I Purchased a Duplex with $0 Out of Pocket and make an extra $1,000. Here’s How?
I purchased a Duplex on a single income in Florida and, now I’m making $1,000 in monthly passive income.
Debt: A Relationship Redefined
My relationship with debt has been tumultuous and toxic. In many ways, I needed debt to survive. On the flip side, debt SUFFOCATES me. When it came time to decide to buy my first home, I decided I did not want to work to have a home, but I wanted my home to work for me. I was introduced to the idea of “house hacking” through the Bigger Pocket Podcast, which became my best source of information and inspiration [1].
House Hacking: The Path to Financial Freedom
House Hacking refers to living in your home while renting out the other unit for extra income. To learn more, check out this video on house hacking. As a single income person making an annual salary of 60k, purchasing a home, let alone a small multifamily property, seemed impossible. However, on December 29, 2023, I made the impossible possible.
Key Lessons Learned
1.Money is not the issue. Mindset is. Shifting from lack to abundance mentality was crucial. Despite not having a rich relative for a hefty down payment, I found alternatives like FHA loans.
2. Location Matters: Investing near universities ensured a steady stream of potential tenants, aiding mortgage payments.
3. Functional Over Fancy: Prioritizing functionality over aesthetics helped in choosing a property within budget.
4. Assemble Your Team: A competent lender, agent, and title company are crucial for successful homeownership.
5. Utilize Seller’s Concession and Down Payment Assistance: These options significantly reduced out-of-pocket expenses.
Money is not the issue. Mindset is.
Mindset was key. Although this phrase is now a platitude, the sentiment held true for me. When I shifted my mind from, “I don’t have this” to “But I do have that,” the path to owning my first investment property became clear. True, I did not have a rich uncle (or any family member) to give the hefty 20% down payment for a traditional conventional loan, but I could stay at my grandmother’s house to save 3.5% for a FHA loan or the 3% for a Fannie Mae’s HomeReady Loan. Sure, I could not afford to buy in the major market of Atlanta, however, I did have a job where I worked remotely most of the time. Yes, I would have preferred to purchase a quadplex (4-plex) over a duplex. Yet, I wouldn’t have qualified for the all too important down payment assistance I received.
The lesson here is “don’t let the dream stop reality from happening.”
Location
In full transparency, I live in the deep south, specifically Atlanta, GA. I knew I could find a small multifamily property for less than $160,000 but not in Atlanta unless I was ready to do a complete rehab. So, I took full advantage of my hybrid job by broadening my locations.
I expanded my search to nearby affordable cities such as Columbus, GA; Macon, GA; and North Florida. I selected these areas for two major reasons.
- Proximity to a major market i.e. Atlanta
- Proximity to a university
For long-term rentals, I love investing near universities. Universities host an entire economic ecosystem including students, faculty, support staff, and affiliated businesses. Also, universities are everywhere whether you are in a primary market like New York City, a secondary market like Miami, FL, or a tertiary market like Tallahassee, FL. If there is a university, there are potential tenants who can help subsidize your mortgage.
In addition to broadening my search area, I had to expand my mind to a simple truth: I must shift from a first-time homebuyer to a first-time investor. My multifamily search was not about my wants and needs, but the wants and needs of current/future tenants. Which meant I needed a functional space in a well-populated area. In short, the next lesson was functional over fancy.
Functional Over Fancy
Personally, this lesson can benefit anyone seeking to buy their first home. Your home is not a stoic item, but it is an ever-changing being that can be updated, destroyed, and maintained. However, the equity in your home will 9 times out of 10 increases. Thus, I knew I needed to get started even if it wasn’t the most updated home.
With my income and lack of upfront cash, I did not have the luxury of being picky. I needed a functional property. Outside of a home inspection, how did I know if a property was functional versus dysfunctional?
Determine if there are tenants in the property.
If a duplex or small multifamily has tenants occupying, this gives you an idea that the property is at least functioning. Furthermore, I knew that I would have instant rental income and would not need to find tenants to occupy the property.
Home Inspection During the Contingency Period
Whether you decide your first home will be a duplex or a single-family home, take my advice:
Get a HOME INSPECTION!
A contingency period allows the potential buyer the right to renegotiate or cancel the deal without losing their earnest money (deposit) if specific circumstances turn out to be unsatisfactory such as an appraisal coming in lower than the agreed purchase price or there are significant damages discovered during the home inspection.
In my case, the home inspection became a tool for me to buy this property without having to come out of pocket. The damages found in the home inspection can be used to get seller’s concessions. Seller’s concessions or seller’s credits are a discount given by the seller to the buyer that reduces the overall cost to the buyer. The seller is basically agreeing to give some of the profit to the buyer to assist in purchasing. These concessions can usually be used toward the principal, closing cost fees, or your down payment obligations.
The cost of a home inspection ranges depending on the type of home and the area. So, you would need to call a few companies to know the market rate for a home inspection in your area. In my case, I paid $600 for a full inspection including a basic 4-point inspection (required by home insurance companies). Because it was a duplex, the price was based on the number of units i.e.$300/per unit. So, it would behoove a future homeowner to consider these cost when buying a single-family home or multifamily property.
Most importantly, a home inspection allows you, the buyer, to know exactly what may or may not be wrong with your investment. Your home inspector is an essential member of your team.
Gather Your Team: Find a Lender & Agent for You
When I first began my search for a duplex, I did not realize I was signing up to be a head coach of a team. Yes, home buying is one of the most collaborative events in your lifetime. For good reasons, I learned quickly that each player has their own specialties, their own styles, their own biases, and their own weaknesses. When one player is not having their best game, your other teammate can step up. For example, in my experience, my Lender i.e. loan officer was my MVP, not necessarily my real estate agent. My loan officer was more experienced than my agent, and she became my right hand when I needed to ask questions about pricing, appraisals, or just to vent my frustrations. My title company ensured all deadlines were being met by both the seller and my side. You want an active and responsive title company because they are the only neutral liaison between you and the seller.
Now, Coach, draft your best players and let the game of homeownership begin.
Seller’s Concession and Down Payment Assistance are your ticket to No Cash Down
I’ve talked about how I found a duplex that I could afford and even who helped me do so. But, what about the $0 Out of Pocket that is flashing in the title of this article.
The two keys that unlocked the $0.00 out of pocket were seller’s concession and down payment assistance.
Down Payment Assistance
When purchasing a small multifamily, I had the option of a duplex, triplex, or quadplex. I decided to buy a duplex because many down payment assistance programs place duplexes in the same category as a single-family home. As such, I was able to utilize varying assistant programs to reduce my out-of-pocket expenses. For first-time homebuyers, I cannot recommend down payment assistant programs enough. If you are a teacher or a civil servant, chances are there are even more options for you. If you have bad credit, never fear. You too have options with programs such as NACA’s mortgage. NACA does not have a minimum credit score, requires no down payment, and pays all of your closing costs all at a below market value interest rate. Yes, this sounds too good to be true. AND, it is indeed true. Learn more here.
You can find down payment assistance programs for your state here.
Seller’s Concession
Lastly, the icing on the cake was the seller’s concessions. After hours and hours of searching on Zillow, Realtor.com, and other sites, I found what would be my new place. It only had one picture posted and was tenant occupied. At this point, I had already toured a few duplexes that were scary looking. So, I didn’t think it could get any worse. Turns out, the duplex was in good condition, but it wasn’t marketed as well. Yes, it needed repairs, however, I was able to get many of those repaired by the seller who wasn’t getting much traction on the property. In fact, the seller allowed $6,000 worth of credits which my lender combined with the $10,000 down payment assistance I received. This allowed $16,000 that covered my down payment and closing cost. I even had enough to reduce the principal loan amount.
Conclusion
Some may call this luck. Hard work, open-mindedness, and leveraging available resources made my journey to homeownership possible. For renters looking to build equity and generate passive income, buying your first investment property is attainable.
Resources
How to Buy your First Investment Property
