Meet Tim: One Investor House Hacks a Duplex with No Prior Experience 

What would it be like to live without rent? What if you didn’t have to pay a mortgage?

It turns out that it’s pretty good.

Today, eleven million Americans spend more than half of their income on housing . This does not include the millions who are homeowners.

house-hacking is a great alternative for those who are looking for a new path. I tracked down an actual house hacker for this article and pestered him until he was willing to reveal the secrets of his success.

Meet Tim

Tim Puffer, a 27-year old insurance underwriter, was living in East Lansing (Michigan) at the time of our interview. He was sick of paying rent.

He did something about it.

Tim did not have any prior experience in real estate investment, nor had he ever renovated a home. The more Tim researched house hacking the more confident he was that he would be able to do it.

He began looking for multi-unit properties that were small in size and located in the middle-class areas of town. He settled on Forest View.

The Neighborhood

Forest View is located near Michigan State University. The neighborhood is a classic suburban cul de sac, with little traffic. Children play in the yard during the day.

Tim looked in an area that consisted of single-family homes priced between $90,000 and $150,000, condos well maintained, and a middle-income apartment complex with 100 units.

Tim explained: “We’re about a 2-minute drive away from the Michigan State University Campus and the campus golf course. MSU’s new basketball head coach and a few MSU faculty members inspected the unit we were renting. “They didn’t rent through us, but because of this I knew that I had a good location.”

Related: Tax implications of house hacking.

The Property

Tim purchased a bilevel duplex with three bedrooms and one and a quarter bathrooms. Each unit has approximately 1,400 square feet and one car garage.

Both sides of the lower level have a walkout onto a small patio with a view that is about half an acre in total. The trees on either side are almost completely enclosing it from its neighbors.

How did Tim discover this property?

Tim sent an old-fashioned letter by hand to the owner. It turned out that the owner wanted to sell, and he called him.

The Numbers: Updates & Acquisition

Tim purchased his duplex at $119,500 and financed it with an FHA Loan.

The seller contributed an additional $4,500 towards closing costs and $1,000 for a new water heater, as well as money to cover one extra month of rent. “The other unit was rented by his ex-stepson.” Tim gave him notice of vacate and he stayed for the extra month paid by the seller.

One unit needed work. The six-year tenants had been “not clean people” and smoked.

The total cost of renovations is $17,000. This includes new flooring, windows and decks, as well as cabinets, paint, central heating, hot water tanks, countertops, appliances, and more.

Tim did a great deal of the work himself. “Remember that I did most of the work, except for the A/C system, hot water heater, windows and deck. In my previous life, I never did any good painting, trim, or flooring. “I’m a really good painter!”

What about the other costs in this $17,000? Tools. Tim did not have any tools because he had never done such a job before.

How did Tim pay all of this?

Repair costs were funded by cash, credit cards, and refinancing cars to withdraw cash. Since then, I’ve gotten a HELOC for the building and have paid off the vehicle and credit cards. The building appraised at $162,500, after repairs.”

Monthly Cash Flow

Tim’s total mortgage payment was $951. This included a FHA mortgage insurance of $81/month.

His interest rate was just 3.75 percent, which is not bad at all!

What about the rent? The resident pays $1140, and pet rent is included in this. I take care of the lawn and recycle/trash. “They pay for all of their own utilities.”

Tim had $189/month left over to cover repairs, maintenance and any vacancies, before he paid a penny towards his own housing.

What’s Wrong? Or Is This Just a Fairy Tale or a Mistake?

The cabinets and countertops did not go according to plan. The cabinets were slightly smaller because we bought the countertops first and then the cabinets. We had to buy a new counter and pay the cost.”

It’s okay. Tim had no experience as a home-repair contractor, and was not even a licensed contractor.

Permits and inspectors made the story even worse. “I didn’t pull a building permit when we built the deck. They told me to get a permit during my city rental inspection. I’ve been looking for a contractor who will put the permit on his name, draw the site plan, and do anything else needed to satisfy the rental inspectors. It took me a little over a month to locate one. I hope to have this completed in the next couple of weeks.

The city permit office is a nightmare even at the best times. If you do not have a permit and proceed to work, be prepared for the local bureaucracy’s wrath. They will rain down legal hassles and paperwork, as well as fines and fire.

What if you have problems with your renter?

Tim has been fortunate so far. “No major problems. It’s just small things. I like to listen to music while I do things at home after work, and their 18-month old is there. I wait until around 5:15 when they wake up from their nap.

“I’m not playing it too loudly, but I do pay attention to this for them.”

It sounds pretty good to me.

Tim’s Advice

I asked Tim for any advice that he could give to other people who were looking to emulate his success in house hacking.

Know your numbers. “Know your numbers!”

“Don’t worry about living next to your residents. It’s not that difficult. You should choose someone with whom you are friendly because you’ll see them often and will have many conversations other than landlord/business related. You might even enjoy a bonfire together!

You are running a business! You’re running a business!

Related: A new way to look at “House Hacking”.

Are you interested in house hacking?

It’s nice to not have a mortgage. Your entire mortgage payment could be used to invest and create passive income.

It comes at a price. Tim learned as he did the work. He worked on weekends while his friends went out to have fun.

And inspectors and city permits offices? Red tape bureaucratic and fines threatened for a small wooden patio. It’s pure misery and frustration.

You’re also in close proximity to your tenant. As a landlord and tenant, you have a professional relationship. You also have a personal one as neighbors. This can work, as in Tim’s situation, but you have to be extra careful when choosing tenants.

What final words of advice would you like to give me?

Don’t just talk about it, do it! “You can only talk for so long about real estate investing before you have to act!”

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