my journey from negative net worth to financial freedom

Making House Hacking Decisions

Making House Hacking Decisions

Safely made it home for a quick visit. Had to get through 2 days of flights, layovers and missed connections to make it back to my hometown for a visit. But I’ve been adhering to my reading schedule, have added Bigger Pockets (BP) podcasts and webinars to my list of information sources, and have come to some decisions on my home and where and how I want to invest.

I’ve decided to stick with the plan of selling my home instead of renting it. The numbers just don’t work out – no matter how I looked at it. At the end of the day – if my mortgage payment were smaller (if I had purchased my home for less) – then it would be a good first RE investment. But as it stands now, my expenses would outweigh my rental income – resulting in either a break even or negative cash flow – which is a no-no. So, selling it is.

Revised strategy

I’ve been doing my own comparative analysis on what homes in my neighborhood are/have been selling for.  I’ve been told that we’re currently in a Seller’s market  – which I can only hope will last through to 2018, when I’m ready to sell. I’ve looked at the comps (homes that closely match my home’s square footage, after repair condition, amenities, and location). I’ve also estimated a majority of the improvement/repair costs I’ll incur in getting my home ready to sale. Taking those items into consideration along with other monies I’ll need to pay back and credit cards balances I need to wipe away – I figure I’ll be holding 20k or less when it’s all said and done.

After finishing HOLD – I’m going to start on a book I learned about on BP: Set for Life by Scott Trench. I’m actually really excited about reading this one because he discusses how 20k is a good amount for getting into real estate investing (REI) – especially if you begin by buying a multifamily property. Though I was initially hesitant to even think about the prospective of buying a multifamily (duplexes, triplexes, etc.) – I’m leaning heavily towards this option now.  Investing in multifamily properties is the perfect strategy, given my cash flow goal:  in 13 years or less, acquire 25 properties (single family homes and possibly duplexes) generating $60,000 after tax cash flow . The HOLD book I’m reading talks about this. Investing  in SFH is the best strategy for increased wealth (through property appreciation, for example). Investing in multifamily properties is a strategy for increased cash flow.

House Hacking

Bigger Pockets is big on this idea of House Hacking or buying and living in a property while renting out a portion of it. For example, buying a duplex, triplex or fourplex – living in one unit and renting out the rest. The cool part about this idea is that – since I’d be living in one unit – I could finance the deal with a FHA mortgage, put down a small down payment (DP) (since the DP requirements would be 3.5% of purchase price) and use remaining monies to cover improvement costs to the property. Multifamily properties with 4 units or less are considered residential – and since I would be living in one – they would consider the property, owner occupied. Mortgage requirements and terms for owner occupied properties are generally much better (in terms of down payment required, interest rate, etc.) than those for investment only properties.

If I’m able to negotiate a good deal – I could get a property and either live there free or for close to free for a year (i.e. tenants covering my mortgage through their rent) and/or live there for free and have leftover cash flow coming in every month too! Either way – I would negotiate a price for the property such that once I moved out (after a year) I would net at least $100/month  ($200/month) in net cash flow – once that vacant unit was filled.

I did some initial research on my target areas (see below) but that was before I considered multifamily investing. I think my initial target areas are good for SFH investment. These are suburban areas with moderately priced homes with a high percentage of married couples, high owner occupied neighborhoods, low crime and average – good schools – basically homes for couples/families. I’m going to add target areas I think would be good for multifamily investing like cities/neighborhoods with a higher percentage of single people, still lower(ed) crime and average schools. So my more detailed plan/criteria :

 

In 13 years or less, acquire at least 25 SFH and multifamily properties each generating at least $100-$200/month in net cash flow. The goal of which is $60,000/year ($120,000) in after tax cash flow.  Begin by house hacking a multifamily property (ideally a duplex or triplex) in the areas of Oak Pak, Madison Heights, Ferndale, Hazel Park or Kalamazoo, MI. Areas to target for investing in SFH are the communities of Westland, Garden City and Redford, MI.

 

So next steps involve – finishing my HOLD book and moving on to Set for Life. I’m 66% done with HOLD currently reading the section about Property Management – which is really appropriate given my recent change in mindset about multifamilies. I would be self managing the house hack (i.e. being a onsite landlord) so it’s going to be important for me to gain as much knowledge and understanding of property management as I can. Next, I’m going to start analyzing properties for sale in my target areas. This will give me practice in quickly analyzing whether a property would be a good deal for me given my goals/criteria above. A great example  is below – this multifamily is in Ferndale and sold for $115k in April. The prior owners were getting $1200/mo in total rent. According to Zillow, debt service (mortgage payment) plus insurance, taxes and fees (e.g. PMI) for a 30 year mortgage at$115,000 with 3.5% down payment ($4025) comes to a little over $800/mo. Now I wouldn’t stop there since it’s important to account for other expenses (e.g. maintenance, vacancy, etc.) If I could’ve purchased this property for at or around $105,000-$110,000 I think it would’ve been a great first investment. So…I’ll start doing something like this for my target areas – but with more accurate estimates (for things like taxes, insurances, etc.).

Are you house hacking or interested in house hacking? Please share your insight by leaving a comment below!

 

Motivating Mantra: “Stop Caring About What People Think”

Recently took a hit of a Gary V video. He talked about the importance of really caring only about your own voice when it comes to taking a leap toward your dreams/hustle/aspiration. Fear of failure often stems from caring too much about what other’s think of you, your dreams, and mistakes/missteps/failures you might make. It’s important for me to listen to my own voice and take heed and comfort in the fact that I’m deciding to make wise decisions for MY future – and no one else’s. I’ll make mistakes and might even fail a time or two (or more) but I have to stay committed and not let other’s opinions distract me from my ultimate goal.

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