First Time Question, Would This Be Possible
Hello all,
I am new to RE, and have been pondering an idea and want to find out if it is even possible.
My plan,
What I would like to do is sell my current home, and use what equity I have in it, to purchase a piece of land (locally). The purpose of the land would be to build a triplex, or town house home, and use one unit for my personal residence. My hope would be to break even, with the other two units, or at least get the cost down to a point where my "out of pocket" payments are minimal.
The other side of this, and the part I am not sure about is the financing. I have good credit, several years ago I know my wife and I both had high 600's for credit, before we were home owners. I want to know if I can finance 30 years on this property (even though I would like to do 10-15 if the numbers work out). Also, after the construction is done, and I am getting my conventional type loan, will it be possible to roll any of my existing debt (car payment, or signature loan) into the mortgage in order to better position myself for future deals?
You see my main two goals of this investment is to..
1. Get some experience on the landlording without taking a HUGE risk.
2. Consolidate some debt, in order to make the most of my current salary (about 40k per year now).
By eliminating some of these bills I would have a much greater working capital to save, and start making offers on pre-existing rental properties.
I am not attempting to get rich quick, or even quit my job in the near future. What I do want to do is invest my money now (that would be going into a 401k) in rental properties, that will pay for themselves, and have potential for cashflow down the road (when they are owned clean and clear).
Thanks for any help, and if I have been to vague please let me know. I don't need to know if the "numbers work" right now, only if I will be able to consolidate other debt when I go back to finance after construction, and what kind of financing can I do on an owner occupied triplex.
Dave Loucks
Dave,
The concept is completely reasonable as a concept.
The problem with the plan is new construction involves a lot of detail any of which can bite you.
If you have the talent, the time and the ability to take on such a project then consider it carefully. Expect cost over runs. Expect last minute changes from your lender on the construction and perm financing. Expect hassles on the home front when you find you have no place to live because you got the timing wrong. Expect living that close to other people might not feel like your present home.
At a high level if you do what you say things will be pretty much as you expect. Your 'other debt' might blow a hole in the idea as it might kill your ratios. You also did not indicate how much equity you have to fund the construction, etc. Be very careful to not overpay for the lot. Do not over improve the unit you expect to live in as one day it will be a rental (either while you still own it or when you sell it).
You are taking on a very large project and if you have the time to see it through (plus the other resources) it could work out just fine.
Alternatively is you stay where you are, you invest time and some money into REI investing (sub-2, pre-foreclosure, bird-dog, buy & hold rentals, fix up and sell). In this example you impact your home life less. Not a better idea but very different from your proposal.
John
[addsig]
I gotta say that selling your existing home to put all the money on a construction project sounds like a crap-shoot to me. Unless you've got lots of experience as a home-builder in which case I doubt if you would be asking the question.
That said, I agree with John. There is nothing intrinsicly impossible in the plan.
I'd at least consider removing he equity via a HELOC and keeping the house while you do your building project (where were you going to live while the new building was under construction?) and getting some experience with something less ambitious to start with.
Thanks for the replies.
One of the reasons we considered buildling a Triplex is that we were already wanting to build anyway. We rehabbed our current home from the ground up, and don't wish to do it again, but we would like to move into a newer home. So, my thought was that if we are going to move anyway, and if we are going to consider building anyway (I have been through the building process once as I helped my folks build thier home two years ago) why not build a triplex, instead of a home, and just live in one portion of it.
Having said that I think there is alot of merit in what you are saying. My wife is not really that crazy about living in a rental unit, as we lived in a Duplex before we bought our house. If my wife and I were willing to stay put (not really WRONG with our current home) then we could refinance and have 10-20k dollars to work with. There are rentals in this area that are selling for uner 30k dollars that have multiple units.
I guess I need to do ALOT more reading on bird dogging, and sub-to. I know relatively nothing about sub-to, and I have only read a little on bird dogging, just afraid of being able to find investors in this area.
Dave
"Get some experience on the landlording without taking a HUGE risk"
Building is a MUCH greater risk than landlording
"Having said that I think there is alot of merit in what you are saying. My wife is not really that crazy about living in a rental unit, as we lived in a Duplex before we bought our house. "
Will she be happy in a triplex then?
Also, see if the zoning/building/etc. rules will allow a triplex.
CJMAZUR,
Reread back a bit, I think you misunderstand me. I was ageeing that maybe living in a rental unit was not the best idea for my wife and I, as she didn't like living in the Duplex. As such I was implying that she was not happy about this suggestion.
As for the risk. My wife really wants to build a house. She wants to build a very nice house (as our current combined income would allow for such). But instead of spending 200-250k on building a new house, I wanted to spend the same on a rental property and live in one of the units. My thinking was that if I can afford a house that cost X, then I can take a decrease in my standard of living, and live in a rental that cost the same. Then the tenants would, however maybe not covering the full cost of the mortgage, would be putting a significant dent in it.
Ok, having said all of that. I think what might be best for us at this time is to pay off some debt that we have now.
I had been looking at rental properties that would bring in X per month, which of course would then have to be taxed. What I wasn't thinking about were the two car payments, signature loan, and one credit card that are already eating up X amount of my income. Paying those off will free up the same amount of income as buying several rental units, and the money paying off that debt frees up will already be taxed. So if I get out from under 1000 dollars per month in car payments, and signature loan, then thats 1000 more in my pocket, and 1000 more a month makes me alot more confident about jumping into RE.
So, I thank everyone for the advice, and direction. I am going to look hard into bird-dogging and subject-to stuff while I pay off my bills. If I can nail down a deal or two along the way great, once my capital has improved some I'll scroll down the list a little further and visit again.
Dave
I did miss what you were saying.
See if you can build some form of detached townhouse.
That would give the leverage of your construction costs and not be living in a "rental" unit.
good luck.
I would run the idea past someone in the local zoning commission or whatever. Many localities do not permit what you are proposing, except in restricted areas. You then have to do "non-conforming" appeals, etc.
Why not work a few deals to get some cash and buy your wife's dream home in her dream neighborhood, keeping your living separate from your investing? It may take longer, but it could keep the home fires warmer.
Dan