In 2013, we were finally ready to buy a house. I spent most of the Great Recession years not earning an income, while my husband repaired some credit indiscretions from early adulthood. But we were in good shape by the end of 2013, and we were ready for the most significant expense – home ownership.
My husband wanted to buy and live in a multi-family, a practice called “house hacking.” Our last apartment was the most amazing place we lived in – hardwood floors and big bay windows, with views of downtown, Space Needle, Queen Anne, AND Lake Union. The idea of going from this place to another (probably inferior) apartment did not excite me. I was ready to live in a single-family home. That changed when I realized our tenants could cover our mortgage. We found a triplex on a busy street and called our mortgage broker and agent.
Our mortgage
I’ll step back for a moment to talk about how we financed it. As a veteran, my husband had access to a VA loan guaranteed by the government. With a VA loan, vets can purchase a home without any money down or mortgage insurance, since it is guaranteed by the federal government. Pretty amazing deal. The downside of a VA loan is that they have very strict inspection/appraisal requirements, so it is not ideal for a property that needs a lot of repair. In fact, some listings state they are not options, as the sellers do not think their house will pass inspection. But for the right place, it could be perfect. And, you can use it on small multi-family properties like the one we were eying.
The house
The house was a 1903 craftsman that the prior owners converted into a triplex. It was beautiful, but it was also on a very busy street in Seattle. And this particular stretch was in the middle of four long blocks without traffic lights, so cars often drove fast. But there were a few things we knew about the property that made it very appealing:
- Washington state legalized marijuana in 2012, and they were in the process of rolling it out (pun intended). Because of the strict requirements for pot shop locations, there were few designated retail zones around town. The intersection two blocks from the house happened to be one. We had no idea what that meant for neighborhood development, but we assumed it was good.
- The city approved a large-scale construction project on that street to reduce traffic from two lanes in each direction to one lane with a center turn lane. This also came with widened sidewalks and parking strips. All of these changes would reduce traffic and speed, and make the neighborhood much more walkable.
So, we liked the house, and some things that we didn’t like about it were about to change. We believed the seller undervalued it. We made our offer in January (under asking, which seems crazy in this market), closed in March, and moved in May.
House hacking
The house came fully rented with long-term tenants. Since we planned to move in, one set of tenants would have to move out. We decided to keep the tenants upstairs, move into the middle unit, and make the lower unit a vacation rental. By not renting to long-term tenants, we had some flexibility should out-of-town guests visit, which was one of our motivations to buy a house. We also thought that we could get more income, since a basement apartment would not command premium rent, but it is fine for a short visit.
Once we listed the vacation rental and adjusted the upstairs tenant to market rate, we covered our entire mortgage and expenses. We invested that money on more rental properties; we bought our second duplex in Delridge a year and a half later. Yes, the space and privacy of a single family home would have been nice, but what we sacrificed in space we gained in financial security.
Central District today
It’s been seven years since we bought this house, and we’ve acquired two more multifamilies and two single-families since then. The upstairs tenants are still there – they even stayed when we increased the rent to market rate. And we are still renting the lower apartment as a vacation rental. We refinanced our first mortgage to get the VA loan back, and we just finished a second refi to lower our rate. We still love it here, but the space is getting a little tight with a toddler. Who knows… we may move soon!
