Construction of Additional Dwellings - Running the numbers

[Michael Fundaro]

I'm in a situation that can be a potential BRRRR but with a large gap between the B and the first R but the first R is also a B :)

My wife and I bought and house-hacked a duplex at the end of 2015. We're finally able to purchase a place of our own and get the duplex up and running independently. So 2015 till now was the gap between B and R. But instead of Rehab, we may look to Build some time in the next few years. When we purchased, one of the attractive features was (and still is) the zoning. We can build up to 4 more dwellings if we meet some requirements on size and foundation footprint type things.

So in terms of financing this, where do we start? We have a line of credit against the duplex. Other sources of cash would be loans against my 401k and cash value life insurance policy. That could materialize into a down payment on a construction loan but I'm certain won't cover everything. Then, after it's built and rented, I'll want to be sure we can refinance the whole thing and pay back the HELOC/401k/Insurance loans in full.

I'd love to hear from anyone that is or has been in a similar situation. How did it go? Learn anything unexpected? I'm mostly interested in the financial structure of the project.

I envision this:

B. Buy... then live your life for 8 years which includes buying a primary residence so after that the rest of this plan may just take a back seat for a while...

B. Build... and borrow 100-200 thousand dollars (maybe more idk) from yourself and others to construct another 1-4 units

R. Rent the new unit(s)

R. Refinance, at least cash out enough to cover the money borrowed from yourself. Anything extra is icing on the cake as long as the property cash-flows enough.

R. Repeat? TBD...

Thanks for your input BP friends!