When we moved back to the Harbor in 2015, our plan was (and is) to build long-term wealth buying and holding homes as rentals. We love buying the community’s biggest eye sores and restoring them, giving them new purpose in the 21st century. Specializing in rehabilitating some of the Harbor’s worst properties has a few benefits:
1: The numbers work (but you need the right vision and team!)
2: We help provide safe, clean housing for the community, &
3: Make our towns a little nicer, one building at a time.
Our very first real estate investment – outside of our live-in flip in Hoquiam (Bitar House) – was a vacant, broken-windows duplex in the heart of Aberdeen. Ugly, rundown, and vandalized, the duplex had been sitting vacant for many years. In 2016, Kevin helped a client and friend purchase the duplex. Fast forward to early 2017, the project was too much to bear and the owner approached Kevin, asking him if he’d be interested in buying the duplex and finishing the project.
By June 2017, we owned our very first rental! We also happened to buy a commercial building that year, an old bar called Trio’s in Hoquiam.
The plan – renovate within 12 months, rent out both units and obtain permanent financing (through traditional bank, 25-30 year loan with fixed interest rate).
When we first started renovating properties, we did most of the work ourselves. That was the case for our duplex. While construction took longer than it needed to, the savings in labor was a MUST because of our limited cash flow and tight budget.
We purchased the duplex for 60,000 with a 5% discount IF we paid off (gave them all that was owed) the owner contract within 12 months of purchase. Ultimately, we renovated and paid off the owner in 9 months, resulting in a purchase price of 57,000. We spent many Friday-Sundays doing Home Depot runs, installing flooring, cabinets, fixtures, trim, and more while our kiddos enjoyed special time with their cousins (aka babysat by their Auntie Katie).
When you buy multi-fam rentals, the first thing you want to consider is cash flow for the project. Your main goal should be to stabilize the project – have enough income (rent out the first unit, for instance) to cover holding costs.
How much are holding costs? In other words, how much it will cost you every month to own the property while working on the project before its fully rented and complete. Things like utilities, loan payments (owner contract, hard money), credit card payments (HD card for materials, maybe other cards), landscaping, taxes, insurance, labor (if you’re not doing it). For the duplex, we had utilities, loan payment, and HD card payment + taxes and insurance. In total, the project was costing us about 750/month to hold without being rented.
Step one for the duplex to stabilize was to renovate the upstairs unit, make it rent ready, and finish the outside. We did that in 1.5 months. Rent for the upper unit was 750, therefore stabilizing the project, no longer costing us money to own. By the end of 2017, with the project that would eventually become Brunch 101 full steam ahead, we made the decision to sell our dream home. We renovated that old, historical home from the ground up, living in it for two years and selling as a live-in flip (explained more elsewhere).
When we sold our dream home to fund Brunch 101, we needed a place to live. Enter unit 2 of the duplex.
We put our home up for sale in November 2017 and hired a contractor to finish the renovation of unit 2 at the same time. We ended up homeless for Christmas 2017, living in a hotel for a week until the beginning of January 2018.
We house-hacked for about 9 months until fall 2018. House hacking is essentially living for free by renting out rooms in your house – or in our case, having a tenant living upstairs while we lived downstairs. We found our NEW dream house (closed fall 2019), which we originally secured via a lease/option contract, in fall 2018 and moved right in.
*lease/option was essentially renting for up to 12 months with the option to buy at an agreed-upon sales price within that timeframe.
We rented the duplex out for 1650/month. We bought it for 57,000 and spent 23,000 renovating. When we were done renovating, we obtained permanent financing (something like 4.1% interest over 30 years) and have a loan for 80,000.
And that was the plan. Buy, renovate, rent, refinance, and – REPEAT. We had 80,000 from the bank, paid the original seller off 57,000, our home depot card off 15,000 and 8,000 to the contractor who renovated unit 2. We ultimately had ZERO of our own dollars into the home, its market value is presently ~135k (so we’re leveraged about 60%, which is great), and the numbers work out to our desired CASH FLOW/UNIT of $300.
Cash flow is the true profit after all holding costs are accounted for, including mortgage, insurance, taxes, landscaping, utilities, vacancy and maintenance rates. We do not hold for property management because we manage our own.
In the end, we saved an abandoned building, created affordable, safe housing for our community AND increased our household’s cashflow. For us, each successful project builds the snowball, as we invest 100% of our returns into future investments (as of 2019). In order to complete a project like this, all you need is the vision and willingness to go for it. Some skill helps, but you learn a lot along the way.
A cool side note – I’m 95% sure we also fell into a bit of Nirvana history. If I’m not mistaken – and maybe Krist will see this and confirm – the popular Nirvana bassist, Krist Novoselic grew up in the home, his mother running a hair salon out of what is now unit 2. How cool is that?!
Thanks for reading and sharing in our journey!