Erik Mehus has been interested in real estate from an early age, and now that he and his fiancée both have well-paying W2 jobs, they’re ready to start focusing on building their rental portfolio.  This deal analysis focuses on his first house hack, a single family home in Arvada. 

Investor Profile 

Erik’s first property was a condo in Lakewood that he purchased in 2017.  He was living with his now fiancée, who became his first tenant.  Their Arvada home is their first house hack and second property.  They can’t wait to keep growing their portfolio. 

Long Term Real Estate Investing Goals

He wants to build up enough equity to purchase cash flowing assets in the next ten years so he can retire early, be a stay at home dad, and focus on passion projects.   

Strategy for Achieving Goals 

Next spring, he and his fiancée want to start looking for another house hack in Denver.  After that, they want to move to the mountains and purchase a property with a guest house or ADU and then focus on pure investment properties.  They may look into short or mid-term rentals to increase cash flow in the near term since Arvada has favorable rules for them.

Investment Property Details 

Deal Overview 

This is a six bedroom two bathroom split level home in Arvada.  The home itself was already split into two units with their own entrances, kitchens, and washer and dryer hookups.  Each unit has three bedrooms and one bathroom.  There are two garages (one attached and one detached) as well as two sheds.

Appealing Features of the Property 

The home is in a great location, three houses down from a park and close to Arvada West High School.  There is easy access to I-70 and is near Ralston Creek trail.  The house is already split into two units, and the basement unit gets a lot of light, making it attractive to renters.  There is a lot of storage thanks to the garages and sheds. 

Investment Business Plan 

They are currently renting the downstairs unit on a long term lease to a family for $1600 a month plus $175 for utilities.  The plan is to continue renting out that unit while they live there and transition to renting out both units once they move out.  They may utilize short and mid-term renting to increase cashflow.  

Sourcing 

Erik worked with agent Preston Newberry; this house came as an alert from Recolorado.  

Property Contract Details

Contract

The house was listed at $480K and their initial offer came in at asking price.  After some back and forth with the sales agent, they amended their offer to $483K, with a $5K appraisal gap and limited inspection.  The seller didn’t respond within the 24 hours required by their offer and instead waited over the weekend and accepted an offer closer to $500K.  Preston advised them to submit a backup offer in case the contract fell through, which it did.  Submitting a backup offer is a great way to get a deal, since properties fall out of contract all the time and being ready with an offer means you’ll usually get the property.  

Inspection Issues 

They received the inspection performed for the initial contract, but decided to do their own, too.  Erik and his fiancée had previously been under contract for another house and their inspector was thorough and honest about how much work would be needed for it.  They ended up going out of contract with that house because of the amount of work required. 

The inspection found that the roof and electrical panel needed to be replaced.  The HVAC was 20 years old, and the AC wasn’t functional.  There was some concrete settling that was of concern.  They couldn’t perform a full sewer scope because of a blockage.  They submitted all of these findings to the seller, knowing that they wouldn’t get everything fixed but giving them leverage for the biggest items.  The seller agreed to replace the sewer line and electrical panel and gave a credit to cover part of the roof replacement.  

Property Financing Details 

Stabilization: Plan v Reality

It took longer to lease the downstairs unit than anticipated.  A lot of large families were interested in the unit, but that wasn’t a great fit for Erik and his fiancée.  They considered furnishing and renting it out, but were anxious to start renting and didn’t want to put more money into it.  The property was initially listed at $1650 plus $75 a month for the garage, but since they were heading into winter and wanted to get it rented, they offered $1600 all in and found a family.  

Interesting Points 

They were able to get the roof replaced before tenants moved in and used a Home Equity Line of Credit (HELOC) from their condo to help fund it.  Between moving and repairing both the condo and their new home, they realized they were spread thin.  Luckily, Erik’s parents offered to come out and help them with repairs and renovations.  

The amount of work this home required put into perspective just how much their first house would have been, and they are grateful that Preston encouraged them to walk away from it.  It can be emotionally challenging to back out of a house once it’s under contract and you’ve already envisioned yourself living there, but sometimes it’s the best decision you can make.  

Spreadsheet Analysis 

The seller gave them a credit of $9300, which they used to cover closing and buy down their interest rate to 2.625%, a great rate.  

Property Operating Expenses

First Year Returns

While living in the house, Erik and his fiancée are paying $1100 a month total.  It would be impossible for them to find a rental this cheap, and they are able to fix up the home to make it as nice as they want.

Once they move out of the upstairs unit, they plan to rent it out at $1850 and push the rent on the downstairs unit up to $1650.  This would net them $800 a month, or $10K a year.  

Immediate Goals and Plans for the Property 

Since their tenants have been so great, Erik and his fiancée would like to extend their lease in August.  If the tenants choose not to renew, they will look into short or mid-term rentals.  

They just installed a new HVAC system, which means most of the major repairs are complete.  There are some minor cosmetic and landscaping projects they’ll complete before renting out the entire house.  

Exit Strategy/ Long Term Plan

When they move into their next house hack, they’ll rent out the upstairs unit of this house.  Since the major system have been replaced, the property should be in good shape for a while.  In five to ten years, they made trade up to a larger property.  

Conclusion  

This is a great house hack for Erik and his fiancée.  They don’t plan on having this living arrangement permanently, but for right now they are happy with how it’s working out.  

And if you’re interested in buying your own house hack or investment property, reach out to us.

Connect with Guest Erik Mehus

If you would like to reach out to Erik, you can contact him via phone or email: (206) 963-9254, erik@mastervacationrentals.com.  He’s always happy to meet up for a coffee or beer to chat about real estate.  He and his business partner Jake are working on a project documenting Airbnb’s in the mountains, which you can check out here: www.stepbystepbnb.com and listen to our podcast episode in which we discuss this topic with them in-depth.  

YouTube Video: First House Hack in Arvada with Mother-in-Law Suite

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