All Forum Posts by: Michael Paling

@Catherine Brennan what city did you buy in? I live in Gwinn and I can probably get some insight from other local investors. Feel free to PM me. 

Investment Info:

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

Purchase price: $112,000
Cash invested: $23,876

This is my first property purchase as a house hack. I'm living in one unit while the other is being rented (long-term section 8 inherited tenant), with plans to rent out an additional room in my side. PITI is almost fully covered by the other unit, so rent from the room in my unit will help cover maintenance and repairs. I'll be living for free!

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

I read Rich Dad Poor Dad many years ago. I didn't dive into all the teachings from it back then, but one thing I've always wanted to do since then was purchase a duplex like this scenario. I finally kicked myself in the butt to start doing something and now I realize that I was more than prepared for this first purchase. I'm already dreaming about my next one!

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

MLS and minimal negotiating needed.

How did you finance this deal?

conventional loan and personal savings for the DP.

How did you add value to the deal?

working towards renting out that extra room. I've almost completely painted the shared space (boy did it need that!) and working to fix things all over.

What was the outcome?

This has been smoother than I ever imagined. Started shopping in March, looked at 3 properties, offered on 2, bought 1 in June. The previous owner already was raising rents to the market rate, and one tenant wouldn't pay that, so he was already moving out. I was able to move in 1 week after closing. The remaining tenant has been easy so far (yes it's still early to fully tell) and the local Section 8 case workers have been pretty easy to work with.

Lessons learned? Challenges?

Starting to learn how to handle maintenance requests (and when to say no). learning a lot regarding painting. How to remove a garbage disposal (and not replace it). What's needed to patch a tar and gravel roof (I'm still working on this one).

How to start building a REI business (bookkeeping, tracking, documenting, etc.). How to write a lease. How to work with section 8. I could really keep going, but I'm running out of character spaces to write here.

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

Local real estate agent and bank lender, but I'm going to shop around more on who I'll work with for my next deal. I didn't really dig very long for contacts, which turned out ok this time.

Hey BP, I’m curious what other people’s thoughts are on my situation….

I bought my first duplex in Michigan to house hack back in mid-June. The remaining tenant is section 8 and the HA covers 100% of rent at the moment. I contacted the HA about 1 month before closing of the pending purchase. I also quickly submitted all requested forms to them before July. The problem that I’m having is the previous owner will not communicate with the HA and I’m told refuses to work with them anymore. Including signing over their contract for rent payments to me. The local HA staff is asking the State Office if they can proceed anyways, but nothing yet. 

has anyone else been in this situation? The tenant’s lease is up on September 15th, so I’m starting to consider not renewing, but I’d rather not since it’s late in the season. 

I think for the CoC return, it goes back to that notion of "you make money when you buy". If the CoC or other metrics don't meet what you're looking for when you're buying, then I'd keep looking. Don't buy something with the hope that someday it'll be where you want it. Personally, I was more interested in good cash flow versus a high CoC, but it's important to consider both

My CoC is about 10% and cash flow is about $300 (I'd have to look at my spreadsheet to know exactly what they are). However, A couple things to note:

1. Just reiterating that since I'm living in one unit, My numbers above are looking at the property as if I had my unit rented out (I'm the renter). In reality, I'm just living for free with no cash flow due to the other unit covering PITI. Once I move out in the next one or two years, the above numbers will be true

2. Since I inherited a tenant, I have to wait until their lease is up in September to increase rent to market rates. Their current rent is $475 and market is $750. So I’ll have 3 months that aren’t meeting the number I’ve stated. I’ve already informed the tenant of the rent increase, and they’re still sticking around. 
3. My tenant gets Section 8 assistance and I’m still waiting for the government to get through their stuff, and I’ve been told the first month or two are typically paid late. With that, it’s important to have reserves. 
3. My tenant gets Section 8 assistance and I’m still waiting for the government to get through their stuff, and I’ve been told the first month or two are typically paid later. With that, it’s important to have reserves. reserves.

Lots of things to think about there, but I hope it helps. 

Quote from @Stefan Gray:

Quote from @Michael Paling:

One thing that I wonder about with your original post is how are you running your numbers? Are you calculating them based off only having 1 unit filled since you're living in the other one? I just bought my first duplex and I'm doing the same thing, but I calculated my numbers as if I was my own renter, meaning that both units are filled. My income from the other unit will be $750/mo and that should cover or almost cover PITI. Then my "rent" to myself is responsible for maintenance, CapEx, vacancy, etc.

and if it’s not cash flowing off the get go, move on. Have patience. You’ll find a better deal.

Sure, my PITI would be reduced to $1,350 living in one unit. After I move out and have both units rented, my PITI would be completely covered as the income from both units bring in $2,700. I'm working with little money down so most deals I come across have these thin even negative margins. I'm curious, how much did you put down on your Duplex to make it work for you?

I had enough for a 20% down payment, so I kept going back and forth on how much I wanted to put down. I started looking around with a 5% DP in mind, but like you said, everything seemed to have pretty slim margins and didn’t cash flow well. However, if I looked at putting 20% down, then the cash flow was enough to make the deal much more worth it. In the end, I decided 20% would help me sleep better at night and force me to take things a little slower as I learn more about REI. Plus the numbers looked better with 20%. 

One thing that I wonder about with your original post is how are you running your numbers? Are you calculating them based off only having 1 unit filled since you're living in the other one? I just bought my first duplex and I'm doing the same thing, but I calculated my numbers as if I was my own renter, meaning that both units are filled. My income from the other unit will be $750/mo and that should cover or almost cover PITI. Then my "rent" to myself is responsible for maintenance, CapEx, vacancy, etc.

and if it’s not cash flowing off the get go, move on. Have patience. You’ll find a better deal. 

@Zac Kucharek. It’s only been about three weeks that I’ve been house hacking, and everything has been quite boring (which is great), so I don’t have much experience to offer for advice. From what other have told me…. Avoid becoming friends with the tenant (no barbecues, campfires, parties, etc.) (this might be a little harder if you’re renting rooms), make sure you run your numbers as if you’re not living there. If I think of others, I’ll share. Feel free to send me a DM if you’ve got other questions. 

Hey Zac! Welcome to BP! I’m also just getting started with a house hack and it’s been fun so far! While I’m based up in Marquette county, I used to live near Ludington for a couple years and worked throughout Oceana, Newaygo, and Muskegon counties. West Michigan is a great place. I’ve considered looking into purchasing down there as long distance investing, but it might be a while until I’m to that point. 

I unfortunately fell for a guru training several years ago and It didn’t help me at all. It initially cost me $3k for the first training classes, then they set me up with some other training company for another $3k and then they tried getting me to open $100k on credit cards and they’d charge me $6k for that. Thankfully I ended it before that. I just closed on my first place last week and that taught me way more than I learned there. 

Hi Jose, welcome to the club! There's a lot to learn, so hang out around this site, listen to the podcasts, and pick up books to read. Find a couple local investors meetups to join and start developing friendships with other investors at those meetings.