All Forum Posts by: Michael West

@Richard Layson

Yeah, the balancing act was most definitely the toughest hurdle. I work as a full time realtor and I think that being a licensed realtor helped in a few ways, such as having a lot more familiarity with the specific market having done deals on the area already, bring able to set up and changing my own search criteria as often as I needed, and running my own comps at my convenience. However, I don't feel that it couldn't have been done without my license. If I had a good relationship with a realtor and we had an understanding of my criteria and expectations, it wouldn't have made much of a difference. I have personally come to learn that unless someone is planning to work full or at least part time as a sales agent, there isn't a huge benefit of having a license.

So, I finally completed my first BRRRR! It was a hell of an experience with a ton of great lessons learned. It took longer than expected. It cost more than expected. It affected my personal life more than expected. But it all worked out well in the end, better than I expected and filled me with even more confidence and knowledge that I'll be able to build from going forward.

Here's the story:

Although I had been saving cash and had smaller investments in the stock market, I needed more funds before I could begin my journey into this strategy for the "cash" purchase. I didn't want to go with hard money if I didn't have to. So, I got a HELOC on my primary residence for 77k and combined it to fund this deal.

As a realtor in my area, I know my market very well and set myself up with searches that I felt would bring me potential deals. I spent a ton of time analysing, as conservative as possible, until I found the ones worth putting in offers. I lost a few offers, as expected in this market, but ended up finding one after a few months. The numbers worked for me while offering more than asking and I knew I was competing with 7 other offers. No, I wasn't the highest offer, but I was able to offer better terms than some of my competitors which got me the deal and my numbers all worked out.

Here's my initial numbers(ballpark, missing a few expenses that I had expected)

Purchase price: $78,500.

Expected Rehab: $30,000.

Expected ARV: $135-145K

Expected Cash out: $101-108k

Expected rent: $1,100

Expected cash flow after refi (and all various expenses) $250~

Expected ROI: 45%+

I expected to leave about $1,000-7,500 in the deal. Anything less than 10k in the deal felt fine with me. I didn't need a home run with my first BRRRR, I just wanted a nice combo of cash flow and a good ROI and get the ball rolling. If my overall in was less than buying another turn key, it was a win.

I've spent 15 years working as a carpenter and had several friends in the industry as well who I was counting on giving me a hand with the rehab. The property had been lived in by the same owner for 40 years and there were hardly any improvements. So, I decided to go with nearly a full rehab. Electrical, plumbing, bathroom, kitchen, floors, Windows, doors, siding, gutters, landscaping, paint, a few walls, etc. All brand new. Only the roof and the furnace were left original (they each have a few good years left in them).

I originally expected the rehab to take about 3-4 months... That wasn't so. First lesson learned, You can't always count on the availability of other people. Many of my original helpers, for one reason or another, became unavailable for the majority of the project leaving me to tackle much of it by myself and/recruiting new helpers. I'm very thankful for everyone who jumped in and helped, I feel fortunate to know so many great people.

Lesson #2...it's incredibly difficult to manage 2-3 other businesses and a home life while also trying to focus on a rehab at the same time. So, the combination of both lack of labor and lack of time made this project last about 4 months longer than intended and ended up causing some personal struggles at the home life as well. From this, I know that going forward I will be looking to leverage out far more tasks. I'm building my systems for this right now. Added time, meant added holding costs (though those weren't incredibly high).

Learning opportunity #3: I went over budget.

I think that's pretty well expected for many projects, but nonetheless, it happened. After originally buying about 80%+ of all of my materials, I was targeting being about 5-6k Under budget. So I changed my scope of work to include completely re-siding the house instead of just repairing it. However, the rest of the budget crept back up with tons of little odds and ends that added up, increased labor expenses, plus the cost of the new siding. I ended up spending about $6k over budget.

Learning opportunity #4: FINANCING.

Because of my current employment status of a full time realtor (without yet having 2 full years under my belt just yet) I had to go with a DSCR loan instead of a conventional mortgage. I had originally talked about trying to jump back in briefly with my old company to try and qualify for conventional, but it didn't look like it would work out well.

I actually really loved learning about the DSCR loan and other non-Q loans and he creativity and opportunities they present. I can't wait to build this empire with so many different tools. However... This also meant that my interest rates and closing costs ended up being higher than anticipated as well. The difficulty of finding lending for under 150k posed another challenge with finding the right lenders... But I eventually got myself a few decent options.

The final numbers and evaluation of the success of this project now relied on the appraisal...

The happiest day of this whole process was when I got the results of the appraisal back:

I expected about 145, but it came back at $160k!

This turned my seemingly lower than desired results into a full blown success. BRRRRfect as I call it (when 100% of invested funds are returned).

The closing process took longer than ideal, but eventually we got it done.

Final numbers:

All in $116,800~

ARV $160,000

Loan amount: $128,000

-closing costs + taxes/instead of just over $9,000.

Cash in pocket $118,500~

Rent: $1,200 a month

Cash Flow after mortgage, capex, vacancy, repairs: $198.

I was just kidding about the competitor thing, no worries. I only have the one property there, but it is going really well for me. I think you can find some gems over there closer to the 100k range in need of 10-30k rehab. I don't know of too many other areas with similar price points and rent rate near SE Michigan/metro Detroit, but I'm on the hunt. 

Is there a specific reason you are targeting a monthly rent is 1400-1600? Or are you looking for a particular number for your cash flow? I would recommend to always keep your eye out for a great Livonia deal in the future, but another alternative that may work for you is Westland on the boarder of Livonia. Do your due diligence, but there are a few neighborhoods there that are actually in the Livonia school district, which is sought after. Livonia is a pretty competitive market from what I've seen, so many renters who can't obtain that Livonia city limits property will target those small neighborhoods of Westland to keep their kids in the same school district. I have one rental in this market at $1,400 a month right now. This could make us slight competitors now :P, but glad to help out a peer.

I love the Livonia area for rentals, great neighborhoods and usually a nice return.  The person commenting above me probably has some better insight, but most properties I've seen in the South East side of Livonia average about 1300-1500. I've been struggling to find the right deals to make my requirements work lately as well. It's a very competitive market for real estate, so I'm hoping to find something off market for that area in need of rehab.

Hey everyone, I figured I would do a follow up to my last post about my initial mistakes when I began my real estate journey in trying to buy a property and now talk about the next few learning experiences and successes in landlording a househack. Again, it's a long one, so I appreciate anyone who takes the time to read it all.

I was 20 years old when I bought my primary residence in 2009 near Detroit for 85k (now valued at 165k). I didn't know anything about REI, and never even heard of the term Househacking, or that it was considered a form of investing at the time. However, I've always had a bit of the mindset of an investor without really realizing it. I bought my house during the crash, so the market was great for buyers. While looking for a house to buy, I was targeting something that needed work that I could put in over time to make it worth much more in the future. I wanted one that was in a great neighborhood, but near the bottom of the market. So, looking back, I was definitely thinking in the right direction for investing even though the word wasn't on my mind: "investing" . The next thing I did after closing is what I hear about all the time nowadays... I househacked.

I was young, only a couple years out of High School, and only two years into my Carpenter Apprenticeship, so as expected... I had a few friends looking to move out of their parents place. I decided to rent out a couple rooms of my 3 bedroom house to make a little cash to help pay off the mortgage. My first two tenants were very rough.

My girlfriend at the time and one of my close friends moved in and each took over a separate bedroom the day after I closed, and we had a hell of a paint and small repair party. My mortgage was $850 a month and each tenant agreed to pay $300, so I only had to pay $250 out of pocket for the mortgage.

This particular situation, however, didn't work so well and I had my first hard experience with an "eviction". Evictions aren't easy in general, and can be even harder to do when you are close to the tenant. To all of those that are just getting into this and think that house hacking is great, just be aware that no matter how well you know someone, it's always different when you live in the same house or even in a conjoining property. Neither of my tenants got along and I constantly had to be the middle man to disputes and find ways to come to compromises or setting new rules to follow. It weighed heavily on my relationship with my girlfriend and was part of the reason for us splitting up. She moved out, and only a few months later I found myself having to evict my friend/other tenant for lack of payment and various other reasons (too much partying/noise, lack of cleanliness, etc.). It was not an easy thing to do, at all, and to this day we barely talk.

About two months later, I got myself a new tenant. This was another friend, but one that was much more focused on his profession than anything else. We set up an agreement with direct deposit payments, so we never even had to discuss money. He lived there for just over 4 years and was a great tenant that I was able to confidently refer to the next landlord when he moved into his next place.

During these 4 years, I also managed to rent out the other room for a few months at a time to a variety of other guests, including an exchange student from Italy for a short time. At one point, I was even able to rent out the basement to another tenant for approximately 9 months while the other rooms were filled. I was bringing in a total of $900+ a month renting out rooms in my house and living for essentially for free during most of that time.

Overall, this was a great experience. Financially, I was doing great. I was able to use the money I saved to buy a new vehicle, purchase the materials for the rehabs I wanted to do on the property, and use towards my first buy and hold rental property, which I bought after my last tenant moved out.

By being up close and personal with each of these tenants, I got to experience a lot about how many different people live and conduct themselves at home more than what many landlords do living at a separate residence. I was forced to learn the hard way about renting to friends/family, how some people will not hold back on taking advantage of your kindness, and how others will greatly appreciate some of your smallest efforts in making things comfortable for them.

My advice from all of this experience would be: If you're going to jump into house hacking, be prepared to be uncomfortable at times. Whether your tenants rent a room inside your home or half of your multifamily, you're going to experience a bit of their lifestyle that may not be what you're comfortable with. You will have to be a problem solver/mediator at times. You will be actively involved in the day to day maintenance and held to a higher standard of your own living style. Househacking sounds great on paper and definitely financially, but it can take a different toll on your mind. There were many days I would dread coming home from work, because I knew there would be no peace when I got there. Other times, I had a blast being around new and different people, getting to know them better and sharing stories.

All in all, I would most definitely do it again. I would suggest to others to do it as well, just prepare and steel your mind. It can often be difficult to separate business from compassion when you're so close with other people and you may become an easy target to be taken advantage of.

Awesome job, man! House looks like it turned out great. Keep up the good work!

I currently live in Michigan and have one rental property here that is doing great, I'm looking for more here as well. I think it's a solid market to invest in.

Hi everyone, I hope you all are doing well during these times. I just wanted to make my first ever post here by sharing a story about my own start in the real estate investing world and hopefully inspire some other new investors to feel a bit more confident in themselves and teach a few lessons to avoid from my own experience. I am by no means a hard core investor with dozens to hundreds of deals under my belt, but I surely will strive to achieve my own lofty goals. I would still consider myself a newby, but, as you'll see with this story, one with apparently more experience than I gave myself credit for...until recently. I tend to be a bit wordy with any story I tell, so bear with me as it is a long one.

Fresh out of high school in 2006 I was fortunate enough to get started with my Carpenter apprenticeship in the Detroit local. After only a short time in the union I was DETERMINED to buy my own house. It wasn't that I was quick to be out of my parents house, but that I wanted to make them proud and be the first of any person I knew that was my age to do so. While many of my friends chose to party their lives away, I wanted to show them the results of what staying focused could produce. Instead of buying toys and booze, I saved nearly 75- 80% of all that I made to put towards a house, thanks to living with my mom during the that time.

2008, I was ready to be a new home buyer. So, I got pre-approved for a loan, and honestly didn't know **** about what that meant. I thought meant I was guaranteed to get a loan. I was shocked in the first place since I hadn't even had any luck with credit cards! I found a sign on a house advertising an auction site and decided to look on their website to see what they had. I found a house that I fell in love with. It needed major remodeling, the roof was collapsed over the family room, the plumbing was a wreck, horribly outdated, but it was in the most desired neighborhood on my list. Over time, I knew it would be a beautiful place to call home and one that could make me even more money when I was ready to sell.

I didn't know anything about auctions, except that the website told me that I needed a 5% or 5k down payment in cash/cashier's check upon winning bid. So, what did I do? I pulled out 5k in cash, put it in an envelope and went to a different house in Detroit, that appeared to be in need of a bulldozer, where the auction was held. I set myself a limit to bid of $85,000. It just seemed like a good number at the time. A couple of my friends came along to support me, as I was quite a bit nervous about it and boy, did we look out of place from the clearly seasoned investors present.

I watched as a few houses went up before my target, the auctioneer rambling off the numbers every bit the same as they were portrayed in the movies. I could barely understand what was going on, but I could feel my blood rushing through my veins as he announced my target was next. The bidding started at $15k. A handful of other investors raised their hands one after the next and the next thing I knew it raised to $55. Only three others were bidding now, slightly slower it seemed, and I decided it was my time to join in. $60k I offered, and I could feel their stare as this teenager in a "Death" band hoody joined into their war.

After only 2 more raises, it was left between one other man and myself. $75, 78, 80, 82, 85. "$85 thousand going once... Going twice... " I had it in my grasp, and I must have visibly been shaking at this point. "$87!" The man said, while staring me down. I was done. Outbid at the last second. And yet, I breathed a sigh of relief... I knew I was in over my head. But more than I even knew at the time.

I didn't know how auctions were ran, I just went there with the mindset that my cash down payment and pre-approval were enough to seal the deal. (Side note. That house sold for somewhere around 220k after rehab)

About 2 weeks later I went to an open house only a few blocks from my mom's place and put in an offer with the Realtor on site at their asking price. I still hadn't been working with a realtor of my own. (Major lesson number two). The offer was accepted and now the actual approval and underwriting begun. A couple weeks later, I get a phone call, it's the manager of the lending facility. Turns out that they fired my loan officer and upon review they can not approve me for a loan as, surprise surprise, I didn't have enough credit history.

I was completely crushed. Twice, I felt that I had lost a house of my dreams, and now it would be "Who knows?" until I would be able to even try to get one. I felt my dream was shattered. 19 years old... I had a hell of a lot to learn. The lender told me that I had no credit history, and I asked.... "Well, how do I earn credit?" My first step in the right direction to make it happen. He told me to make sure my bills were put in my name, then after a couple months to apply for as many credit cards as it takes until one accepts me. Use it. Pay it off each month and repeat. And eventually it worked.

It's April 2009, and with a full year nearly to the date of actively working on my credit (and saving up even more capital), I renewed my search for my first property. This time, I found an agent to work with who helped me out more than I could have imagined and a lender who actually verified my credit and income information. Together we got an offer accepted on a foreclosed property, right down the street from the house I tried to auction for and for 10k under the bank's asking... at my goal of $85,000. We decided on an FHA loan to lower my down payment and keep more of my capital for some of the rehabs that were required... And the closing costs that I never knew existed a year earlier.

I'm not going to lie... The closing process was a ridiculously stressful time for me for a variety of reasons, but we made it through. In July we closed, the house was mine. I moved in right away, and also had two of my friends each rent a room from me nearly immediately. Everyone wanted out of their parents houses at this time, and my 3 bedroom bungalow with a full basement had everyone's eye. A month before my 21st birthday. My first investment- househacking my primary, before I ever knew it was a thing. More from this in my next post, this one has been far long enough, but I thank you, truly, for taking the time out to read this. As young, and new investors- please take these lessons to heart and do your due diligence before getting started to avoid these horrible mistakes, but don't be afraid to get started, you will always learn as you go.

@Isaura Orellana. Love this post, very well put truth to the Detroit market that I constantly hear being bashed. I've lived in metro Detroit my whole life and there is plenty of opportunity here. I only have one investment property here right now, but I'm back to looking for more as we speak.