House Hacking and Why I didn’t buy a building in Baltimore last weekend

Whew! I almost bought a building last weekend. If I could have bought the building on pure emotion it would have been mine. Luckily for me I had trusted advisors around me that warned me to “fall in love with the numbers, not the property.”

But I really wanted to buy this 4-unit building on Whitelock Street in the Historic Reservoir Hill neighborhood of Baltimore. It’s near a community farm. I had already renamed the building “Greenwood.” Look at my cute vision board picture of me sitting on the steps of the property.

.

It’s great master plan. I would “house hack” and live in one of the apartments while renting the other 3 apartments to cover the mortgage. The crime map on Trulia.com showed green for little or no crime on that particular block. Also, at a price tag of $285,000, the 4 unit building would be almost the same price as my single family home I purchased in DC 4 years ago.

But, in the space of 4 days there was additional due diligence to complete. I drove around the neighborhood 2 more times to see if I felt comfortable living there. I consulted with more Baltimore investors on the safety and appreciation of the neighborhood. I dragged my dear friends who are licensed contractors to the property to help me estimate renovation costs. I emailed the city planning office to find out if any development projects were planned for that part of West Baltimore. And the plans looked promising.

The only things left to do was to get adequate financing and ensure the rents charged would make the building profitable. Then, I would need to figure out a suitable offer price if I wasn’t willing to give the seller the asking price.  I already had a relationship with a loan officer who gave me an estimate of my mortgage payment plus financed renovation costs using the FHA Homestyle program. With FHA you can buy a multi-unit property of 4 units or less with as little as a 3.5% down payment and closing costs. I already knew the units were renting for $800-850 on average and confirmed that information by using Rentometer.com and driving the block looking at for rent signs.

Lastly, to confirm that my rental income would cover the expenses of owning a building, I used the rental property calculator on BiggerPockets.com. BiggerPockets is a real estate social network with tons of useful tools, podcasts, and webinars for new investors. I plugged in the numbers as if I were going to offer the full asking price. I learned that lesson while buying my first house with the NACA program that I would have to sweeten my offers when using a program.  All cash offers, even lower than asking, can be more attractive to some sellers because they can close quickly and don’t have to wait on FHA’s slower process and contingencies.

After plugging in all of my estimated expenses like water, insurance, capitol expenditures, vacancies, property taxes, property management, and repairs, THE NUMBERS DIDN’T WORK. I was disappointed but happy about all that I had learned by going through the process. I will continue to look at multi-unit properties because my Fun and Freedom plan for house hacking in Baltimore will work. Maybe there is a cheaper property or I’ll use different financing. But the quest continues…