Excited and relieved. After 5 contract extensions for reasons way beyond my control, the ink is finally drying on an FHA financed quad, bringing me to 6 units.
In March of 2016, 2 months after my 23rd birthday, I bought my first property (a duplex) using FHA financing. I spent the majority of last year slowlyyy renovating both sides, mainly to raise rents. Thankfully, I was able to increase the value enough to refi into a conventional loan, which paid off/closed the existing FHA loan, allowing me to open another FHA trade line (buy another 2-4 unit with FHA!). I only opened the 2nd after I refi'd out of the 1st, so I was within the regs.
A couple months ago, I found a 4 unit for under $200k, which is what I'd been looking for. It's in Clarksville, about an hour North of Nashville. I ran the numbers VERY QUICKLY, and locked it in under contract.
The building is in very good shape, having been recently renovated. The roof is the only thing that needs to be replaced, and thankfully, the seller was generous enough to give me $5,500 at closing to take care of the roof! (On top of paying for the closing costs!) I didn't ask for it, and he definitely didn't have to do that.
Here are the basic numbers on the quad:
Purchase price - $195k
Down payment ~ $7k
Mortgage ~ $1,300
3/4 units rented - $1,725
Still building up a reserve cache for both properties, but it's a solid start for me.
In a few weeks, I'll move out of the duplex, and into the vacant unit of the quad, per FHA regs.
The mortgage on the duplex is $742, and the other side is rented at $875. I'll rent out the side I'm currently living in, and throw the difference into the reserve account.
A couple of things to point out to those who may be interested in this strategy:
1) It really does work. If you're able to break even on the mortgage, or come close to it, you'll be astounded by how much cash you can save up for future investments in a relatively short amount of time.
2) House hacking can take a lot out of you....or maybe it's just me. I'm single, no kids (I have a cat..does that count?), and no major financial responsibilities right now. Moving every year is doable for me, but still has its psychological wear and tear. I reallyyyyyy want a SFR FOR MYSELF!!!!! But I understand the value of sacrificing right now. It'll pay off in time.
3) It helps to have a system in place ahead of time. After I bought the duplex last year, I opened an LLC, business bank accounts, and two business credit cards. This is for my organization and sanity, more so than for legal protection. The deposits, rents, and other monies received at closing can go straight into the accounts I've already got set up.
3b) I have a PM software that's working out well for me. I'm using RentecDirect right now. I've got it set up to enable the tenants to pay online, submit maintenance requests, etc., through the tenant portal. I'll send a "welcome" letter to the new tenants, and give them the instructions on how to make their payments moving forward. Nothing new to figure out, no stressing about how to get everything started, just plug and play! Find a process that works for you, and make sure everything aligns with that process.
4) This isn't without its challenges - REI in general. In the past 13 months, I've:
- Spent way too much on a rehab (I was emotionally tied, since I'm living here....mistake #347)
- Had a fire (drunken tenants..........ex-tenants.....)
- Sued a contractor for stealing money...went to actual court for the first time.....talk about nervous! But I won :)
- Had tenants give me an hour notice before moving out
- Other such things I'd rather forget! :)
The reason I'm still forging ahead, is the same reason others do: the tremendous potential for wealth building that buy/hold real estate provides. I'll stick it out through the rough times and see the other side.....at some point lol
I didn't mean to type this much! But I hope this helps someone out there. BP has helped me more than I can describe.
Financial freedom, here I come! :)
Best,
Mark Douglas
