I did it a few years ago! I overcame the highly feared “analysis paralysis” stage and closed the first deal. how was it? kind. Smooth like silk. Before breakfast. Take a walk in the park. Insert other lame clichés here.
For those of you on the verge of offering your first property, I understand why you may hesitate. This is probably the biggest purchase in your life. Finding the perfect property to meet your financial flow and emotional needs is difficult.
What is the conclusion?for House hack Purchase, your goal is cash flow. You probably haven’t lived there for over a year, so ignore any emotions, run the numbers, and if they work, make an offer.
Now, you have lost your “feeling” of finding a beautiful property. You run the numbers and all of these catastrophic scenarios go through your head: What if I can’t find a renter? What if the furnace breaks? What if the roof falls? The list continues.
There are countless scenarios Maybe … It doesn’t work. Ask Chicken Little. However, these crazy scenarios are an exception, not a rule.
For those of you who may find it uncomfortable to make that first offer in a house hack, this is an article for you. Here are seven steps I took when closing my first house hack. And you can learn how easy it was.
7 steps I took to easily land (and rent it) the hack of the first house
Step 1: Build a team.
The first step is to build a team. When things happen (that is, repairs, tax plans, proceedings, etc.), the team grows. However, the only two teammates who are absolutely essential to your first purchase are the lender and the agent.
The first thing I did when I learned that I was moving to Denver Contact the Bigger Pockets community Ask the lender’s recommendations. Then, from major banks to local credit unions, we went through the process of pre-qualifying with 4-5 different lenders. By getting a pre-qualification, I gained a better understanding of what I can do.
After getting the pre-qualification, it’s time to find it Agent Helps find and close properties. Again, I contacted the Bigger Pockets community in Denver and met 6-7 different agents. It wasn’t easy to decide, but in the end I went with someone who was good at numbers and didn’t try to sell me with the emotional story of buying the first place.
Step 2: Find the property.
Search is turned on.
Living in Denver, Colorado, one of the country’s most popular real estate markets, many denials say it’s impossible to find real estate with cash flowing. It may not be possible for them, but it was relatively easy for me.
My agent has given me access to the MLS portal. There, I received an automatic email alert every time a Denver Metro property within my price range hit the market or went down in price.After a month of running a number and rejecting various properties, I found one of the following: Might be so work.
Step 3: Analyze the property.
The property was a completely refurbished duplex. Composed of two one-bedroom, one-bathroom apartments, the property has been on the market for two months (forever in Denver) and has recently been reduced to $ 400,000. The property is located in an up-and-coming location in Denver, about 1.5 miles from where I work and easily commute by bike or on foot.
I asked real estate owners in the area what they were getting for rent. One of them told me what I was renting a one-bedroom apartment for. I thought I could get a little more because mine is brand new.
At the assumed rent, I used to run the numbers Bigger Pockets Calculator Find out where your rent needs to be in order to cash flow (or live for free). The numbers didn’t work. I will lose about $ 750 a month. This is a cheap “rent” (in quotes as I will pay for it myself) and would benefit from repayment of the loan, but that wasn’t enough.
What did i do? I found it impossible to find a property in Denver.So I kept watching the rerun Desperate Housewives..
just kidding. I asked myself, “How can I make this property work?”
Given the location and the new build, I knew it was possible to rent this on Airbnb. After doing some research, I decided that I could make about $ 1,000 a month while renting a bedroom. A pseudo-bedroom in the living room where I could sleep. For an additional $ 1,000 per month, you’ll receive $ 250 per month in cash at the duplex within walking distance of your office.
That works for me.
Step 4: Make an offer.
After discussing with my agent, we decided to make an offer. My first offer … Eeeek.
We ran the numbers again and decided on a price of $ 360,000. It’s not a perfect lowball, but this has given us plenty of room to wiggle for negotiations.
[Side note: I know many people say, “If you’re not embarrassed by your offer, it’s too high.” In many smaller or buyer’s markets, I agree. However, in a booming seller’s market like Denver, there are multiple buyers lined up at almost every property, so a lowball could easily be ignored by the seller.]
In the next few days, we negotiated back and forth and finally settled at a selling price of $ 385,000. Once the negotiations were settled and the offer was accepted, I sent the money seriously.
Step 5: Perform due diligence and close the properties.
Upon acceptance, I informed the lender that I had a contracted property. Then they could start their diligence and meet the required timeline.
The inspection (including the sewer scope) was completed with minor adjustments to the required properties, such as installing handrails, grounding wires, and ensuring that all doors were properly installed. The seller fixed them without any problems.
The lender hired an appraiser, and the property was back for $ 390,000. If the sale price is $ 385k, that means I built a $ 5,000 equity right after closing (woohoo!).
It took the lender a couple of weeks to take on the loan.
The store is ready to close on June 17, 2017 (one month after the recruitment is accepted). I brought the cashier’s check to the end and sat down with the seller, my agent, and the title company. I have reviewed and signed all the documents. After an hour and a few hand cramps, I officially became a real estate owner.
Step 6: Find the tenant.
In many (if not all) states it is illegal to conclude a lease before the property is closed and you own it. However, in the process of closing, I found that there was nothing to prevent me from promoting or showing the place. This is exactly what I did and I recommend you do to reduce the initial vacancy.
Once the property was contracted, I used ZillowRentalManager to create a rental property. This service creates one list and uploads it to Hotpads, Trulia, and Craigslist in the appropriate format.
Once we started receiving inquiries, we scheduled a short 10-minute call to assess the credibility of our potential tenants. I didn’t want to waste time showing the property to unqualified tenants. On the phone, I asked the following question:
- Where do you live now?
- How much is the rent?
- Why are you moving?
- How much is your (and your spouse’s) annual salary?
- Do you like / get along with your current landlord?
- Do you have a pet?
- Have you ever been kicked out?
Once they answer these questions to my liking, we will set the show time.
The place was brand new and already in “show conditions” so I didn’t have much to do. I immediately started showing the property. The apartments are quite small, so the screenings usually don’t last more than 10 minutes. We will meet the applicants at the property, discuss for a few minutes, and then tour.
After guiding them, I went out and let them explore the apartment on their own. That way, they were able to talk comfortably between them without me plunging.
Once we received the tenant we were interested in, we confirmed our interest and collected a $ 40 application fee to pay for the background / credit report. As part of the screening process, we have confirmed that the following check boxes are selected:
- I got a credit report and confirmed at least 600 credit scores
- We conducted a background check and confirmed that there was no criminal record.
- Requested the last two pay slips to confirm the annual salary
- Called the landlord in front of a few people
- I called my employer and confirmed that my job was stable and that my pay slips were consistent with what was reported.
When all the check boxes are selected, let the tenant know that they have been accepted.
Step 7: Sign the rental agreement with the tenant.
Closed at 10am on June 17ththAnd noon on June 17thth, Signed a rental contract with the tenant. We met at the property and I borrowed them. We also created an “amateur debt”. This is an easy-to-understand PowerPoint presentation debt without the use of a huge legal jumbo.
They signed the lease and the process was complete.
There you have it — a hack in my first home. There was almost no hiccups and it went very smoothly. I know I’ve heard all the crazy stories that are happening, but again, this is an exception, not a rule.
Did I make the best deal in Denver? Probably not.
But I’m certainly better than those who went through this deal because they made their inner Chicken Little take full advantage of them.
My suggestion for those who are still looking for the first purchase is to do it! You never get rich from one property. So don’t try it. Real estate is a slow game that makes you rich.
Even if I lose money, I’m glad I learned valuable lessons in the process and bought the property 20 years later. Ask someone who has owned real estate for 20 years.
Where is the journey to start the first transaction?
Please leave a question or comment below!