Edward and Robert are two brothers that were very conservative when it comes to expenditures and were ready to take the leap to buy their first home together, which started off daydreaming at houses. They kept hearing about house hacking from YouTube videos from Graham Stephan and from Bigger Pockets.

Passive Income Mindset For House Hacking

After graduating college they saved up pinching pennies for 4 years living with their parents until they were ready to make the move. Both brothers started working from 16 albeit the first job was not consistent. It still provided the value of wealth and built it compounding over time. They were always interested in investing and started off with dividend aristocrat  blue chip stocks primarily throughout college and after. With dividends they got the taste for passive income that made them want to take the concept to the next level with real estate investing and being landlords. 

House Hacking Purchasing Criteria

Edward and Robert had strict criteria for their home since it was not just going to be for an investment it was going to be their very own humble abode. Some of the properties didn’t need to check all of the boxes but some of the criteria definitely outweighed the others. The criteria consisted of: the town needs to have a downtown walkable area, train and public transportation, separate entrances for the units, no electrical problems, no foundation problems, access to washer and dryer on the property, livable bedrooms, vacant unit or two vacant units, need a driveway, central air for air conditioning, no flood zone, easy maintenance (not a huge yard and a lot of trees), increasing in value area/ new developments and improving the area. Within an hour from their parents. Last but not the most important criteria are to live at a discount of about 1,000 per person max per month including all expenses for the house. 

The Locations for the House Hack Purchase

The two brothers grew up in central NJ and their search for duplexes brought them to the more northeastern part of NJ by Montclair, Bloomfield, West Orange, and various places around Morris County. They have lived in the same house growing up their whole life (except for the couple years at college) and this was a big step for them financially and effort-wise. 

First Realtor and First Hunt for a House Hack

Their search started by browsing properties on Zillow, Trulia, and other real estate listing sites. After they found a handful of houses they liked they reached out on the Zillow realtor form and found it went to a Zillow rep who connected us with a random agent in the area – I am sure you know where this is going…. They were naive and went with the realtor and found out the hard way that you need to qualify the realtors for them to be a fit for you. The realtor would call them nonstop, text them all day, push them to put offers on houses, and some other off characteristics. The realtor was not investor-friendly and did not understand the investment side of real estate. After the first offer and experience, the two brothers moved on to find another realtor from a trusted referral source.

Their next realtor they got connected with through a friend who recently bought a house at that time. The new realtor was able to put in the effort, knew local areas better, knowledgeable with the known, providing us comps quickly, had helpful connections,  was an investor, and even was house hacking himself.

First Owner Occupied Multifamily House Offer Experience

The first multifamily house offer was in Bloomfield, NJ for these “two kids”. They probably only visited about 9 houses. For the accepted offer they were in over their heads and believe it or not it was with the first realtor. They put an offer on the property since the location was good, there was a vacant unit, and the numbers worked great. The house was under contract or attorney review twice before already and they thought they were lucking out, especially getting the property accepted 20k below the asking price. However, some situations raised red flags when looking at the property such as rooms not having closets, the garage is rented out as car storage when the garage roof was leaking, and some “bedrooms” were the size of closets themselves. 

Needless to say, during attorney review Edward and Robert found out the seller changed the property to an “as is” sale when it was not stated that way before, and they were not able to agree upon using a contractor to fix the roof as an already known problem. All of this added together resulted in the brothers deciding to back out since there was too much unknown and problems already. Over all, this specific multifamily house was on market and off market before final purchase for almost one and a half years. Furthermore, after they backed out the next buyer under contract with the property backed out as well so Edward and Robert probably dodged a bullet there.

Amount of offers Before The Final Owner-Occupied Multifamily Purchase

In total, they put in about 10 offers. Some formal, some not so formal, and saw over 50 properties before getting another one accepted after the first. Even the one that got accepted had some problems, but it was the end goal that made it all worth it. Most of the houses that they visited needed a lot of work to be fixed up believe it or not. The brothers were okay doing some cosmetic fixing up like painting, changing doors, and spackling however when a whole house needed new wiring or severe structural problems they ran away from those houses. Some of the houses were also abnormal floor plans or bedrooms were too small to be comfortable. For the houses, they put offers on they were either looking for easy value add opportunities or turnkey ready to move in duplexes at a reasonable price. 

Overall it was a very competitive market with each house having a couple of offers on them each time. Even the house they received the second accepted offer from initially didn’t get it accepted and were outbid originally. However, the first accepted offer bailed out due to the “mortgage situation” like the realtors usually say as default it seems. Regardless the seller came crawling back to them to go with their over-asking offer.

Under Contract Experience

The under contract experience is one for the record books for these two especially as first time home buyers. The attorney review process was like pulling teeth since the seller would not reply in a timely fashion. Then when it came to after the inspection asking for situations to be fixed or get a resolution fell on deaf ears, which resulted in the two brothers never getting a response to all of it. 

The problems that came up in the inspection report were: termites cracked sewer line and remain of live knob and tube wiring. Then later on in the appraisal, the appraiser found what they believed to be mold in the basement to be remediated, and then also they wanted a front step railing installed too. Between all the back and forth following up on these vital tasks, it was creating a hostile on a thin ice house sale. To make the matters worse the mortgage company was getting annoyed since the two brothers needed to keep extending the date of their locked-in low rate. The mortgage company had enough and they were saying if you do not close within 2 weeks you will have to pay a fee, which was over $1,000. They had enough with the attorney banter and went straight to the horse’s mouth and their realtor to set up a face to face meeting with the seller to hash out the mold remediation challenge that was preventing them from closing and the multiple radon test discrepancy that was making them cautious with moving forward. Eventually, the seller got a professional mold remediator to get in writing there is no more mold and the two brothers decided if there is radon they will have to get rid of it themselves before a tenant moves into the 1st first-floor unit. They were able to sign and officially close on their first owner-occupied multi-family duplex with only a couple of hours to spare before the mortgage company was going to give them a penalty for needing to extend the mortgage lock duration.

Fixing Up The House Hack and Renting it Out

Edward and Robert closed in September and put the unit up live to get tenants in November. Within that timeframe, they were slowly fixing up little things here and there and after work and on the weekends. Some of the tasks they needed to fill the 1st-floor unit were, repaint all the walls (some were a shade of Pepto Bismol pink paint), fix the basement outside access door so they can do laundry, replace a screen storm door that was broken, fix the bathtub trip lever that was not preventing water to drain, change a ceiling light, install a kitchen ceiling light where a fan used to be, install a new wall light, remove 4-5 trees (hired out), cover up a hole in the deck, paint the front porch, install a railing going downstairs, and of course cleaning to make the place shine!

The House Hack ROI

PITI (Mortgage Principle, Interest, Taxes, and Insurance) per month = $92 for insurance + $893 for taxes + $1,469 for Principle and interest = $2,454 from both units

Utilities per month = Gas is $95 + Electric is $62 + $66 for Water/sewer = $217 (both units come to $348 per month

Maintenance and expenditures $150 per month

Total Expenses per month = $2,821

Rent = $2,200 (first floor rented unit)

Out of pocket per month with PITI and Utilities = avg $602/2 live in landlords is only $301 per person 

If rented the second floor it would be an additional $1,700 totaling $3,900 subtracting $3,121 of expenses comes to $600-779 per month net profit (depending on how much reserve per month for expenditures and maintenance).

Ongoing Maintenance for The Multifamily

Since the tenant moved in there was not much maintenance to do besides the standard stuff. Edward and Robert cut the grass, trim bushes, and plow the driveway. The main expenses that come up within the first year of renting were changing the sump pump during a severe storm. The sump pump replacement was on their to do list however the week long power outage and flooding basement made the battery backup sump pump replacement become top priority emergency to prevent a flooding basement. Everything else has been smooth sailing to just allow rent to be collected.

Future Wealth Growth Through House Hacking

Edward and Robert will be planning on buying another house hack in a couple of years to live in and rent out the other units. They will be using their current house as a threshold for the number of what the return should be and the type of property to look for so the next one is a better deal. The goal for them is that they will eventually have enough income from rent to cover their regular living expenses (groceries, travel, housing, food, etc). While they are “young” in their 20’s it was a great time to get in to let appreciation be on their side over and over the years.