting you plan to do. To the insurance company they will view an STR differently than a LTR. I am not privy to the details of that from their perspective, but I would hesitate to assume the policies are the same; I don't believe they are.