Basically since I graduated college and got a job I started saving to buy a property. That was what I had seen other people do and so I thought that was the best use for the money. I thought probably a condo. As I got older and my monthly savings started to finally accumulate some, I started thinking how a single family residence or condo may not be the best use of funds after all for me. Sure, there has been strong appreciation in the Boston area lately. However, the thought of spending the majority of discretionary income on a high monthly payment that you are locked into for 30 years derives panic in my mind. Part of this thought process was driven by the high costs of real estate in the Boston area. If I could have bought something reasonable in a decent area with what I would consider a low monthly payment I probably wouldn’t have thought too much further about it.
So I started thinking about ways to make the property purchase work better for me, and so I came to the thought of multi family investing. I also started conducting some research, listening to podcasts etc, and started to feel like multi family investing is a great way to turn where you are living into an asset instead of a massive liability.
The benefits can include:
- Additional Income through Rental Units
- Offsetting or entirely covering the cost of the mortgage while building equity, and therefore limiting your own cost of living
- Getting more than one unit in a single purchase/higher leverage (one set of closing costs, transaction related fees, commissions etc.)
I decided my best option was to do a “house hack”, which is the term I learned on the website/podcast Bigger Pockets. It basically means to move into the property that you are going to rent out. Making the place an owner occupied property can allow a much smaller down payment, as low as 3.5% (5% in my case) vs. 20% on an investment property. If there is less than a 20% down payment, there can be PMI on the mortgage. In my case the $200 a month I pay for PMI was well worth capturing the opportunity, until I can get it off. Going this route typically means there is an owner occupancy requirement on the property for at least a year.
At the time I started looking, Josh and I were living in a condo that Josh had previously purchased. The plan was to rent that unit out in addition when we moved to the new place.
We spent a few months casually looking around, and then about 6 months in started to get serious. We started looking in the general area we were living at the time (Melrose, Ma). So, Malden, Medford, Melrose, Wakefield, Stoneham, Woburn etc.
I put in a few offers, one that lost out to many other offers, and one that I low balled. Places that were on the market were creeping higher and higher, and there was no shortage of competition in the multi family market in the area. One place I reached out about seeing on the day offers were due in Melrose already had 17 offers in.
I was working an open house one day when a woman who came in was telling me about the houses she flips, and she mentioned she had recently sold one directly on Zillow. So that night I went on Zillow and found one multi family in the make me move category in an area in Malden I was targeting. I remember saying “this is the one”, I think more out of desperation at that point than anything. I reached out to the owner through a web form, and to my surprise she got back to me and we scheduled a viewing.
We went and checked out the place. It fit what we were looking for, as did the price they were hoping for. It was about 2,000 square feet, 2 units. Unit 1 had 2 bedrooms 1.5 Bathrooms, and Unit 2 had 2.5 bedrooms and 2 bathrooms It had a front yard and porch which was perfect for Duffy. Less than a mile from Malden Center. One of the deciding factors for me was it was abutting the Northern Strand Community Bike Path. I am so big on bike paths. The place wasn’t in perfect condition but it had been taken care of, so it was also a good opportunity to make some updates.
We left, discussed, and then I called them back and placed an offer. They came back and said if they put it on the market they were estimating a certain price, which was probably about accurate. Since they hadn’t yet listed the property, we agreed to a private sale at a lower rate and came to $521,500. There was a level of uncertainty in the deal for a bit as the city was requiring replacement of lead water service pipes with a real estate transaction. That process took a bit to navigate. Luckily, we already had somewhere to live, and so we could wait it out. The sellers were great to work with and the transaction went very smoothly.
We closed May 15th, 2018. We were able to rent out the top unit to tenants rather quickly for July 1. It took some work to get the place together, slash is still a work in progress, but its been a great learning experience overall. I plan on publishing a post with more of the financial details, as well as about the updates that have been done sometime soon!