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First House Hacking Adventure

A detailed account of a Fastlane process...

Strategery

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I’m making this thread for anyone interested in learning from my mistakes/successes in house hacking. I got the idea of house hacking from the @G_Alexander post here.

The general plan is to purchase a multifamily home that has between 2-4 units, live in one unit and rent out the other unit(s) so that I may live “rent free.” This isn’t intended to be a Fastlane business, but will hopefully provide runway for one in the future.

Where I’m currently at:
I have just under $25k, and make around $80k per year at my current job. So basically unless it is a derelict shit hole, I can’t get an FHA loan for anything commercial (more than 4 units).

What I’m doing:
I’ve been looking on Trulia for properties, and in my area there isn’t a whole lot available. So I’m sorry if you are looking for an action-packed thread, it may take some time for the right deal to come my way.

I’m supposed to meet with a Mortgage broker tomorrow to get pre-qualified for a loan. He wants me to apply online first through his website. I’m not really sure about this, because I feel like it is committing me to him unless I want to submit many applications and ding my credit score, which would be no bueno.

I’m not currently working with a real estate agent, but there was one a while back that was at an open house who I struck up a conversation with. He was very knowledgeable about house hacking and turned me on to the Bigger Pockets guys, so I’m going to internet stalk him and see what his reviews look like.

What I’m reading:
I’m currently listening to The Audiobook on Rental Property Investing by Brandon Turner and toilet reading The Complete Guide to Buying and Selling Apartment Buildings by Steve Berges, since they were recommended to @BellaPippin in her recent post. Any solid book/resource recommendations will be taken seriously. I can listen to audiobooks at work without my work suffering.

Potential local mentors:
I know of two locals who make most of their income (I’m assuming) from rental properties. I see one fairly often, and he’s nice enough to humor my questions. He said he would help me find a property manager when the time came. I haven’t spoken to the other one, just heard about him from my dad.

Why I’m doing all this:
I highlighted my current living situation in my intro post here. If you don’t feel like reading it, I’m 34, I live with my parents and brother (and his F*cking dog). I work at a family business. Our relationship (collectively) is stable for the moment, with the potential to implode over the slightest offense. I really hate the way it is, and it is always better when we have space from one another. They don’t support anything that I do outside of the family business, but still refuse to take my suggestions for improvement seriously (after all, I’m the youngest). In the future, the business will be a point of contention between my brother and sisters if I decide to stick around, and even if it were all going to be in my control (no chance), I would only have my dad’s death to look forward to. I would rather be a son that could provide value instead of taking it; one who could have a relationship with his father rather than a business arrangement. So it is in my best interest and more importantly theirs if I can make my own way through life.

So when I do decide to jump ship from my current job, it would probably be a little awkward if I were still living with my employer.

Also, living in an environment that takes energy from you is no bueno, and I’m definitely there now. So F*ck this shit.

Summary:
So there you have it. I’m doing some shit. And I’m super excited about it. I really think I’m going to enjoy the management aspect of this. If you are considering house hacking, feel free to ask me any questions about what I’m doing and I’ll give you all the value that I can provide…I’m no expert. I’m barely a functioning adult. Keep that in mind.
 
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broswoodwork

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I’m making this thread for anyone interested in learning from my mistakes/successes in house hacking. I got the idea of house hacking from the @G_Alexander post here.

The general plan is to purchase a multifamily home that has between 2-4 units, live in one unit and rent out the other unit(s) so that I may live “rent free.” This isn’t intended to be a Fastlane business, but will hopefully provide runway for one in the future.

Where I’m currently at:
I have just under $25k, and make around $80k per year at my current job. So basically unless it is a derelict shit hole, I can’t get an FHA loan for anything commercial (more than 4 units).

What I’m doing:
I’ve been looking on Trulia for properties, and in my area there isn’t a whole lot available. So I’m sorry if you are looking for an action-packed thread, it may take some time for the right deal to come my way.

I’m supposed to meet with a Mortgage broker tomorrow to get pre-qualified for a loan. He wants me to apply online first through his website. I’m not really sure about this, because I feel like it is committing me to him unless I want to submit many applications and ding my credit score, which would be no bueno.

I’m not currently working with a real estate agent, but there was one a while back that was at an open house who I struck up a conversation with. He was very knowledgeable about house hacking and turned me on to the Bigger Pockets guys, so I’m going to internet stalk him and see what his reviews look like.

What I’m reading:
I’m currently listening to The Audiobook on Rental Property Investing by Brandon Turner and toilet reading The Complete Guide to Buying and Selling Apartment Buildings by Steve Berges, since they were recommended to @BellaPippin in her recent post. Any solid book/resource recommendations will be taken seriously. I can listen to audiobooks at work without my work suffering.

Potential local mentors:
I know of two locals who make most of their income (I’m assuming) from rental properties. I see one fairly often, and he’s nice enough to humor my questions. He said he would help me find a property manager when the time came. I haven’t spoken to the other one, just heard about him from my dad.

Why I’m doing all this:
I highlighted my current living situation in my intro post here. If you don’t feel like reading it, I’m 34, I live with my parents and brother (and his F*cking dog). I work at a family business. Our relationship (collectively) is stable for the moment, with the potential to implode over the slightest offense. I really hate the way it is, and it is always better when we have space from one another. They don’t support anything that I do outside of the family business, but still refuse to take my suggestions for improvement seriously (after all, I’m the youngest). In the future, the business will be a point of contention between my brother and sisters if I decide to stick around, and even if it were all going to be in my control (no chance), I would only have my dad’s death to look forward to. I would rather be a son that could provide value instead of taking it; one who could have a relationship with his father rather than a business arrangement. So it is in my best interest and more importantly theirs if I can make my own way through life.

So when I do decide to jump ship from my current job, it would probably be a little awkward if I were still living with my employer.

Also, living in an environment that takes energy from you is no bueno, and I’m definitely there now. So F*ck this shit.

Summary:
So there you have it. I’m doing some shit. And I’m super excited about it. I really think I’m going to enjoy the management aspect of this. If you are considering house hacking, feel free to ask me any questions about what I’m doing and I’ll give you all the value that I can provide…I’m no expert. I’m barely a functioning adult. Keep that in mind.
It's a nice feeling to only be on the hook for <$200/mo with tenants paying the mortgage. I did it myself back in 2003 when banks would give a $250k loan to an upturned mop with a bucket for a head on a 3 family sand castle. (Anyone else miss Countrywide Home loans?)
 

tpuffer

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@Strategery - Congrats on getting started with something! The real question is are you going to push through when you get 6+ months in and STILL haven't found a good deal?! I just did my intro post if you want to check it out to get my background.

It took me about 8 months to find my duplex to house hack. I got my real estate license to look at deals that were on the market. I didn't like any of them and sent out hand written letters to the ugly duplexes in the nice neighborhoods and eventually found one I liked.

When doing house hacking it is nice to have your mortgage almost covered, or most of the way - BUT you also need to underwrite for the exit. What I mean by that is you need to know what the numbers look like for when you move out of the building eventually.

By the way - I made $50K per year and had $7K in the bank when I bought my place. I actually liquidated my 401K (because they are pointless) of $5K and used 0% interest credit cards to finance the purchase and renovations. After having the place renovated and rented for 6 months I got a HELOC on the building and paid off the credit cards. So you are WAY ahead of where I was!
 

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I'll be following this thread as it's something I've been considering doing as well when I come back to the states. The only difficult thing for me is staying locked into one place for an entire year for the FHA loan. I'm a digital nomad and have to travel several times during the year and live in different countries. As for that reason, the one year FHA requirement doesn't quite suit me at the moment.

Good luck on your journey, and looking forward to hearing about your progress!
 
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Strategery

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The real question is are you going to push through when you get 6+ months in and STILL haven't found a good deal?!
I've been looking for a few months already, and it's frustrating, but I'm keeping my nerve.
I just did my intro post if you want to check it out to get my background.
Yep, it was a good read, and I'm glad to have folks like you around.
I got my real estate license to look at deals that were on the market.
Do you think it is worth it to get my license?
 

tpuffer

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Do you think it is worth it to get my license?
[/QUOTE]

I can say that the benefit to having your license is if you do end up purchasing a listed property then you can keep some commission - I have done this a few times. So it has overall been beneficial.

That being said it totally isn't necessary to have a real estate license to invest in real estate!
 

Strategery

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Update:

Today I met with a loan officer to be prequalified for my loan. He was nice and had a Casey Kasem voice. The simple version is that I have to get him more of my pay information to prove that I’m not a liar. I asked to borrow $300,000, which is the reason for the runaround… basically, my back-end ratio (aka debt to income ratio) isn’t quite what it needs to be due to a $60k student loan debt, and I have to prove that I’m going to get a bonus this year to improve it.

My credit score was good, just under 800. So things are looking like I’ll get some money to do this thing.

Later I was driving in town and got the sudden urge to call up the owner of a house that I’ve been curious about. It’s for sale by owner. It’s a really big, really old house close to downtown and the local college. It usually has a 1965 Pontiac GTO in front of it, and today was no different. I was told later that it had previously been split into 4 units, so with some work I could return it to it’s cash-flowing glory.

The lady I spoke to encouraged me to just drop in, so I did. I was there for just under 3 hours! It was owned by an older couple who apparently took a liking to me (they wouldn't let me leave without telling me everything they knew about everything). They wanted $325k for it, and their deal was that if I gave them $20k (what they’ve put into paying off this loan) then I could assume their VA mortgage at 3.2%, instead of the 4.125% that the aforementioned loan officer suggested was the best I could do.

The GTO was also for sale for $20k lol.

It’s the best offer I’ve seen since I’ve started looking, but the overall cost makes me super nervous. It's just a lot of F*cking debt.

That being said I need to put it through the wringer in terms of inspection. I also need to figure out what I can rent it for. I need a copy of the floor plan so that I can figure how I want to split it up for apartments, and I have no clue how to find that. My biggest problem is that I don’t know what I don’t know, so I’m having to read from google searches and books as I go. Oh well, at least I know what I need to focus on.

Whether or not this is the best deal ever or not, I learned something from the interaction. This house has been on the market for around 2 months and I kept ignoring it because I thought there was no way I could ever afford such a big place in town. But when I stopped dismissing the idea, and stopped being reliant only on online listings, I found out that it’s not so far out of reach for me after all, and there are more options than what is conveniently found with real estate apps. It could in fact work out well.
 

BellaPippin

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I. AM. SO. EXCITED. FOR. YOU.

@Strategery -
By the way - I made $50K per year and had $7K in the bank when I bought my place. I actually liquidated my 401K (because they are pointless) of $5K

When was this? This is sort of my standing situation right now, please don't say "oh it was before everything exploded in 2008". Except I went from 11k to 3k because life, but it's going back up slowly..my 401k has around the same amount (5K) and because my company got acquired I'm supposed to decide whether to roll it over or cash it. The only thing I don't like about cashing it is that I'm probably going to be owing taxes again (I did it a couple years ago to pay for my divorce lawyer so I didn't touch my savings... but I ended up saving myself because of what I had donated to my UN volunteering over the whole year .__. )

I assume it's still very risky? I keep hearing that on top of all that a ton of costs appear at closing plus shouldn't I have a couple months cushion in case it takes me a while to find good tenants? You went in just like that?
 
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broswoodwork

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Update:

Today I met with a loan officer to be prequalified for my loan. He was nice and had a Casey Kasem voice. The simple version is that I have to get him more of my pay information to prove that I’m not a liar. I asked to borrow $300,000, which is the reason for the runaround… basically, my back-end ratio (aka debt to income ratio) isn’t quite what it needs to be due to a $60k student loan debt, and I have to prove that I’m going to get a bonus this year to improve it.

My credit score was good, just under 800. So things are looking like I’ll get some money to do this thing.

Later I was driving in town and got the sudden urge to call up the owner of a house that I’ve been curious about. It’s for sale by owner. It’s a really big, really old house close to downtown and the local college. It usually has a 1965 Pontiac GTO in front of it, and today was no different. I was told later that it had previously been split into 4 units, so with some work I could return it to it’s cash-flowing glory.

The lady I spoke to encouraged me to just drop in, so I did. I was there for just under 3 hours! It was owned by an older couple who apparently took a liking to me (they wouldn't let me leave without telling me everything they knew about everything). They wanted $325k for it, and their deal was that if I gave them $20k (what they’ve put into paying off this loan) then I could assume their VA mortgage at 3.2%, instead of the 4.125% that the aforementioned loan officer suggested was the best I could do.

The GTO was also for sale for $20k lol.

It’s the best offer I’ve seen since I’ve started looking, but the overall cost makes me super nervous. It's just a lot of F*cking debt.

That being said I need to put it through the wringer in terms of inspection. I also need to figure out what I can rent it for. I need a copy of the floor plan so that I can figure how I want to split it up for apartments, and I have no clue how to find that. My biggest problem is that I don’t know what I don’t know, so I’m having to read from google searches and books as I go. Oh well, at least I know what I need to focus on.

Whether or not this is the best deal ever or not, I learned something from the interaction. This house has been on the market for around 2 months and I kept ignoring it because I thought there was no way I could ever afford such a big place in town. But when I stopped dismissing the idea, and stopped being reliant only on online listings, I found out that it’s not so far out of reach for me after all, and there are more options than what is conveniently found with real estate apps. It could in fact work out well.
Holy shit! I didn't know there were still mortgages that could be assumed.

CARLTON SHEETS WAS RIGHT!
 
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Strategery

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BellaPippin

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The loan officer I spoke to said 3 months savings was required for the loan.



Gracias. I'll be more excited when I've locked something in lol

So from the 25k-ish for your downpayment you would subtract 3 months savings basically
 

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I feel like I would assume the loan just so I could brag that I got an assumable VA loan. You could be the next RE guru with cred like that! ;)
 
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Strategery

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Holy shit! I didn't know there were still mortgages that could be assumed.

CARLTON SHEETS WAS RIGHT!
Dude, I didn't even know this was a thing.

I feel like I would assume the loan just so I could brag that I got an assumable VA loan. You could be the next RE guru with cred like that! ;)
Lol, that would be cool. I'm not doing it, though. I had my brother-in-law/home appraiser take a look and it has more problems than I can afford.
 

tpuffer

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I. AM. SO. EXCITED. FOR. YOU.



When was this? This is sort of my standing situation right now, please don't say "oh it was before everything exploded in 2008". Except I went from 11k to 3k because life, but it's going back up slowly..my 401k has around the same amount (5K) and because my company got acquired I'm supposed to decide whether to roll it over or cash it. The only thing I don't like about cashing it is that I'm probably going to be owing taxes again (I did it a couple years ago to pay for my divorce lawyer so I didn't touch my savings... but I ended up saving myself because of what I had donated to my UN volunteering over the whole year .__. )

I assume it's still very risky? I keep hearing that on top of all that a ton of costs appear at closing plus shouldn't I have a couple months cushion in case it takes me a while to find good tenants? You went in just like that?

I did this in 2016. Depending on what type of 401(k) it is you can sometimes use the funds for your first home purchase without paying taxes on it.

All of life is risky. Each one of us could die today from anything. Regret is terrible to live with. (sorry I read a lot of Stoicism! haha)

Having a few months cushion helps for sure. If the place that you're buying needs some repair you can also look into an FHA 203K loan to roll repairs into the loan. A good friend of mine did that for a duplex.
 

tpuffer

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Dude, I didn't even know this was a thing.


Lol, that would be cool. I'm not doing it, though. I had my brother-in-law/home appraiser take a look and it has more problems than I can afford.

Did you approach the sellers about lowering their asking price commensurate with the repairs that needed to be completed?? I was able to get my duplex price lower by walking the seller through all that was wrong and the price to repair it. One of my best friends from college did the same thing and was able to get a large portion of the repairs taken off the purchase price.

If you don't ask - You don't get!
 
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BellaPippin

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I did this in 2016. Depending on what type of 401(k) it is you can sometimes use the funds for your first home purchase without paying taxes on it.

All of life is risky. Each one of us could die today from anything. Regret is terrible to live with. (sorry I read a lot of Stoicism! haha)

Having a few months cushion helps for sure. If the place that you're buying needs some repair you can also look into an FHA 203K loan to roll repairs into the loan. A good friend of mine did that for a duplex.

Well of course, I know everything is risky but there's risks :mad: and risks :) did someone get the Simpsons reference

I could buy the place, even use my credit to fix stuff (my credit is in the 800s, ample credit line and I have no debt) but with no liquid savings at all after I buy, what do I do if I can't find a tenant on time or idk. X happens. Apendicitis. Full mortgage payment. You know. I feel it's a silly risk? Don't get me wrong, I'd love to go shopping like, today. I'm dying to. What was your train of thought? "F*ck it"? That's an honest question btw. xD
 

tpuffer

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Well of course, I know everything is risky but there's risks :mad: and risks :) did someone get the Simpsons reference

I could buy the place, even use my credit to fix stuff (my credit is in the 800s, ample credit line and I have no debt) but with no liquid savings at all after I buy, what do I do if I can't find a tenant on time or idk. X happens. Apendicitis. Full mortgage payment. You know. I feel it's a silly risk? Don't get me wrong, I'd love to go shopping like, today. I'm dying to. What was your train of thought? "F*ck it"? That's an honest question btw. xD

It was 25% F*ck it, and 75% of having put in the work and gaining the knowledge to know what the process would be.

I had been searching my area for around 8 months and was able to look at 50+ duplexes. Doing that allowed me to get an idea of the rents in all areas I wanted to purchase and have an idea of how long it would take to fill a unit.

My mortgage payment was only slightly more than what my current rent payment was - so the mortgage payment was effectively paid for regardless.

I also had to do $18,000 worth of repairs to the unit I wanted to rent out. I did this using 0% interest credit cards.

It took me three months to renovate that unit doing most of the work myself. Once I finished renovation it took me 2 weeks to get the unit rented at $1,200 per month - which covered the mortgage. About 3 months after that I was able to get a HELOC on the property and pay off the credit cards and have interest only payments on the HELOC.

Now - had I not knew about the tools and had a PROCESS laid out for exactly what I needed to do then yes - super risky! But, having everything laid out in process and following that - and only pivoting where absolutely necessary - that helps to mitigate the downside risk!

Have you analyzed any duplex deals yet at all?
 

Strategery

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Did you approach the sellers about lowering their asking price commensurate with the repairs that needed to be completed??
I may in fact make them an offer, but the house has a lot more wrong with it for my purposes. It was built in the 1840’s, so you can rest assured it has “character.” My other concerns:
  1. Zoning… I would have to have this changed, and it is in a historical district. It doesn’t completely sink me, but it is big hurdle.
  2. Historical Society… I can’t do anything without some a**hole saying that it’s ok
  3. Cost of conversion…this only scares me when combined with all the other problems
  4. Overall cost… after all these problems I don’t really like the price tag, which I assume means that I wouldn’t be able to assume their mortgage even if they did accept a lower offer. I just don’t like being so leveraged. I suppose this makes me conservative compared to you, @tpuffer… dude, you have got a pair on you! :rofl:
My gut reaction? Look a bit more. Any of these problems might not be so bad by themselves, but all together kind of makes for a shit show. I think I can do better.

So I looked at another place today (a newer duplex) and it seemed great. It was another one that wasn’t listed anywhere, I heard about it from my brother-in-law. The owner is a contractor, owns several rentals and wants $110k for it, it currently rents for $525 per unit, they pay utilities, which is super cheap. The inside was perfectly new, and he does great work. Said the reason he’s selling is because it’s the only property he owes on and he’s ready to retire (in his 50’s).

I indicated in my original post that this might develop slowly, but who knows?
 
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I am in the process of doing this myself after reading @G_Alexander thread on "STOP Paying Rent: Live for Free". I got pre-approved for mortgage, found a real estate agent referenced by my boss at work who has rentals, and started searching. I found and older duplex in my area listed for 115,000 that needed work so i decided to not do an FHA loan due to requirements on the condition of the property. I put in an offer and negotiated down to 100,500 and upon the inspection discovered it needed a new roof. I am currently negotiating with owner to pay for half of the roof costs, if that goes through Ill be closing in weeks. Just renting one unit will pay the mortgage which is great.

This is tough depending on what part of the country you are in but I tried to follow "The 1% Rule" as a minimum and "The 2% rule" as a goal. The idea being that 1 or 2% of the property purchase price should be collected in rent each month. With this property I am at 1.65% which I am pretty happy with after looking around.

If the negotiating process goes well I should be closing soon. Let me know if you have any questions as I am going though the same process myself right now.

Good Luck!
 

Strategery

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tpuffer

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I may in fact make them an offer, but the house has a lot more wrong with it for my purposes. It was built in the 1840’s, so you can rest assured it has “character.” My other concerns:
  1. Zoning… I would have to have this changed, and it is in a historical district. It doesn’t completely sink me, but it is big hurdle.
  2. Historical Society… I can’t do anything without some a**hole saying that it’s ok
  3. Cost of conversion…this only scares me when combined with all the other problems
  4. Overall cost… after all these problems I don’t really like the price tag, which I assume means that I wouldn’t be able to assume their mortgage even if they did accept a lower offer. I just don’t like being so leveraged. I suppose this makes me conservative compared to you, @tpuffer… dude, you have got a pair on you! :rofl:
My gut reaction? Look a bit more. Any of these problems might not be so bad by themselves, but all together kind of makes for a shit show. I think I can do better.

So I looked at another place today (a newer duplex) and it seemed great. It was another one that wasn’t listed anywhere, I heard about it from my brother-in-law. The owner is a contractor, owns several rentals and wants $110k for it, it currently rents for $525 per unit, they pay utilities, which is super cheap. The inside was perfectly new, and he does great work. Said the reason he’s selling is because it’s the only property he owes on and he’s ready to retire (in his 50’s).

I indicated in my original post that this might develop slowly, but who knows?


Agree with you on all those items! My inlays actually have a 3-unit that is in a historical district - and it has been a fight to get things done!

Leverage can be a great tool if you have a process and plan to use it correctly!

The contractor who owns the duplex pays utilities??
 
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tpuffer

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Not really sure if this is a quality, worthwhile update, but here goes. I'm still looking, and have approached a realtor who I had met at an open house a while back. He turned me onto the Bigger Pockets guys, and knew a thing or two about the area/house hacking, so he's officially my dude.

I found a place recently, and I'm hoping to get some opinions from you cats. The place is a triplex, and takes in $3k per month in rent. They are asking $245k, down from $575k a few months ago...it was also a "package deal" with another property in another city.

I asked an agent (not the listing agent) to schedule a showing yesterday. She said it had a stipulation: I can only see one unit. IF I make an offer, they'll schedule to show the other units. I felt really uneasy with this, but decided to look anyway, and I'm not sure why. I think I almost want to waste their time now lol.

The agent I spoke to called me to confirm my showing, and she said the seller wanted to know if I was pre-approved for a loan. I understand asking this when the prospect is at the property, but before?

I'm annoyed. This property is exactly right on paper, but the clowns selling it are F*cking weird. My best guess is there is a meth lab in one of the units? It's built on an ancient Indian burial ground?
 

broswoodwork

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Is the one unit they will show you unoccupied and the other two have tenants? If not, seems really wierd.

Real estate is a magical journey. :D

My first house had shit ugly 70's wood paneling, and when I went to take it down, I found written in red paint behind it "God help whoever removes this wall. There's no reason it can't be wall papered and painted. -R. Gagnon"

I took the old plaster down anyways... no skeletons popped out!
 

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Envision

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Not really sure if this is a quality, worthwhile update, but here goes. I'm still looking, and have approached a realtor who I had met at an open house a while back. He turned me onto the Bigger Pockets guys, and knew a thing or two about the area/house hacking, so he's officially my dude.

I found a place recently, and I'm hoping to get some opinions from you cats. The place is a triplex, and takes in $3k per month in rent. They are asking $245k, down from $575k a few months ago...it was also a "package deal" with another property in another city.

I asked an agent (not the listing agent) to schedule a showing yesterday. She said it had a stipulation: I can only see one unit. IF I make an offer, they'll schedule to show the other units. I felt really uneasy with this, but decided to look anyway, and I'm not sure why. I think I almost want to waste their time now lol.

The agent I spoke to called me to confirm my showing, and she said the seller wanted to know if I was pre-approved for a loan. I understand asking this when the prospect is at the property, but before?

I'm annoyed. This property is exactly right on paper, but the clowns selling it are F*cking weird. My best guess is there is a meth lab in one of the units? It's built on an ancient Indian burial ground?


They want you to be pre approved so you're not wasting their time. It's not uncommon and strengthens your position when competing with other prospective buyers.

They are only showing you one unit most likely to not disturb the other tenant/one unit is open. You should be able to tell the quality of the building from one unit and once you're offer is accepted you can do due diligence and look over the other side.
 

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