From Room Rental to Small Multifamily House Hacking with John and Tahseen:
This episode is definitely one for the books! We dive into a couple’s journey to financial independence and the steps that they are taking on the way there. John and Tahseen got married in 2014, and John had this amazing idea of retiring by the age of 40. Tahseen, being the financial expert in the relationship, started to wonder if retiring by 40 was even realistic. Sooner or later, they both came across the amazing concept of house hacking! This made retiring by 40 look more than realistic.
Their house hacking in Florida started with helping out a college best friend who had a rough housing situation. Moving on to having another person live in their house, they discovered that their mortgage was almost being paid off by other people living there. When they discovered they were house hacking, they couldn’t stop there! So from room rental, John and Tahseen decided to try a small multifamily house hack. Listen to their incredible story as they tackle on different styles of house hacking together.
You Can Listen On:
How to get in touch with today’s guest:
Millennial FIRE Yotube: https://www.youtube.com/channel/UCIWRgYLqk9WLQl89SS16HbA
Transcript of the show:
Across the world. People have their housing costs taken away as much as half of their income. Have you ever thought of trying to change that? The good news is there is a way house hacking is real and we are here to show you how other people just like you have made it happen. Welcome to the house hacking podcast and here is your host house hacking expert, Andrew Kerr.
Andrew Kerr (00:30):
John, Tahseen, thank you so much for being on the show. I really appreciate it. I’m excited about your story. So how you guys doing? Where are you calling in from?
Um, we’re doing well and we’re calling in from Ocoee, Florida.
Andrew Kerr (00:45):
Oh, wonderful. Now I know a little bit about your house hacking sort of experience over the past couple of years, but let’s just start off. Can you give everyone that’s listening, this sort of high level summary of what your house hacking experience has been like?
Of course. So, um, how’s hacking is actually something we just kind of fell into. We bought our first single family home back in 2016 and in 2017 with my best friend was in college and had a rough housing situation. So we’re just like, Hey, you can go stay with us, help us cover a few utilities and you know, help us out here and we can help you out. And with that he stayed and once he graduated he asked if he could stay longer. And we were like, sure, but we got to pay more rent now that you can work. So he decided that he would stay longer and that relationship worked out. And so he stayed. And a few months later one of his friends also wanted to move in. And so his other friend also moved in and this was a three bedroom, two bathroom house. So we were living in a master bedroom and these two friends were living in the other two bedrooms. And around this time is when we discovered bigger pockets and also discovered what the term house hacking actually is. And so looked into buying a duplex. And so a few months after that decided to buy a duplex, live on one side with a FHA loan and rent out the other side and then move someone else into the master bedroom of the original house. And so, and then that, that’s pretty much the biggest part of our house hacking journey. Now we moved out of the duplex to move in with our in-laws so we can rent out another, the other side of the duplex so we could buy our next duplex hopefully within the next few months.
Andrew Kerr (02:29):
Oh, awesome. All right. So let’s really dig in. I feel like I’ve, as you’re talking to, wrote down about a dozen different questions. I really just wanted to dig into this. So, you know, 2016 you bought a single family house. Obviously you two are together. Have you gotten married yet? Was this sort of like your first home together or were you just dating still at the time? What was sort of lifelike?
Yeah, so we um, got married in may of 2014 so that was our first house first purchased together was our single family home. And October, 2016 and, um, we, cause we, John has the idea from the time before we got married that he wanted to retire by the age of 40 and we didn’t exactly know exactly how to do it, but we knew owning a house had to be somewhere in that mix. So we bought a house as soon as we could.
Andrew Kerr (03:16):
So is this like, you know, you starting to get serious dating and he’s like, just so you know, babe, I’m going to retire at 40 I hope you’re on board with this or not. Or like how did this come up in conversation?
You know, I really don’t. Was it when we were dating? No. I think it was after we got married. Said he said that, no, because before we got married I was actually the financial experts, you know, making sure his credit was right, making sure we were aligned to buy a house when we were ready. And once he learned how to be financially responsible, he took it and he ran with it. And he, it wasn’t just about having good credit and making sure we’re homeowners was about no less retire early. So, um, he kind of got the information from me in that, ran with it.
Andrew Kerr (04:03):
Wow. So he learned and then took it up a step, a step above that?
Yeah. I think for me, what it was is that I, um, it kinda hit me when I, I only have to work my first real job. Um, I’m a musician as well. And so through high school, through college, that’s the way I was able to sustain myself. Pay rent by playing piano at different churches and, um, at different jazz bars and things like that. And once I graduated and of course got married, I got into the real workforce, the it software development, which I love, but I was like, ah, I don’t think I want to do this until I’m 65. Let’s try this. Here’s a way to, you know, speed these timelines up a little bit. So that’s what happened there.
Andrew Kerr (04:46):
Awesome. So do you just play piano or you play any other instruments?
Um, I, I dabble in quite a few instruments. Piano is my main instrument. I play drums. Um, bass guitar. Saxophone is one of my favorite instruments to play
He played the saxophone to me at my wedding. That was a surprise.
Andrew Kerr (05:04):
So yeah, I played trumpet and then I tried to learn Alto sax and it was just miserable. It was not good at all.
Yeah. Going from the brass to the woodwind. Yeah.
Andrew Kerr (05:14):
Tough one. Awesome. All right, so you sprung an honor, you want to retire 40. What was your reaction to this was, were you automatically like, Oh yeah, he’s finally on board and he’s has it, or is this like, ah, you may be dreaming a little bit.
So for me, I was like, you know, it sounds really great and I would love to do it, but I’m not really sure how to, but if you figure out the way I’ll, I’ll follow like, that was where I was.
Andrew Kerr (05:39):
Oh, awesome. All right. So you have the house. Did you, how’d you end up buying the house? Did you buy cash? Did you get alone? What type of loan did you do?
And so with that, um, we did a, um, the conventional loan 10% down and, um, we had my, her parents to help us out with the down payment with that, and they gave us a loan of $6,000 that we gave back to them after, I think it was a year. And so that was the way we were able to get into our first single family home.
Andrew Kerr (06:09):
Oh, wonderful. All right, so you bought the home, it was this house in Florida as well?
Yes. Um, and it was in a city called Alpaca. All these cities that we’re referring to are in the greater Orlando area, like on the outskirts.
Andrew Kerr (06:25):
Okay. So you put the 10% down and how big the house you said was like a three bedroom home?
New Speaker (06:32):
Okay. And do you remember roughly what the mortgage payment was running on, on that for you?
Yeah, so the mortgage payment, the principal and interest was $1,000 and we had an escrow account as well. So that was 344. So all expenses included was 1344.
Andrew Kerr (06:48):
Okay. So really it’s not that bad of a payment for, you know, starting off a couple where both both individuals are working. This is basically what most every American does, right. That can buy a house. So now you had your old buddy be like, Hey, this house in situation’s not good. Can I move in? I mean, as a newlywed couple in your first house, I mean, how’d this relationship actually go where it’s like, Hey, we’re having a friend moving in or was this like, Hey, we can get someone to pay some rent? I mean, just tell me a little bit about how that dialogue went.
Actually, we were kind of excited to have the friend moving in, uh, because the, the other two bedrooms in the house were barely even being used. We realized that we bought a more, a lot more house than we actually needed to live happily. We pretty much utilize the master bedroom, the kitchen area. And that was it. The house also had an office that was just there for storage pretty much. Um, and we realized that especially after reading a book called the millionaire next door, that we definitely bought more house than we actually needed. And so we were actually happy to have someone in the house and using the house that we were paying for because those rooms are just sitting there. Boy,
Andrew Kerr (07:59):
I love the book, the millionaire next door. I just want to call that out real quick of know if anyone that’s listening hasn’t read that. Go pick it up. It’s such a cool book. Um, and his daughter actually just did an update in the past, I think year or two years to the book. Um, so definitely check it out. I’ll put it in the show notes, but sorry, go ahead.
Oh, no, no, no, that, that’s perfectly that. I love the book as well. So I definitely is a must read for everyone. Um, but like he was saying what’s his best friend? And so he was someone that I knew very well as well. So I remember the day that he was complaining to John on the phone and I just told him, I was like, let, let him move in with us. Like we have a whole half the house is not being used. Like it’s fine, you know? And so, and then after he moved in as well, we really realized like this is really something we could do. Like we don’t even barely know that he’s there. Sometimes we’re on our side, he’s on his side and it, and it works out perfectly
Andrew Kerr (08:54):
well. I just think it’s so funny, like I did the same thing and I think almost everyone does that same thing. It’s like, well, here’s the house we can qualify for. Of course we need, you know, multiple bedroom home. And then we sort of get in there and then some people go one way. It’s like, well then I gotta furnish every single room and then here’s all this money we spend to have furniture in a room that never gets used and collects dust or just it’s empty and collects dust. Um, so now you got them in, how much did you actually charge them for rent?
So when he first moved in, we knew that he didn’t, he just had like, I think he had like maybe a part time job that wasn’t paying that much and he was just trying to focus on finishing school. Um, so we only charged enough to cover utilities so we charge them $100 a month, um, beginning in. Um, because like we said, we were just doing this to help him out. But then once he graduated and we had started, like in the, we were introduced to bigger pockets. We were already looking for a duplex and we said, you know, if we really don’t mind you living here, so if you would like to live here and we’ll give you two months to get your yourself, get a good job after you graduate, but we will charge you market closer to market rent. So we tried to him $600 a month at that point.
Andrew Kerr (10:02):
I mean, that was pretty generous of you to say, look, you know, I understand you’re in a hard spot. You’re in school part time job, a hundred bucks. I mean it’s an extra 100 bucks for you that you didn’t have and then it really helped him out. I mean, I think that’s phenomenal that it’s sort of like you guys paid forward a little bit, helping out a friend. And then I love how the fact that you’re like, all right, real life sitting in, you’re going up to 600 a month.
Andrew Kerr (10:26):
yeah. Well help you out for a while. But now it’s time to start paying. So you started collecting 600 a month. Did you split utilities with him after that or was it just a flat 600 and you took care of everything?
So it was just a flat 600 to starting off. We didn’t charge him for utilities on top of that. That included everything. Um, but once his friend moved in, which was only a couple of months later, um, actually when the friend moved in, it was still, he paid 600, his friend paid 600, but once we moved out and we rented the master bedroom, we had the conversation with them. Like, we know that you guys are only paying 600, but now that we’re not living there anymore, um, utilities will be split between the three of you guys. And so it wasn’t until we moved out and we were moving living in the duplex that we completely, um, had them cover all of the expenses of living in the house as well.
Andrew Kerr (11:17):
Okay. So then what, what did you charge for rent for that? A third person that moved in.
So for the third person, um, we decided to charge just a bit more because it’s the master bedroom suite, we called it because you have the, the bathroom and it actually had its own entrance as well. So you can pretty much live in that place and not have to go through the rest of the house. And so we were charging seven 50 for that. And so that’s where we started the price for the master bedroom suite.
Andrew Kerr (11:45):
Okay, so I just want to recap this for a second. Your mortgage was 1344 you’re paying that by yourself, then you’re bringing in 100 bucks. So now your house is down to like 1244 and then you bump his rent up. So now you’re at like seven 34 and then you run out the other room. So now you’re at 134 I mean this is awesome. Like while you’re thinking of your house and it’s just like you do what the normal American does. You buy a house, you have, you know, not a huge payment, decent sized payment included the taxes and insurance and then it’s just like drops, drops and drops to where now you’re living in a house, your tenants are paying all but like a hundred some dollars. You have hopefully some appreciation going on over the time period. They’re also paying down your principal mortgage for you. I mean like that right there is perfect even if nothing else happened with the story. That’s a really, really cool house hack. And then you decided to buy an FHA and rent the master suite for seven 50. So now you’re actually making money on this. I mean, I just think this is incredible.
Yeah, definitely. We, we love it too. We, honestly, we didn’t realize how great it was until we were actually on the other side of the duplex and we ran the numbers completely and we’re just like, wow, I didn’t realize that we had gotten to this point.
And actually since then, one of the brothers of one of, of his best friend also in college, just his younger brother. Um, he was in a rough situation as well. And so we have a office space that we said, you know, we don’t mind renting you the space just until you get your, your, um, self on your feet. So now that office space is being rented for 200 while he’s in school.
So four people in a three bedroom, two bathroom plus office.
Andrew Kerr (13:36):
All right. If I’m ever down in your town, you two are buying the drink. So
yeah, we could definitely do that.
Andrew Kerr (13:44):
Awesome. All right. All right. So before I want to go into this FHA in a minute, but before we do that, I have some questions about how you actually worked with these friends that became tenants. So as they started moving in, did you do any sort of written lease with them or was it more of just sort of a handshake, you know, you’re living in, you know, be respectful, just pay the rent.
So because of the friendship situation, and I know that a lot of people would recommend against this, um, for that house, everything has been verbal and we’ve had no issues as of yet just because we’ve had that relationship before of trusting each other and everything’s worked out well so far. Anytime there’s anything near an issue arising on where they would just have a conversation of how to move forward. So we’ve had no issues with having no written lease for that because we personally know everyone that lives there.
Andrew Kerr (14:35):
Yup. And then how you actually collect a rent, you just stop by and pick up a check. Are they sending you money like PayPal or Venmo or how are you sort of managing that side of,
so we were introduced to the site, which is amazing. cozy.co and in this site we’re able to just set up, they put their bank account in and we’re able to um, passively just collect rent. We don’t have to drive and get it and they don’t have to drop it off. Um, they’re able to just pay their rent through the site every month.
Late fees automatically included security deposit, all of that. Great.
Yeah, it’s amazing.
Andrew Kerr (15:13):
All right. I think as a side note, I think I need to go ask cozy. If someone from cozy is listening, you should be a sponsor because I feel like every, probably 80% of the people I’m interviewing for this podcast all mentioned cozy. I use cozy myself. It’s awesome. If you’re listening and you haven’t used cozy, it’s wonderful. As they were saying and you just set up the account for your property. Your tenants get a tenant portal. They can go online and pay however they want via ACH or via credit card or debit card. And then the great thing is it’s free for us as landlords. And I mean it’s one thing to collect rent, but then how it doesn’t cost you anything. I mean you can’t get any better than that. We love it. All right, so you sort of progress through renting one room, renting two rooms, moving out, renting all the rooms, now renting the den and having this awesome cash flow property. You know, what made you decide to actually look for another property and do like what’s considered maybe a true house sack of like buying a small multifamily property.
So, uh, all I can say, honestly, every bit of that credit goes through Brandon Turner with bigger pockets listening to his house hacking story was just like, if I was already motivated to retire by 40, he like may exaggerated that feeling by like a thousand after listening to his house hacking story. And so after listening to his story, reading a few of his books, we started looking for any type of, um, multifamily residential, multifamily. So two to four units and looking at the Orlando area. Unfortunately there didn’t seem to be many options, but we happened to fall across one that needed a bit of repair on both sides, but turned out to be pretty good. After we ran the numbers also, which we were taught to do by bigger pockets and so we put fit the numbers in the bigger pockets calculator. Everything looked good and it looked like it would be a good investment, so we moved forward on it.
Andrew Kerr (17:12):
Well, just in case anyone’s listening in, you’ve never heard of bigger pockets. I’m going to put it in the show notes. You can just Google them. I’ll also do a link to one of the first articles Brandon put up about how he did a house hack and also link to their calculator. I love bigger pockets. It’s a great resource. They also have a fantastic podcast that’s about a huge variety of real estate, so definitely check that out. It’ll be in the show notes. All right, so you sort of realized, you know, you want to retire at 40 now all of a sudden you realize house hacking and real estate can really help me get there and accelerate that path. You started looking for sort of a small multifamily. How did you actually spend looking before you found this property?
So we started um, yeah, around March, March of 2018 is when we first started looking and we closed on the house, kind of September of 2018.
Andrew Kerr (18:08):
Yeah. So yeah, six months. I mean, you know, one of the things a lot of people say is sometimes I think people, and I think I even do too, is at different times we make up excuses why we can’t house hack because I’m married or can house act cause they have kids or can’t house hack because now the market’s different. I mean you, you found a multifamily in 2018 is very different than finding a multifamily in 2010, 2011, 2012 it took you six months. But it sounds like you were persistent and you actually got it and found it. So let’s dig into some of those numbers. I know you mentioned it needed a little bit of work and you did an FHA loan, you know what, what was actually the purchase price on it and then did you do an FHA or the FHA, you know, 203K.
so the purchase price was 280,000 and it was an FHA loan. So we’ve cut down 3.5% which was 98 I’m sorry, $9,800 is how much we put down. And we were, our lender was able to roll in the, I think it’s called the MIP, the 1% origination fee into the loan. So our complete loan ended up being 274,000 after the closing costs with Robbins alone and out of pocket. So with the $9,800 of the, of the actual principle that we’ve put down and closing costs that we’d actually had to pay out of pocket, we paid a little under $20,000
Andrew Kerr (19:33):
yeah. So not, not bad at all. And how was the duplex made up? How many bedrooms and bathrooms were on each side?
So, um, it was two bedrooms, one bathroom on each side.
Andrew Kerr (19:45):
Okay. And then do you remember when you bought it? Uh, what was your mortgage payment roughly?
So our mortgage payment was 1345 was the principal and interest. And we had also had an escrow account on that. So our complete payment was 1825.
Andrew Kerr (20:02):
All right. 1825. So again, this, the starting to get a little on the high side but not bad considering you’re buying a duplex and you know, you’ve got the other side of his rental, plus you’ve got this cash flow coming in from your very first original single family that you bought. Now you mentioned it needed some work. What type of work did it actually need and what was the process of doing the work? Did you live in it while you were working on it and uh, just talk us through that a little bit.
So you can go ahead.
He mentioned it needed a little work. It was, uh, the property was built in 1984 and so they’ve probably all, they probably only updated it once since then. So it was livable, it wasn’t a condition that was unlivable, but it just definitely needed some cosmetic work in order for us to get optimal rent. Um, and so we put the one side was already rented and so the side that was rented, um, we acquired tenants on, it was 1345 that they were paying for rent. And so on that side, we didn’t put any work into it until they moved out. Um, and the side that we were living on, which I know you’re going to ask this question later, so I’ll wait to to say that in the in the future. But um, but on the other side of it, we put, uh, we got new appliance in there and we um, rerun it, renovated, we put granite countertops and new countertops and everything like that and it, the renovation costs cost us about 13,500 on that.
Andrew Kerr (21:32):
Well, that’s not bad to sort of fix it up with the way you’re describing it. All right. So, I mean even is though, you close on this property, your, your mortgage all in is a little over 1800 and you had an existing tenant, a little over 1300 so I mean even if you didn’t have the cashflow from the other property, you’re buying a duplex and your housing costs would have only been 500 bucks a month or so. I mean that’s a pretty good deal right there.
Yes. And I’m also the clarify that the difference between the single family home and this duplex property is that this is actually inside of Orlando. So I’m actually right down the street from the university of central Florida, one of the biggest colleges in Florida. And so I’m in the city Apopka where the single family home is, is on the outskirts where you can drive down the street and see cows. We were actually in the city of Orlando with the duplex.
Andrew Kerr (22:22):
Even better location and still only $500 okay. That’s pretty awesome. All right, so you, you did a little bit of work. Did the amount of work that the property need either, you know, scare either of you offer, were either of you hesitant about like, ah, it needs work? Or was it sort of like, Hey, this is great, we can add value, sort of make it our own? I mean, what, what were you, you two thinking? Were you both on board with a property that needed work?
Well, we were, um, let me put it like this. We’re always skeptical to spend money when we’re not a hundred percent sure of what the outcome will be. And this was our first renovation of any property because our first single family home was a brand new home just built. And so we didn’t have to do any type of renovations or anything like that. The house was perfect when we moved in. And so we definitely had some reservations on some of the decisions that were made between saying, Oh, if we get this type of countertop versus another type of countertop, will it actually give us the difference in rent and things like that. But, um, all in all, after the renovations were done, we were pretty happy. Um, it wasn’t the renovations that that bothered us. After the first day that we moved in, we discovered that we had a huge septic tank issue. So it turned out that both the drains well, neither one of the septic tanks had been pumped for either sides of the duplexes four years. And we also needed to replace the drainage field on both sides as well. Um, per the quote that we got from the guy that came out to inspect it. And so the first, the first day there, the plumbing backed up and it was a interesting first day investment experience.
Happy that it happened to us though not our tenants, we didn’t have that deal. Any damage control, we just had to be in control ourselves.
Andrew Kerr (24:15):
Did, did you have a home warranty to help cover that or did you sort of say, now we don’t need a home warranty because it’s going to be an investment property and you know, we’re fine covering any expenses that might come up.
So, um, no specific home warranty that would cover these issues that occurred. Um, we did go through having an inspection done. Um, but learning experience for anyone that’s listening, we kind of rushed through the inspection period. The thing that had happened is that the tenant side of the duplex had utilities on and everything since they had been living there. But the part that wasn’t occupied didn’t have utilities on. And when the guy initially came to inspect, he realized this and we tried to call to get the utilities turned on on the unoccupied side. We were told they were turned on sent the guy back out. He said, they’re still not on. And so, um, after some of the advice that we had taken from, from other people, we were just like, yeah, just go ahead, go through and inspect what you can because we’ve been told that everything should be okay. And we really,
You take it all with a grain of salt because we’re happy that we learned from this mistake on something that was not as pricey as it could have been. Right. And so we did end up having to fork out $3,500 to replace one of the drainage fills. The other drainage fill, they said it could have, it could last about another two years. So we’re waiting until we get a little bit more cashflow from the property before we replace the other one.
And one more thing that came up was that, um, because the utilities weren’t on, we didn’t realize that we didn’t, we didn’t have any hot water at all. So there was a tankless hot water heater on the wall that we just assumed the work we moved in, started all the hot water for the shower. Waited 10 minutes.
Andrew Kerr (26:09):
It was in and Orlando, Florida. We don’t really have cold days, but just our luck. That was the coldest day of the year.
Andrew Kerr (26:22):
Oh my goodness. Well, clearly you’re, you’re, you’re laughing about it now. I mean, I think that’s a really great tip that you mentioned. If you’re ever going to do an inspection on a property, make sure the utilities are on. I mean, if they’re not an inspector and go through and still check a lot, but you can’t check the big two systems in there, the electrical and the plumbing. Yeah, I mean it’s a great lesson learned. I mean, thank you for sharing that because I mean, I think the best way we learn is by learning from other people’s successes and their failures. And I think that sometimes we don’t share those failures, um, for, for multiple reasons. But I think the more that we actually share, um, and we all make them, it just helps everyone move along a lot better. You know, one thing you did mentioned is, you know, sort of as you were looking in before you’re closing, you had some of this sort of reservation. I know a lot of people have this like fear of, you know, over analyzing a property or they realize, you know, just a fear stops them. I mean, how you actually move past that and how, how did the two of you say like, okay, yes, we’re nervous. We know it’s not a hundred percent sure thing. We think we’re doing the right thing, but like what you got got you over that hump of actually closing on the property.
So I think I’ll go first on that. Um, I’m the type of person, yes, I, I overanalyze and I always try to look at the worst case scenario. And so the thing that made me comfortable in moving forward was looking at the worst case scenario and asking myself could we survive this in the case of the worst case scenario. And so after evaluating that, like imagining that we moved in, the tenant moved out on the other side and we have to pay for the entire duplex ourselves and had to renovate things before we can get a new tenant. And, um, we ran the numbers on with our jobs. Um, we may have to live on some tight budgets, but we could’ve survived that, that turnaround. So that’s what made me comfortable with moving forward knowing that in the worst case scenario,
Andrew Kerr (28:21):
It wouldn’t be the best, most comfortable life, but you’d be good. Okay. What about with you
and I, I agree with what John said. Um, but I think another thing just to add onto what he said is that this is the time that we need to take risks because we are the youngest will ever be. And so if we’re gonna make mistake, we should make it now so that we have time to recover. And so that’s what kind of let me push forward as well as that we know we want to get into real estate and we know that this is probably the best way to do it. And so we need to just start and this looks all of the different duplexes that we looked at. This looked like the best deal. So where we’ve done our research, we’ve done everything that we can do on our part. And yes, there are some things that could go wrong and they did go wrong, but we survived it. And now we have our fun in the game. We’re building equity on a property and where we’re able to start saving for our next one. So I’m happy.
Andrew Kerr (29:20):
I love the attitude that you have of, you know, let’s take the risk to now because this is the perfect time when we’re young. And you know, not that you can’t take risks when you’re in your forties or 50s or 60s but doing it when you’re younger and there isn’t as much downside. It’s so much easier and I love the attitude that you had. All right, so you, you closed on the property, you had some fun issues pop up, you did the work on your side. How long did it actually take you to do that cosmetic work on your side?
About six weeks.
Andrew Kerr (29:51):
Okay great. So six weeks you moved in, did you, the tenant that was existing on the other side, did you have them sign a lease or was it still sort of handshake at that time? You know, how’d you approach that?
So the tenant that we acquired was already under a lease. He had just signed into a new lease maybe. So it was made that he started the new lease and we bought the property in the middle of September. So we acquired the lease that he was already under.
Andrew Kerr (30:18):
Okay, great. And did that after that sort of year was up to the tenant renew, did you go out and find a new tenant?
So no, after the lease was up that he didn’t, he didn’t renew. So we ended up having to renovate the other side a little faster than we would have liked to. Um, and another little tip that we, um, we learned from this experience as well is that, um, the inspector did inspections on both sides, but we didn’t actually go into the other side of the property. So we never actually physically saw what the other side of the property. And so once they moved out, we were like, this is worse than the other side.
Andrew Kerr (31:00):
That is an important tip is to walk, you know, you don’t have to be under contract before you walk the other side. You know, a lot of times all make an offer on a property as is, get an under contract and then walk through the occupied units. But yeah, I mean I think that’s a great point that you mentioned is while walk through it, even if there’s tenants in there, so you understand it and you don’t have that, Oh my goodness. You know.
And that’s something I just have to admit what’s kind of like a, I don’t know if fear is the right word to say, but I didn’t want to invade on their private space. I was just like, ah, I’m not sure if I feel right walking through their house, even though we’re thinking about buying it because this is their place and stuff like that. If we don’t buy it, they just feel like people are coming through. But it wasn’t until after that that I learned that it’s pretty common that once a purchase or contract is being thought of that tenants there are okay with people coming through and I’m looking at what they’re projecting to buy. So.
Yeah, I think the biggest reason why he felt that way is because the one we were looking at the property, one of the tenants were there, they were outside and our realtor asked if we could see the place and they told us no. So after that we kind of were just like, okay, I guess if they deny inspection, it looks fine. And we saw pictures and section, I guess everything was okay, but it was definitely in worse shape than we expected it to be.
Uh, another tip, um, which also made us feel falsely comfortable with not looking at the other side. We trusted the pictures that were on Zillow and we’re like, Oh, it looks better than the side we’re moving it to, Oh, that’s going to be great pictures. So always trust, trust. But there are by the pictures that you see on Zillow and Trulia and sites like that, because they may not always be the case because the pictures that we saw at different flooring and everything. So yeah.
Andrew Kerr (32:57):
You know, I wonder if the owner just took old pictures and be like, yeah, this is what it would look like before the tenant moved in and then all got changed around. So one tip, if anyone is listening, that’s a landlord. What I’ve done when I’ve sold places with tenants, once it’s getting ready to go on the market, I give the head, give them a heads up. I say, look, you know, I’m getting ready to sell the property. I’ve enjoyed you as tenants. There’s going to be a couple inconveniences in advance. I’ll actually give them a gift card and I’ll say, look, you know, here’s a gift card for the inconvenience. And then after it closes, I send them another little gift card or buy them a bottle of wine or just something I know that they’d appreciate. It’s only cost to me like 25 or 50 bucks. But I found when you do it upfront and then after the sale, the tenants really appreciate it. And that way you don’t have the tenants that are out there like, Nope, you can’t go into my unit. And it messes up the process of the sale. All right, so you had to quickly renovate the other side. It was more work than you thought it was. You know what? What’d you end up having to spend on that side for? For renovations.
So the other side, we spend a little under $19,000 for renovation on that side.
Andrew Kerr (34:02):
Oh yeah. So quite a bit more than the 12 or 13 you spent on your side right now you got, once you got the work done, what’d you actually get for rent on it?
A $1,400. It was, we’d put it up for rent for 1350. Um, and then we, um, the person that, the tenants that we actually did acquire, they had a pet store. Pet rental fee was $50. And so it ended up being $1,400 total.
Andrew Kerr (34:29):
Okay. So 1400 a month. And how did you actually find the tenants? Where’d you advertise? A unit for rent?
So we turbo tenant, um, we posted the information there and turbo tenant sent it out to uh, a lot of other um, advertisement places like Trulia, Zillow, quite a few places. And then outside of turbo tenant we posted it on a few other places you can post on cozy as well and they do something similar. But the majority of the, Oh and a big one, a huge one was actually Facebook. We were surprised at how many people responded from Facebook marketplace looking for a place to rent. And so, um, between turbo tenant and Facebook those where the ones, where we got the most perspective.
And I, and I actually think that our Facebook is where we actually got the tenant from that actually signed on. But several tenant was good for managing applications that that’s where we put and even if we got, um, inquiries through Facebook, we would put it in on cerebral tenant. And that’s a way that we were able to organize and know which ones we verified already. And they actually have a section where they can actually send an email to verify, get, um, landlord references and everything like that. So it was very, very easy to use.
Andrew Kerr (35:44):
Oh, very cool. Yeah, I haven’t heard a turbo tenant, so I’m gonna check it out. Also put it in the show notes for folks who go back. All right, so you’re getting 1400, you know, that’s, you know, leaving you about 400 and some change to cover the mortgage. And so what’d you do on your side? Two bedroom, one bathroom. It’s renovated. Did you end up getting a roommate? Was it just the two of you? I mean how’d you do that situation?
So, um, a few months after we got the new tenant, well man, I’ve only been a one month after we got a new tenant. Oh my father in law, her father had recently retired from school, from teaching, um, elementary school. Right. And decided that he was going to go to Costa Rica to learn how to speak Spanish. And so with that, um, my mother-in-law, her mom would have been in the house that she lives in by herself. And so we were like, okay, so we can use this as an opportunity not only to help her with things around the house, make sure bills and things like that are good, but also the opportunity for ourselves that stack to stack and collect money to get our next property. So we decided a month after we got the tenant for the other side to move into my in laws house and rent out the side of the property we were living on at the duplex. And that’s where we are now.
Andrew Kerr (37:08):
And, and what’d you end up finding a tenant for on that other side and what, what are you getting in rent?
So we posted that one. The other side, we’ve posted the rental for 1275. Um, I’m laughing because I wanted supposed to it for a little higher. He wanted to price it at 1250 cause it wasn’t the upgrades and our side wasn’t as we kind of went all out. And the other side, which I think we probably over renovated the other side of the property just a little bit. And so this side was as over renovated, but it still had granite ground and granite countertops had new cabinets. It looked very nice. Um, and so we, we came to a compromise. You wanted 1250. I wanted 1300, so we don’t came to a compromise of 1275. Um, and so we put it on the renter on turbo tenant for 1275. And the tenants that we acquired, they actually had two pets. And so, um, what the pet rental, um, we were up to 1375
At first. We were kind of, um, we, we’ve heard a lot of advice that you don’t really want to have a lot of or you have to decide whether or not you are ready for the responsibility of having tenants with pets. But we realized the property that we had, our property has a big backyard and it’s actually has a patio and it’s actually very conducive for pets. And so we had to make that decision between ourselves. Are we ready for responsibility that it takes that, you know, having tenants that have pets, it’s a possibility that they can be more damaged and all of that. So what we decided was that we would just, um, take the risks, get the pet, get the pets, get the additional kind of rental and then just, um, have them do a little additional security deposit for their pets.
Andrew Kerr (38:54):
Yeah, I mean that’s really a hot debate online of some people are very much, no, I will never let pets in my rental units. And then other folks are, and you know, I just keep watching the trends, especially with younger folks, this sort of millennial generation where you know, they delay have kids and then they have fur babies and they put so much money into their pets and you’re sort of, if you don’t do pets, you’re cutting off this huge chunk of the market. So I still had that same debate where some I do and some I don’t. But yeah, I think it was a great thing. But you know, one thing I’m going to touch on is you both had different ideas of what you should rent it for. You know, how’d you actually decide on that? Did you just say, well, here’s what we’re getting for the other unit or did you do any market research where their websites you use to actually figure out what was rent?
We both did market research and I think we did them in different places. Um, I consider myself the hardcore business person, but that’s just the outer shell. She’s really the hardcore business. And so I think, uh, we, after doing our market research, we did research in similar places, some of our websites, but it’s just that she’s a bit more aggressive than I am in the game. So that’s why they was at $50 difference and we just decided to meet in the middle even though she still thinks that we should have just went completely on her.
I will say to defend my case though, the tenants that actually live there, they actually said this during the viewing. Like we would actually be willing to pay more. We love this place.
Andrew Kerr (40:36):
Price too low, right? If people are like, Oh my goodness, or you just happened to get lucky and find that perfect fit where it just met all of their boxes. But I mean, either way, you know when you add it in the pet rental income, you actually got a bit more. So you know, Oh no, I mean you’re obviously in a good situation. You’re just under 2,800 and your mortgage in taxes insurance is just a little over 1800. So this is like $900 a month in cashflow that you have. So now here’s the real question. What are you doing with the cashflow? Did you go out and buy new cars, a boat and you know, and the annual pass them Disney world or you saving some of it paying down debt. Like how, how are you actually using the money you’re making from your first single family? And now this sort of eight, $900 a month, you’re, you’re taking a cashflow on this property.
So I’m sorry, go ahead. So, um, we, we’ve kinda, you’re using this opportunity, definitely not to acquire new debt unless that new debt can make us some additional passive income, um, but to pay off existing debt. And so we just paid off our car last month. Um, so no more car payment. And so, and we’ve also been paying down some, um, no interest credit card debt. And that was the, that’s the first phase of living with the in-laws. And the second phase is to aggressively say, and sorry, I’m looking for the next, um, small of two to four unit multifamily to um, move into
And just to clarify the, um, the debt that he’s referring to like our, our current payment because we don’t have to worry about our mortgage payments. We were able to like just kind of avalanche that, that car payment and not pay it and pay it off very fast. Um, and then as far as the debt that our business has, what the rental properties and we paid, um, for our renovations, anything we could put on credit card we did. Um, we, so I had a credit card. This is actually one of the hacks that I like to use. I take out credit cards with, um, no interest for 12 to 18 months and I tried to see which one has the most, um, sign on bonus. And so for this last renovation, we took out a chase credit card, a chase business credit card, and like all the supplies for the renovation we put on it. And I think we finance about 9,000 of the, of the 18,800, we put about $9,000 of it on the chase credit card and we were able to get a $500 bonus just for putting $10,000 on it. So I was able to use that bonus to pay down the renovation. And so the extra income that we have after we pay the mortgage, we’re paying that balance down so that it will be paid off before the interest payment or the interest free deadline comes.
Andrew Kerr (43:19):
Yeah, I uh, I, I’ve got a series of articles on sort of travel hacking, credit card hacking, churning and I think it pairs perfectly with real estate investing. I think there’s no better fit because in real estate investing you constantly have large expenses coming up and then you just go get the signup bonus. My wife and I, we are travel fanatics and especially when we do the long haul flights overseas, we always fly business class and we do it on points that we earn from our real estate investing. So yeah, I love that you’re doing this sort of hacking of like, well we got to spend this money. Is there a way I can use it for really, really cheap and get extra bonuses, cashback, rewards, earn points. So you know that, that’s awesome. I mean, if you’re sort of thinking back through this house hacking experience that you have, you know, what do you feel like your biggest success was?
I think our biggest success was really getting a property that we were able to get. Um, we did the numbers and I think this property is a little over 6% ROI now that we’ve put in all the additional renovations into it. When we first bought it, the, our ROI was 15% but then with all the renovations that we’re down to 6% but that doesn’t include appreciation. So I think that’s our biggest success is that we’re able to get a property that was actually bringing us return on our investment of greater than what we could have easily get in the stock market.
And that’s um, just to piggyback on what she’s saying, I, I think it’s the getting started as well because, um, we do a lot of internet education, um, between audible and YouTube. I feel like that’s where the majority of my information comes from. And the house hacking thing, we didn’t at the time we didn’t know anybody personally that had done it. And so just knowing that we got our foot in the door and got the first deal done makes us more excited to move forward to the next deals that are hopefully more profitable than the initial deal.
Andrew Kerr (45:15):
Yeah, that’s really awesome. All right, so thinking back through that same period, what do you think your biggest challenge was? Or did you have something if you could go back and do it differently? Is there something that you would go back and change?
Oh definitely. I think, um, because this was our first used home purchase cause it like my husband said earlier, our first purchase, it wasn’t a lot of stress involved. A lot of, we didn’t really have to um, I guess double check the numbers or triple check numbers because it was a, it was a brand new house and so everything was pretty much in line. We didn’t have the work, they did an inspection as well, but it was, everything was pretty much, there was no issues because it was a brand new house. Not saying there can’t be issues with the brand new houses cause I have heard that as well. But um, with this house it being built in 1984, um, and then not knowing what I was supposed to find on my closing documents, um, I didn’t realize that the security deposit from the lease that I was acquiring was supposed to be on my closing documents.
I didn’t realize the prorated rent was supposed to be on my closing documents. So when I did the, um, the check before, um, before we, we brought, we came to the closing table the day before. I didn’t know that, that that was missing. And so when we got to the closing table and I, I asked about that, I said, Hey, when do we get our security deposit? Um, we were reassured that we were going to get it and this is a year later. We never got one of them. Right. And so, um, we, we got legal advice, um, and we sent like a letter to, to um, the, the, the lawyer sent a letter to request or a demand letter I guess is what it’s called. No response. And the thing is is that we signed everything that everything was okay. So really we could have taken them to court for it, but it would have been the amount of money that it costed sue them for security deposit. It would’ve been more money just paying it.
Andrew Kerr (47:11):
I’m really glad you mentioned that. I just want to cut in real quick. So you went over it really quick and just in case anyone missed that. So if you’re buying a rental property with existing tenants, there’s two big things that are going to happen. One is transfer the existing security deposit. So say you’re a four unit property and one units vacant and the other three units have tenants in there that all have $1,000 security deposit. That $3,000 in total security deposit should be transferred from the seller to you as the buyer, and it should be listed on that CD or HUD. That closing statement. In addition, just for easy math, say again. That same quad that you were looking at, one’s vacant. There’s three tenants in there. They’re all paying a thousand a month. That’s 3000 in gross rents. Now say you close on the 15th the middle of the month, the seller should give you a credit of prorated rent for half of the month of $1,500 so you know, on a small deal it’s not a ton of money, but especially as you start looking at bigger properties that can really make a difference. And especially with cash to close, you know, even on a duplex, if it’s $1,000 security deposit and you know rent’s 1300 and you’re closing halfway through the month, you know this can be an extra thousand $2,000 less that you actually have to bring to closing. So that’s really important. I’m glad you brought that up and I just wanted to really highlight that for folks. So if you are doing your first deal, these are things that you don’t really know about unless you hear about it. So that’s a great tip. Thanks for sharing that.
Yes. And the last thing I just wanted to add onto that, because we went back and forth on trying to understand who was responsible of returning back to the tenant once they moved out. Remember they moved out at the end of their lease in may. And so at that point we, because we took on being landlords and we signed to say that we were responsible for this lease, now had to return that security deposit that we never received from the original owner to the tenants. And so that’s just something to keep in mind as well.
Andrew Kerr (49:12):
So thinking back through those couple of things that you would have done, differently and the challenges, I think I already know the answer is, but would you do another house hack again?
Andrew Kerr (49:23):
That’s what I figured what the answer is going to be. Awesome. Well look, thank you so much for sharing your story. I really appreciate how open you were. I mean you had this really cool like double house hack story, getting ready to look onto your next one. But before you go, we like to ask all of our guests a set of a final six questions that we call the fast six are you ready for them? Awesome. All right, so number one, what is your favorite personal finance blog book or podcast
Rich dad, poor dad.
Andrew Kerr (50:01):
Cool. All right. Number two. What’s your favorite real estate related book? Blog or podcast?
Bigger pockets podcast.
New Speaker (50:09):
Oh yeah. I mean that, I knew that one was coming. All right. So number three, what’s your favorite travel destination that you’ve been to so far?
I would say Vegas.
New Speaker (50:21):
So what, what was it about Vegas that drew you in?
I think for me it was my first time ever playing black jack and winning money. So I love their above what I came with though. And I won’t say every time I tried playing the game again, on cruises or anything like that. I never really won.
Andrew Kerr (50:40):
They get you hooked that first time. They’re like, Oh, she’s a newbie. We’re going to make sure she wins so we can, we can get her bag multiple times. All right. And then what’s next on your traveler vacation list? Do you have anything planned coming up?
Planning Cacun soon.
Andrew Kerr (50:57):
Oh yeah. So that’s where my wife and I went to a Cancun in the Maya Riviera for our honeymoon last year. So you know, if you don’t have it, you should look at trying to go out to um, Chichen Itza one of the old seven wonders of the world. It was really, really awesome out there. And then you get to stop at a Cenote on the way back, which is this like giant hole in the ground with this sort of like not quite underground Lake, but it’s a cool way to spend like half a day, three quarters of a day going out and seeing it and then stopping and seeing a Cenote on the way back. Definitely check it out. Thank you. Yup. And then number five, what is the biggest bucket list item that you haven’t accomplished yet?
Going to Tokyo, Japan. That’s been at the top of my list for a long time.
Andrew Kerr (51:47):
Awesome. And then what, what is it about Tokyo that draws you in?
Um, I don’t know. I’ve just seen movies about it. I’ve seen videos about it. I know a lot of video games are made there.
I think the technology aspect of technology too.
Oh, everything about it is just always intrigued me since I was a kid and I’m a big anime fan as well.
Andrew Kerr (52:08):
So of course, so that, that’ll work well what’s, you know, what you need to do though is as you start looking for this next house hack, made sure to do some credit card signup bonuses so that way you get the points so you can fly over there for free. Awesome. All right, so number six, final question. What is your favorite life hack?
I think we’ve already touched on it already. I think credit cards is that hacking credit cards. We pay all of our bills on credit cards and so our credit card is actually pay us to use them. Um, so what we do is like any, anything that can be paid with credit card, we paid the credit card and so, but we pay off our balances at the end of every month so we never pay interest on them. And we always get our credit card on cash. Redcord so we have a credit card for eating out. We have credit card for gas. We have a credit card for just miscellaneous things. Yeah.
Andrew Kerr (52:58):
Awesome. Yeah. I actually have this a seven series article all about travel hacking, credit card reward because I do the same thing and I always have friends that say, well can you explain this and I just wanted an easy way to point and be like go read this first and then come back with questions. So awesome. Thank you both so much for being on the show. This was so much fun talking with both of you. I love the attitude that you have even though you had all these different challenges along the way and it’s a really cool sort of double house hacking story and you got to let me know when you actually get onto your next house hack so we can have you back on to give an update about your first two properties and then we’ll get to hear about about your new house act.
Thank you so much. We really enjoyed being here. Yes we do.
Thank you for listening to the house hacking podcast. For more up to date information on house hacking to access links and resources mentioned in today’s show, and connect with the guest and host, head over to www.fibyrei.com that’s www.fibyrei.com where you are house hacking journey begins.
Be sure to check out our Ultimate Guide to House Hacking for a great overview of the different styles of house hacking and different types of tenant bases.
Check out the home page for “The House Hacking Podcast” here.