House-Hacking my First Piece of Real Estate
I'm not new to housing improvements and following paths to increase value, however I've never analyzed property as an investment. I intentionally house-hacked without knowing what house-hacking was. A quick story of my first purchase.
I had a specific set of criteria when looking for my home.
- It had to be close to work.
- I had to be able to rent it to 2 others and my future wife.
- I had to be able to put in some work for return.
- It had to be in a good neighborhood.
- It had to be in an area where the market trends were on their way up.
Thankfully my Real Estate Agent flips houses and does buy and hold. He knew exactly what I was looking for. I was looking in one specific area near Minneapolis I could afford that matched these criteria. Unfortunately, as I started putting offers in experienced investors with more capital were too. I put in 4 offers and they were all outbid by 30k or more to a cash offer, none of which did I offer below asking price. I was getting frustrated and wanted to modify my criteria. Instead of that, I took a few days without searching for homes and cleared my head. Coming out of that break, I decided to expand my search area and quickly had more luck. I found a house at the top of my budget, which gave me some frights, but I knew the plan and I knew I'd be okay.
My house was purchased as a 3 bed/1 bath property built in 1956. The previous owners had purchased it from friends in 1958, so it may as well have been a one owner house. Let's see how it matches up to my criteria:
- It's 9 miles to work - anywhere from 20 to 60 minute drive depending on traffic.
- 3 bedroom. I was able to rent 2 rooms to friends and share a room with my future wife.
- It was a 3 bed/1 bath, so it had functional obsolescence. The last time the house had been updated was in the 70s.
- The city had been a little rough 15 years ago and has been cleaned up. I have never felt unsafe here.
- The city has been mentioned in an article as the next up and coming area. Between the market and my updates, the house has increased in value an estimated $80,000.
I think I did pretty well.
I was looking specifically for a house I could add sweat equity, and thankfully I found it. With the lack of multiple bathrooms, I could add instant equity. As I said earlier, the house had last been updated in the 70s. We had avocado shag carpet with avocado walls. I took a picture of the room and it came out blue; that's how ugly the room was, the camera couldn't handle it.
I moved in a month prior to my future roommates lease was up in order to get the house ready. I removed the wallpaper, painted, and exposed the oak floors. The roommates were ready to move in. We still only had one bathroom, so that was the next task. As I was at the top of my budget on my purchase, I had to get a fix-up fund loan. I hired to get the bathroom roughed in, then I was able to frame it in, and had my future brother-in-law wire it for me. The plumbers came back and installed the toilet and tub with surround, once that was done I was able to install the vanity, put up the drywall, and lay the floor. A few months in, we had two bathrooms.
Once the roommates moved out (after 3 years) we got our hardwood refinished and took our elbow grease to the kitchen. I ripped out the existing countertop and had granite installed. I then added a bevelled subway tile backsplash, which was a pain in the back. Working for elongated periods of time hunched under the upper cabinets is no easy task. Then my wife and I are painting our oak cabinets that are in good shape instead of replacing them. We've done various minor updates to rooms throughout the three years that weren't as major. Now the house is updated.
I had friends that needed a place to live, and I was making decent money. I had decided to purchase a house and rent to them. For three years, I had my future wife and between one and two renters (most of the time it was 2 renters). Between the 3 people that didn't own the house, the mortgage and the fix-up fund was paid for each and every month. That let me pay down extra principal in my loans which helped remove my PMI as well as some of my school loans.