Real Estate Replay Episode 1: House Hacking a Lakewood Duplex

September 13, 2017

On episode one of Real Estate Replay we chat with Chris Sever, who recently house hacked a duplex in Lakewood. He talks about an interesting down payment assistance program that allowed him to actually leave closing with a check for $500!  We also chat about negotiating repairs after a home inspection, being patient in a hot market and using equity to fund future real estate investments.

Below is the full transcription of my conversation with Chris Sever on how he house hacked a Lakewood duplex and walked away from the closing table with $500!  Enjoy!

Interview Transcript

Brock: All right Chris thanks for being on the show.  Really appreciate it. 

Chris: Thank you for having me I appreciate it as well. 

Brock: How does it feel to be guest one?

Chris: A little nerve-racking, I don't know I'm setting the bar hopefully probably low for the rest of the guests

Brock: Right

Chris: It's only positive from here. 

Brock: Well, I know you've been in the house three weeks now I should have come over sooner so I did bring you a bottle of Woodford Reserve to try to make up for it but, beautiful place you have really like it a lot so, congrats. 

Chris: Well thank you. Like I said, it's a thank you for walking me through the process and being part of the entire thing. 

Brock: Yeah sure thing man. So, when did you actually start looking at homes because I actually jumped in working with you, you know a little bit in the process so when did your search actually begin?

Chris: I actually started roughly three years ago.

Brock: OK, cool. So, you had like you know you weren't in a real hurry to find that, you weren't in a real hurry, you wanted to find that actual right home for you 

Chris: Exactly and the first time I live previously at my old place about two years, there was a month a month lease agreement and I had a roommate as well who actually stayed in the property, before that I was trying to find on that I could move into right away but it just didn't work out. Move, so I kind of put everything back on pause and just kind of kept a passive eye looking for something, until something intrigues me. 

Brock: Yeah. Yeah. No, I mean it's good because the market's obviously been so ridiculously hot right now especially where you were looking. I don't think I told everybody but your new home is in Lakewood. So, you know Lakewood's been super hot, so it's frustrating for people who do have a time crunch so you know in the market we're in, having that flexibility of the month to month lease and you know not really you know necessarily having a hard deadline for when you had to be into something is probably the best way to be. 

Chris: Oh, no, it's definitely something that taught me a lot of patience just with the fact of, I was competing with a lot of investment buyers and also cash buyers and that's just kinda the Lakewood, West park market right now and it's you know. Luckily it panned out, eventually. 

Brock: Yeah, totally. So, the home that you actually purchased is a duplex. So were you exclusively looking at duplexes the whole time or what was really your thoughts on the type of homes you wanted to find?

Chris: 95% or 99%. I was actually looking at duplexes. I knew you took a look at some smaller single-family homes, but I was mainly looking at duplexes for the fact, just that you know I don't have a family right now and you know I'm rooted in the Cleveland area but you never know what job prospects and you know and unknowing economy everything on that lines, it's one of those things where you know if I had the opportunity to move I didn't want a home to necessarily tie me down to not taking it. or achieving a good opportunity or taking advantage of a good opportunity. So, that's why I was looking at duplexes to the fact of it's something that I could hold onto for a while or also if I did have to leave I could rent out the other side and you know or turn over to a property manager and it's taken care of. 

Brock: Right, so you just wanted to have options just in case something came up basically 

Chris: Exactly and I still also obviously wanted to purchase a home to build equity and you know do all that kind of due diligence and you know positive financial side. 

Brock: Right, so you mentioned that you were competing with investors, cash buyers, things like that so you were putting in offers early on on the other homes that you were seeing?

Chris: Roughly or even to the fact where I was calling my realtor to put in the offer, they literally were taken off the market, within sometimes the same day to seven days. 

Brock: Got it, got it. Yeah, I know, it's been super competitive but like I said you know the home that you did find is an awesome one so, I wanted to touch a little bit on financing just because that's one of the most common questions that I get asked and even though the loan officer's definitely the best resource for that you know we do try to give you know some general information on it so, who did you actually go with for your loan and why did you go with them?

Chris: So, I was actually looking F.H.A. to the different couple options over the three years was different pre-approvals. I actually ended up going with a really awesome program that I found out through my old roommate which is community first Ohio. It's actually a program for all of Ohio with the Cincinnati port authority. And actually, with Cross Country mortgage and I worked with Jen Kanaan who was awesome.

Brock: Nice plug for Jen.

Chris: She's a friend, full disclaimer there, but she helped me through the entire process and made it very stream list with working with this program, it's a great program and actually gifted meet my down payment or three percent, three or three and a half percent of the FHA down payment.

Brock: Yeah that's awesome and that's a really big point is buyers really need to make sure that they're aware of the programs that are out there to help them out so, the program that you used you know Cincinnati Port Authority like I didn't know about that program at all and I know that you talked to a couple lenders before that didn't touch on that program so it's like you know you really need to make sure that the mortgage loan officer that you're working with is somebody that you can trust that's going to be giving you the best most up to date info and really not holding anything back in terms of what you might have available to you. 

Chris: Oh, and definitely and the thing is to as well, especially in northeast Ohio where, we have a housing surplus and there's a ton of you know decent, affordable homes compared to the rest of the United States. The city of Lakewood has a number of programs with down payment assistance, rehab loans, let alone Cuyahoga county also has several programs like that as well. 

Brock: Cool, yeah definitely. So, if anybody out there looking you know just to make sure that you clarify with your loan officer that they have run through all those different programs and options that you have so. Yeah, I wanted to jump in a little bit to when we started working together. So, like you said you know you've been in this process for three years, it's been awhile you kind of you know took a hiatus from looking at the homes and then when you wanted to start it back up again you know you gave me a call and you know we wanted to work together so appreciate that, but we looked at a couple homes I remember one in particular actually do you remember the really, really gross home that we looked at we don't need to necessarily say what made it gross but it was pretty nasty.

Chris: Was it the four-person? Oh no the town, the really nice kind of townhome. 

Brock: Yeah it had a lot of potential. 

Chris:  Very high potential. Yeah, that was, that was different.

Brock: Yeah that was a pretty nasty place, the walls were covered and something that wasn't paint and yeah

Chris: It was a little smelly 

Brock: Yeah it scared you off a little bit but that was actually really cool property and we were actually, we were talking about that one.

Chris: It definitely was especially for the price point and it wouldn't have taken much to kind of to make it nice. 

Brock: Yeah so, we looked at a couple of homes but then when we came across this one it was really the first time that I saw you, you know the wheels really turning and you were like OK this is actually something that could make sense and actually that was a pretty good impression of you, “OK this is actually something, you know” that's definitely a Chris thing. But you know so what about this home actually made you excited to you know possibly put in an offer on it?

Chris: The biggest thing was the price point, which was a little bit underpriced for the current market in Lakewood. Second, was a lot of the major infrastructure things, I still have another five years on the roof, the furnaces, even though they are a little bit older, early 2000's, which I can't believe I'm saying early 2000's is older but they’re forced air?

Brock: Yeah

Chris: Their forced air so that which when you're dealing with Lakewood which also in east side, Lakewood, Shaker Heights, you're going to run into boiler heat, you're going to run into homes from the twenty's, which all vary in how much that they've been updated since, for the last hundred years. 

Brock: Right. 

Chris: 90-100 hundred years. So, a lot of the major infrastructure things didn't need to be addressed right away, they will need to be addressed within 5 to 10 years, but there was no major work that needed to be done currently cause it was actually currently rented in both unit which actually did you see with FHA, I had to take possession depending on your mortgage, or your loan. But depending on your mortgage you will either have to take occupancy within 30 to 60 days. So, I actually had to do a little bit of wheeling and dealing with the buyer and they actually offered basically a payout to one of the tenants to move out. So, that I could come in. Which is always an option, you always have to remember that you can negotiate those things. 

Brock: Yeah, so basically one of the issues that we ran into because you were going for the FHA loan is the FHA loan is intended for the owner occupant so we just needed to figure out a way to get one of the units freed within I think it was 60 days. 

Chris: And that was actually your creative solution which is demoralized to, put an offer, they accepted it and then I came up against that road which I didn't even think about and Brock actually came up with the option of like hey, what if we go back and increase it just a little bit and offer it to see if one of the tenants wants to move out. So, that was one of your creative solutions. 

Brock: Thank you, I appreciate that. But yeah, so we basically just upped the asking price a little bit and we felt like we were getting a really great deal on this home anyway, so we didn't feel like we were still really overpaying for it. 

Chris: No, no, no

Brock: And so, we upped the asking price, asked the seller if they would use that as a cash incentive to try to get one of the tenants out and it actually worked so, you know, I mean I made the deal happen so yeah it was cool. It was a stressful couple days but it ended up working out really well. So, what were the actual numbers on this home, like what, you know I know that you said that you were really excited about it because you found it at such a great price so, what were the actual numbers that we came up with on it? I think we ended up settling around 102?

Chris: 104, but I had credits back to me

Brock: That's right, yeah. So, we went 104 and then I think we initially had like couple thousand dollars coming back to you in credits, but then the thing about your deal that I think like really stood out the most for me at least, was the general home inspection. So, like you said, the home overall appeared to be in very good shape, but there were some components in the home and things like that, that had you concerned because they were a little older. So, when we left the inspection, I think we were, you know we were still excited because everything was in overall really good shape, but you know there were those few things that we really wanted to ask and we had a pretty decent list. I don't remember exactly what was on it but 

Chris: It was, I think the electrical panels, some of the drainage to kind of be repitched, a leak in the roof, the flashing around the chimney. You know, a bunch of stuff you know was kind of a Wishlist but. 

Brock: Yeah, so we had a pretty decent list of repairs, probably, slightly more than what I would expect to normally submit on a home, when we sent over the removal of contingency form. And then the seller did come back and they countered us a little bit, they agreed to most of the repairs, but there were a few things that they didn't go with. So, we were kind of concerned, cause you really were wanting those things taken care of in order to feel really good about the deal. 

Chris: Oh yeah. I actually completely forgot that you had worked that deal where I'd gotten I think about $2000 back for credit for electrical panels that were a little bit older. 

Brock: Yeah, the electrical panels, you definitely wanted taken care of and with the total list, we expected them to bounce back a little bit but I remember, I think we were on the call and we were talking and we were like you know, hopefully, they come back with you know 500 or 1000, and we got a bounce back for 2000, so we were like deal, like let's just you know. It was one of those situations where, after everything was said and done, I think the inspection came out, quite a bit better than we thought it would and really set us up good you know, have you get a great deal on the home so. So, that was definitely one of things that was pins and needles but it ended up working out about as good as could, I think. So, since you've been in the home now. So, you've owned the home for 3 months, but like we said, the occupancy arrangement, you had one of the tenants actually moving out, I think they moved out like 45, 60 days after close, or something like that. 

Chris: Oh, it was 30 days. 

Brock: 30 days, okay, cool

Chris: And then it was just kind of timing with leasing, everything. I was in it the end of July. 

Brock: That's right. Yeah. So, you were in the home at the end of July and you know so since you've owned the home, have there been any surprises that have come up, or is everything kind of worked out as you expected?

Chris: Everything’s been pretty good for the most part, having a little bit of issues with water in the basement but that's anything, a house this old will have that. So, I kind of have to address that issue. But nothing major has popped up so far. 

Brock: And we had some pretty intense rains actually too so, I'm sure that doesn't necessarily help but. 

Chris: No, it's actually been very good, everything’s been running smoothly for the most part. 

Brock: Cool. And like what are you planning on doing to the home? I mean I know that you're still, you're let's just say, a slow unpacker. Like I remember in college, I don't know if you ever actually fully unpacked from the move in August but. 

Chris: I've been notoriously known to live out of a moving box until I moved out the second time. 

Brock: Right

Chris: When I lived in Brunswick, I think I still had a box that was there for, until I moved to Lakewood, a year and a half

Brock: I mean yeah, you're a busy guy, you know moving just continues to be on the priority list but that's all right. You know. 

Chris: I live in the current moment. 

Brock: So, have you done anything to the home yet or what do you have planned you know coming up here over the next few months, over the Spring?

Chris: So, short list right now, is I have a friend who's a general contractor, he's currently tied up on some work. But it looks like, probably going to be doing. I love the wood siding but since I am thinking of this as a long-term rental and not as my current home. So, I am most likely going to do vinyl siding which I know, most purists would not be good. But the painting and everything maintenance wise, like I said, I'm still viewing this as a rental property. I'm renting it from myself. 

Brock: Right, right. 

Chris: So, that's on the short list, cause that does need to be done, either painted or sided so that's most likely the first major thing. The second would be just kind of some aesthetics, some new screen doors, or storm doors and then this winter hopefully going to be making contact with an electrician to kind of tackle some circuit breakers, and kind of update those and modernize those and then also possibly update the knob and tube wiring. But that's you know, gonna be a price factor, might just be circuit breakers now and then rewire down the road. 

Brock: Cool. I know that you mentioned you know, using it as an investment property down the line so, do you have any short-term plans for additional properties or like what's your real estate investing thoughts for going forward?

Chris: Yeah, actually. So, I was actually talking with some different mortgage officers I just network with, where they might be able to get me into a refinance, 6 months to a year, down the road. So, that might be kind of something that I might look at. And again, depending on how the market fluctuates, it might be something where I can reduce my mortgage now, which. The breakdown on my mortgage is between my tenants. I'm still actually paying for the 900-square foot unit. Living on my own, I'm paying the same in rent that I paid with a roommate at my old house. So, we're worked out pretty well. But obviously, get that down possibly to where the rent covers all my living expense and also see if I can build some equity to possibly do, a home equity line. So, using the home equity line to possibly do some other real estate investment. So, like either possibly they're you know, looking at another duplex or possibly another smaller single-family home, maybe not in Lakewood, but maybe the immediate west side area or Shaker Cleveland Heights. 

Brock: Yeah, I love it and that's you know, that's one of the most powerful things I think from talking to you is just that you see, you really see the value in using a multi-family for that first home, using the rents from you know your tenants to help pay for your mortgage and then when you move out, you know, you're gonna be making out pretty well in this home and that's really the beautiful thing about doing the FHA loan with the multi-families is just that you know for, I mean actually you walked away from closing with $500, which is nuts, but I think you did 1000 for earnest money, right? So. 

Chris: I did. Yeah, a thousand earnest money and then I was 1200, I think it was about 1200 in inspections, back and forth with  just you know some other random FHA fees or random you know, 50 bucks here, 75 bucks there

Brock: Yes. So, like for $1000 basically out of pocket you know, around there.

Chris: Well, it was 2200. With the inspections, that was the inspections. 

Brock: OK, so

Chris: So, 1000 out of pocket 

Brock: So, 1000 out of pocket. So, you know $1000 to $2000 out of pocket. However, you want to slice it, you know you basically now, have a property, you have no roommate and you're paying what you paid with a roommate before and when you do choose to move out, you know if property values go up in the area, great, you can resell it and you can you know, make a profit there. Or if you choose to hold on to the rental you know you're definitely gonna be you know making a profit when you're able to rent your unit. So, it's just a really cool thing. I mean that’s one of the things that really gets me excited is working with you know buyer, so I can take advantage of that situation. 

Chris: Yeah definitely. And another big thing is also that flexibility where, like I said, I'm renting from myself, so if I, another job opportunity comes along, that's out of state, out of city. I'll be able to take advantage of it easier. 

Brock: Yeah, it's all about having options. And I mean. I touched on it in the blog post that I just put up this week but, with my first home. I had really part of the equation right. You know, I didn't have a lot of cash. I think I was 21 when we bought that house. So, I didn't have a lot of cash. So, I used the FHA program, you know I think I had more out of pocket than you, I think I had probably like six or seven thousand out of pocket or something cause we got some closing costs help too but. With that home, prices fell in the area so, when I talked to you know when I when I talked to my wife about it we were like OK you know we don't want to bring a checkbook to closing, like I said we were already kind of tight on cash at the time so, you know we basically just decided to rent it out and we're basically renting it out for our break even on our escrow payment so you know we're getting the mortgage, taxes and insurance taken care of but we pay the water bill, you know repairs come up throughout the year so it's actually something that we're taking a loss on and you, you didn't you know you didn't put yourself in that situation you know you have options at the end of the day and even though we're not taking a large loss on it it's you know you're going to actually be making a profit from your property which is really cool so you know I think you did the smart thing. 

Chris: Hey and even then, it gives you that option now since you can itemize, you can those type of things since it is depending on what you cost you have, you can write them off, right as a business. 

Brock: That's brilliant, that's smart man. So, just wrapping it up so is this something that you'd recommend other people looking into you know using you know I mean you don't have to necessarily have to use you know a low-down payment plan or in your case a plan that actually paid for your down payment, you don't have to use those plans but do you recommend people you know look into this option of you know buying a multifamily property, living in one of the units, renting out the others?

Chris: Well, like I said in my own in my financial scheme using one of the programs work better for me. But again, if you're, if you're you know more able to put let's say five or ten percent down which in a northeast Ohio is possible because the homes it is a more, out of the U.S. It is one of the most affordable housing markets. I definitely would recommend it because you, like I said you have that flexibility, you might be able to live mortgage free. And it just increases your options and also to obviously you know there are things to look out for you know how much, how much is going on with the property but again if you are going in with a conventional mortgage you might be able to look at a higher priced or higher priced multi-family unit, that might have more done to it, like you said there's a wide range in these areas of where multi families are common. There's a full spectrum of what's been done to the properties and it’s just kind of one of those getting, finding a realtor that you're comfortable with and exploring. 

Brock: Cool. Sounds good man. Well, I really appreciate you being my guest on episode one. You're one of my favorite people that I've worked with recently and it's not just because of your magnificent beard. So, hey man, congrats on the awesome house and really appreciate it.

Chris: Hey thank you, man, I appreciate you making the process as seamless and kind of keeping me in there when I was kind of not feeling the best, on when it was not looking like it was going to happen.

Brock: you got it, brother. All right, have a great night, thanks a lot.

Chris: Thank you.