JF1098: Break Into Investing by House Hacking Your First Investment with Ben Staples
Ben wanted to get into real estate investing, and decided that house hacking a three family. He bought it off the MLS, and wrote a letter to the seller in an attempt to persuade them to choose his offer. Well it worked and now he is successfully house hacking and looking to do more investing in the future. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Ben Staples Real Estate Background:
-Real Estate Investor 26 years old and bought my first property when I was 25
-Used owner-occupied financing through state program to purchase first 3-plex for $480,000
-Have had countless learnings ever since purchasing his first 3-plex
-Based in Boston, Massachusetts
-Best Ever Book: Rich Dad Poor Dad
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Joe Fairless: Best ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless and this is the world’s longest-running daily real estate investing podcast… And guess what? We only get into the best advice ever, we don’t get into that fluffy stuff. With us today, Ben Staples. How are you doing, Ben?
Ben Staples: Great, Joe. Thanks for having me.
Joe Fairless: Nice to have you on the show, my friend. A little bit about Ben – he has recently acquired a three-unit property for $480,000. It’s an owner-occupied financing program through the state that he got. We’re gonna talk to him about it, because it’s nice to talk to Best Ever guests who are just getting started and have started off successfully, and hear their perspective. I know there are some Best Ever listeners who either haven’t got started or are in a similar situation. Based in Boston, Massachusetts… With that being said, Ben, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Ben Staples: Definitely. I’m originally from Philadelphia, I moved up here in the Boston area for school. I graduated and joined an e-commerce company where I’ve been for almost four years now. I absolutely love it, but as things calm down with the job, I started googling around and checking out real estate, doing my research, going to as many meetups as I could, reading as many books as I could, and decided I wanted to house hack, so I started looking at the Greater Boston area. It’s a crazy market, just like many places in the U.S. right now.
I was looking to pivot outside of the Boston market, trying to find less expensive opportunities, but decided in the end that the best thing for me would be to pursue a low down payment option and really try and house-hack close to where I work… So that’s what I ended up doing – I bought a property in June of last year (I can’t believe it’s already been a year), a three-family property. It has two two-bedroom units, and a one-bedroom unit. I’m living in the third unit, and it’s been a big, big learning experience and a ton of fun.
Joe Fairless: Two two-bedroom units and one one-bedroom unit, right?
Ben Staples: That’s correct.
Joe Fairless: Okay. And are you single?
Ben Staples: Yes. I have a girlfriend, but I am not married.
Joe Fairless: Got it. So there were no negotiations with your significant other about moving in with some strangers.
Ben Staples: That’s correct. I did, of course, wanna have her on my team, and she definitely did support me throughout the process, but I was on my own there.
Joe Fairless: $480,000 purchase price… How did you find the property?
Ben Staples: Originally, when I pivoted back to looking for an owner-occupied place, I was doing everything I could… I was cold-calling Craigslist listings, for people renting their apartments, trying to figure out if they wanted to sell, I was calling property managers… I got to probably page 110 on Yelp, just calling every single property manager.
Joe Fairless: Page 110 on Yelp? How many are on a page?
Ben Staples: I think it’s something like 10 to a page…
Joe Fairless: And you called all those people?
Ben Staples: I did, yeah. I’d work normal hours, get home, eat dinner and then start calling. Not everyone answered, and some people were pretty angry to talk to me for the cold call, that kind of thing… But some people really appreciated it. It’s sort of good to hear that there’s a lot of support out there in the property management community, and there are some good property managers out there.
Then eventually, I was getting through — I didn’t even realize that Yelp went up to page 110…
Joe Fairless: I didn’t either…
Ben Staples: But eventually this three-family popped up on the MLS – I was working with an agent, and we just went out to see it. It seemed to make sense. There was a good bit of work that was required on the property, but I put in an offer above asking… It turned out there were somewhere between 14-17 other offers that day, and I tried to really craft a nice offer letter. I positioned this as sort of my first step in the investing world, trying to set out on the right foot, and it was accepted.
Joe Fairless: Why did you write a letter?
Ben Staples: I’d been doing some reading, and it seemed to humanize the aspect of offer writing. It just seemed like right thing to do to really try and build the additional rapport with the seller. I asked my agent for sort of a template or rough ideas of what she had seen that had worked in the past, and then sort of built off of that.
Joe Fairless: What were the components of the template?
Ben Staples: Mostly it’s just sort of talking about your background… In her case, her recommendation was, since this was my first property, make sure that I sounded like an individual, like I was trying to start out, not like a big corporation or some heavy-handed investor, that kind of thing… Really trying to play into the human element there. But most of it was around really focusing on building rapport, showing who I was as an individual, and how really I was so excited to purchase their property.
Joe Fairless: Did you mention anything else that comes to mind? I don’t have anything in mind, by the way, I’m just wondering if there’s anything else relevant that you mentioned to them in that letter.
Ben Staples: I could post the letter in the show notes, if that would work… I don’t have it in front of me.
Joe Fairless: Don’t cause me more work for this certain podcast… Now we have to do it, dammit. [laughter]
Ben Staples: I’m sorry about that.
Joe Fairless: Okay, send it to me and I’ll have one of my team members make sure we put a link to it, so people can check it out. But no more doing that, please. [laughs] Alright, so you did a letter, and you had 14-17 offers that were on the property, and you got it… Did you have to revise your offer? Was there another round for offers?
Ben Staples: There wasn’t another round for offers, which I was pretty surprised by. I came in a little bit high, and then actually after my inspection, once my offer was accepted, I was able to get a $7,000 closing cost credit for the condition of the roof. That was one thing where the listing was written saying that the roof condition was five years old, and it turned out half the roof was five years old, which I was pretty surprised that they had redone just one side of the roof… That was really the only back and forth on the offer side of things there.
Joe Fairless: Okay. And once you identified, “Okay, I just got awarded the opportunity”, what about financing? Did you have it lined up prior?
Ben Staples: I had a pre-approval for a few different financing options. In the state of Massachusetts there’s the mass housing program, which allows you to put 5% and avoid PMI. And then of course there’s the FHA kind of financing with 3,5% down, but you have PMI… I wanted to try to avoid PMI, and went with the 5% down option, because it seemed like the best sort of option for me at the time… But I made sure to have my pre-approval lined up, and made sure to let my mortgage broker who I was using at the time that I was going out and aggressively looking at property.
Joe Fairless: Tell us about the process of getting financing.
Ben Staples: I would say it was pretty painless for me. I’ve heard some horror stories… One of the benefits of the work that I had put in before, of going to different real estate meetups, is that I was able to find a really great group in the Boston area called Boston Wealth Builders that really made it easy; they connected me with this lender that has worked with a ton of investors, and specifically works a lot with first-time home buyers to walk them through the process. He was really patient and answering all the right questions, and that kind of thing.
He was pretty willing to explain what he was going through as far as the pre-approval process, setting my expectations on max purchase price and things like that, and then making sure to really push things through once I actually submitted my offer, and it got accepted.
Joe Fairless: The Boston Wealth Builders – you said that’s a local group?
Ben Staples: That’s correct.
Joe Fairless: Do you pay to attend the meetup? Is it free?
Ben Staples: It’s totally free. It’s an incredible opportunity. Most of their meetups really focus on the flipping side of things. They have a lot of really great walkthroughs of properties that are currently being gutted or rehabbed, and will talk to a lot of really active local investors that are doing great things in the area.
Joe Fairless: So you found a lender through that group, and that lender worked with other investors, therefore they knew exactly how to approach your situation, and it was a smooth process.
Ben Staples: That’s correct. I actually ended up being out of the country on a family vacation during the closing, and was able to still have the confidence to move forward with this lender, and he kept me up to date the entire time.
Joe Fairless: Wow, your first closing… Half a million dollars, and you’re traveling the world, you’re globetrotting.
Ben Staples: Yeah…
Joe Fairless: And you’re okay with that… [laughs] Good for you.
Ben Staples: Well, of course I would have preferred to be in the country and I was incredibly nervous, but it’s just how timing worked out.
Joe Fairless: It makes sense. My first four homes — well, my only four homes that I ever bought, I was not present for any of those closings; it was all done remote, and I’d actually never visited any of the homes before I bought them, so I appreciate your approach, actually. What are the rents for the two two-bedroom units?
Ben Staples: When I got into the property they were pretty far below market. The first two-bedroom was renting at $1,000/month, and comparable rental units in the area could rent as high as $1,700-$1,800/month… And it was a very similar story for the second two-bedroom apartment, which was unit three. That’s the one I decided to move into, because it needed the most work.
That was a pretty interesting one, where I negotiated to serve a 30-day notice to quit to the unit three tenants the day before I closed with the seller. They were willing to let me do that just to speed up the process for me, get me a month ahead of my schedule and make sure that I had the time to move into the property in accordance with my mortgage, because Mass Housing does require you to live in the property.
Joe Fairless: That’s right, yeah… If you had residents in each of the units and you have to live in it, that’s an issue, right?
Ben Staples: That’s correct.
Joe Fairless: What is the rule there? How quickly do you have to be moved in?
Ben Staples: It’s 60 days after the close, and there’s two different types of Mass Housing programs, and of course, I recommend everyone to speak to a licensed broker… But from I understand, there’s two different types – one that is a Fannie Mae product that you have to live in the property for one year, and then there is a second program which I did not do, which is more on the affordable housing side of things, that requires you to live in the property for the life of the loan.
Joe Fairless: Your rents – one of them was $1,000, and it could go up to $1,800… I don’t think I heard what you brought it up to, if you did bring it up.
Ben Staples: Right now I’m definitely on the slow side for bringing up the rents… For the third unit I am currently marketing it to rent at $1,750, and it looks like I’ll be able to rent it there as I move out. The second unit, I increased the rents to $1,200. My hope is that after I finish the rehab and stabilizing the third unit, that I would then get into the second unit, rehab that and raise those rents… But I don’t feel comfortable raising the rents until I rehab the unit.
The first unit, which is the one-bedroom, I came into it at $800, and I’ve just raised it to $850, where fair market could be anywhere from about $1,200-$1,400, depending…
Joe Fairless: $1,750, $1,200 and $850, right?
Ben Staples: That’s correct.
Joe Fairless: Okay, and which one do you live in?
Ben Staples: I live in the third unit right now, but I’m currently moving out.
Joe Fairless: How much money have you put into it, if any?
Ben Staples: I have put a good bit; I had to redo a deck, redo a kitchen, got a bathroom, that kind of thing. I probably put roughly 30k into it.
Joe Fairless: So you’re at around less than 1%… It’s 0.7%, so you’re under the 1% rule. Are you cash-flowing?
Ben Staples: With me living there it’s definitely reducing my living expenses. When I move out, I will be cash-flowing.
Joe Fairless: How much?
Ben Staples: According to my numbers, it will be around $700-$800 mark.
Joe Fairless: Okay, $700-$800. And that includes you managing the property.
Ben Staples: That’s correct. I originally did run the numbers including a management fee, but until I get everything stabilized and fully rehabbed it looks like I’m going to be managing it. That’s sort of how I would like things, in the sense of learning about the property, and really trying to understand the process of management before I outsource it.
Joe Fairless: What do you do for your full-time job?
Ben Staples: I work in the e-commerce space as a product marketer.
Joe Fairless: Any skills that you have as your full-time job that have been applied towards this investment?
Ben Staples: I have had a lot of fun with the project management side of things; I do a lot of that at work. Then right now I’m really trying to get into the marketing side. Of course, marketing my unit has been a lot of fun, but that’s very small scale. What I’m starting to do is leverage my marketing skills for contractors that are looking to build their websites, and at the same time as helping their businesses out, I’m also hopefully making contacts around the business.
Joe Fairless: If you would, please put yourself in your shoes prior to closing on this deal… What is your best real estate investing advice ever to yourself?
Ben Staples: I would say two things… One would be to really understand the rents that you’re gonna be getting. I was a little on the over-estimation side, and from what I’ve seen, the best way to estimate them right now is of course to talk to local people on the market, but also to look at resources like Craigslist and see what people are listing individual units for that are pretty comparable in condition to your unit.
The other one I’d say is that as you’re preparing for the walkthrough, if you don’t have any experience with rehabs and understanding rehab costs, to be willing to pay someone to come along with you, whether it’s a contractor, another developer, anything like that… I think that that would have been one of the best things that I could have done to see some things that I hadn’t seen during my initial walkthroughs.
Joe Fairless: I didn’t do any of the walkthroughs on my four homes, because I was in New York City, the homes were in Texas, but when I got the inspection report, I immediately sent it to my dad and my brother-in-law, and I asked them “What does this all mean? What should I be worried about based on this inspection report?” So you’ve gotta have people, as you said… Either be willing to pay someone to come along with you, or have someone who knows what they’re doing on the rehab front to interpret the results.
Ben Staples: And the other thing I’d just add there is the more you can do to build up your local network and try and develop as many mentors as you can in your local market, the more beneficial it’ll be. I was lucky to have two guys – Ray and Dan from HRV Homes – that are developers, condo converters in the Boston market… They really know end-to-end the entire process, know costs off the top of their head and was able to, similar to what you were saying, run these different inspection findings by them and see really how realistic is this, that or the other thing.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Ben Staples: Yes.
Joe Fairless: First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve read?
Ben Staples: I would say Rich Dad, Poor Dad for the biggest mindset shift in my life. And for those guys that wanna know a little bit more about the numbers and how they work, “What every real estate investor needs to know about cashflow and 36 other key financial measures” by Frank Gallinelli.
Joe Fairless: What’s another mistake that you made on this transaction that knowing what you know now you would have done differently?
Ben Staples: I would have been more rigid with finding the best possible contractor. I was in a little bit of a rush because I needed to move in and I wanted to work with someone quickly, and I saw a couple of red flags that I should have kept moving on. In the end it worked out okay, but to me it’s important to look up your references, make sure that they have great reviews, everything like that.
Joe Fairless: What were the red flags?
Ben Staples: He had a pretty big unwillingness to make some small changes to the contract. Another one was he was unwilling to provide references and basically just sent me to online review sites to really vouch for those, when I feel like my experience working with this particular contractor would have been saved by understanding how he works with other people. It seems pretty consistent.
Joe Fairless: Best ever way you like to give back?
Ben Staples: I know I only have a little bit of experience, but I’ve really enjoyed the opportunity to talk to other new and aspiring investors, and learn about their challenges and try and give my advice from my experiences. I’ve already had the chance to have an impact on a few people that are in my local network that were thinking about buying houses and now have bought houses. It’s a really great feeling to know that I’ve impacted them, hopefully for the better, and got them to take action.
Joe Fairless: How can the Best Ever listeners get in touch with you, Ben?
Ben Staples: They can reach me by e-mail at Ben@bds-marketing.com/
Joe Fairless: Ben, thank you for being on the show. Please e-mail me afterwards (or my assistant) the letter, and then we’ll get it posted up on the show notes. That letter is kind of a cool thing, because it will show what successfully allowed you to get the deal over 14-17 other offers that I’m gonna assume were similar or very similar to yours. That’s one takeaway.
Another takeaway I have is you being involved locally with a real estate investing meetup, and finding a mortgage lender who was familiar with how to approach this loans and it was a seamless process for you on your first deal, that’s another thing – surrounding yourself with the right people.
Thanks so much for being on the show, and also thanks for talking through some of the lessons learned that you had on this deal. I hope you have a best ever day, Ben, and we’ll talk to you soon.
Ben Staples: Thanks, Joe.
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