Diving In Headfirst - How does my plan sound?

Question

Hey all - I'm starting my trek into REI! I've been listening, reading and brainstorming, and have a few ideas to get started. I wanted to validate some of my thoughts, gather feedback, and potentially make some mutually beneficial connections. I'm not listing every detail of the plan here - mostly just the high level to make sure I'm not marching in the wrong direction. I genuinely appreciate any thoughts, feedback and guidance, and look forward to giving back to the forums as I continue my journey.

My situation: 26, considering Charlotte, NC and surrounding markets, no debt, moderate savings, high credit score

Short-term Goal: Secure somewhere to live, gain 5-8 doors in 2021 and generate around $600+/month cash flow, and not completely deplete my savings in down payments + reno.

Vehicle: 1 owner-occupied single or multi-family, 1 non-owner-occupied multi-family

The Plan:

1 owner-occupied single or multi-family

Well, I need somewhere to live. The reason I haven't designated single or multi-family is due to the area I'd like to live in Charlotte and it's unlikely I will be able to find a multi-family in my price range. If I can, the plan would be to take a 5% conventional owner-occupied loan for the multi-family, house-hack by living in a unit and renting out the rest and maybe polish up the cosmetics (not spend much, since I won't be getting it back except through a potential minor rent increase). After 1 year (the required period for the loan), I'd move out and rent that unit). If I can't find a multi-family, the plan would essentially be the same, except I wouldn't be collecting rent during the 1 year I was living in since in a SFH. Quality of life and living quarters is important to me and my girlfriend, so we're willing to make this sacrifice even if it slows things down a bit.

1 non-owner-occupied multi-family

This will be a pure investment property. I'm currently generating leads, but depending on the deal I find, this could either be a BRRRR or something closer to turnkey (I don't mind making minor/cosmetic improvements, getting new tenants, etc.). On the BRRRR side, I'd secure money from a HML or family (unless anyone has a better idea), and engage a long term lender beforehand to ensure the refi will be good to go. I realize a lot needs to go well for this to work - but I'm interviewing agents and lenders, engaging with a trusted GC, and practicing deal analysis and reno estimated to give myself the best chance. If I determine I want to hold off on the HML and find a property that doesn't need much work, but will cashflow (trying some direct mail, craigslist for rent calls, MLS searches, etc.), I'd likely take the smallest down payment loan I can find with good terms (is this 20%?), make some minor improvements if I think I can raise the rent, and begin the fun of landlording (and save the BRRRR for another day).

Questions:

• Is there a benefit to completing one purchase before the other? Maybe the owner-occupied first with 5% down so that D-T-I will look better for qualifying for the multi-family?
• I'd be good for a 5% conventional, owner-occupied loan for a multi-family (let's say quadplex) if found one in my range, right?
• Any Charlotte specific knowledge out there that may help guide me?
•

Any other thoughts, feedback or "You are crazy!" certainly welcome!

Thanks in advance, Austin.

Colleen Goldstein · Answer

@Austin Lynk welcome to BP! I'm a 27 year old Charlotte investor (more suburbs - Matthews, Indian Trail area). Your plan structure seems reasonable, although the multi family portion you will likely not find any deals that make sense as investments in CLT, only make sense for owner occupancy since they are overpriced compared to SFH. For a true investment multi-family you will likely need to secure large commercial funding - a direction I am considering as well for our next moves though the down payment and loan will be substantial. I would personally say that the 1 heart time horizon to go from no homes to 5-8 is very aggressive. You will learn a lot your first year of including dealing with contractors, screening tenants, dealing with maintenance issue, nonpayment, leases, etc. You will make mistakes. In my opinion it is risky to dive in all at once for the learning aspect as well as not averaging out your purchase price or "buy-in" basis. The market is high right not but money is cheap, there is speculation on what it will do but buying in all at once may be a bad idea if it goes down. Buying properties seemingly spaced ensures you are at least buying an average of the market price over a few years, can devote energy to one project at a time. Food for thought, but happy to connect, chat, and answer any questions along the way!

Account Closed · Answer

The CLT area does not have the population density to make the building of smaller multifamily worth it for builders or investors. I am originally from San Diego and was a Multifamily broker along with being an ops manager for a management company that specialized in large SFR & Multifamily investment portfolios. We had restrictions with the amount of space and density in the metro that made smaller multifamily properties extremely profitable to build in the 80's and there is a ton of properties being bought a sold on the market. With good commute times and no geologically restrictive features along with great business opportunities throughout the county, this won't happen for a while in the CLT market. We are on track but right now deal flow the smaller multifamily props is sub-par and finding a deal is very hard. Most investors in the market go for brrrr's, flips, turnkey, or value add. In the upper price point, short-term rentals can be found that have a strong appreciation and cash flow.

You do have more options for owner-occupied if you are okay with getting creative such as splitting the property, adding an adu, or fixing up the unfinished basement along with a side entrance and renting out the bottom portion.

Pieter T Van Zyl · Answer

@Brandon Despras

Thanks! I focused on the kitchen the most but did minor cosmetic updates throughout as it was quite outdated. The whole house got new paint, took out carpet for LVP, new kitchen countertops and paint, new back splash, removed popcorn ceiling, and new dry bar in the kitchen. Both bathrooms were already updated so only paint in one of them.

Yes I house-hacked also. 1 full time roommate and multiple short term roommates that were interns at the company I worked for. All in all the roommates paid around 15k and I paid around 10k towards my mortgage towards my mortgage so when I sold I was able to get all that back.

Pieter T Van Zyl · Answer

Hey Austin, All sounds well and good especially if you are living below your means with your W-2 and are able to continue saving over the next few years. Have you considered house hacking? On my first home I was able to rent one room out permanently and another room a few months out of the year to interns and it made a huge difference. I agree with Colleen and Brandon about inside the 485 loop. I was able to pick one up in Gastonia with really good cash flow however!

Account Closed · Answer

@Pieter T Van Zyl

Congrats on the house hack! What renovations did you focus on while you were living on the property? Did you rent out the rooms while reno was in progress?

Paul Moore · Answer

Hi @Austin Lynk. Great post. Any updates?  Have you considered doing lease-option sandwiches, sometimes known as "Subject-To" deals?  BP contributor Chris Prefontaine has lots of great info on this. Good luck!

John Sledge · Answer

@Austin Lynk The key to success in value add buy and hold is knowing how to analyze comparable sales.  You can analyze sales similar to you project to determine the As Is value.  If you analyze sales of similar size that are selling at the higher end of the market you can determine what renovations are needed to complete at the higher sales price.  This is critical to ensure you have completed enough renovations to complete but not completed renovations that are not required in the market area.  You can also use these sales to determine your ARV so that you can ensure that you can refinance.  Best of luck and let me know if we can be of help! John

Dmitriy Fomichenko · Answer

You are in a good company Austin!

Austin Lynk · Answer

Thanks all!

Appreciate all of the feedback - I am reconsidering ability to find a house hack multi-family inside the 485 loop and considering a SFH that I'd live in for a year, then rent thereafter. In the meantime, I'm hoping to secure a multi-family in Gastonia, Statesville or other surrounding areas of Charlotte.

I hope to share a revised strategy soon for additional feedback - really appreciate the thoughts here from everyone and thank you immensely for your time

Colleen Goldstein · Answer

Agreed with Brandon that you're unlikely to find a good deal on a small multi-family inside the 485 loop. I would still keep your eye out though - as they definitely come up from time to time (but may be tenant occupied already - so may be a barrier to owner occupying depending on lease length). I would think your best bet would be finding a single family home with a basement (finished or unfinished with separate walk out) to allow you to subdivide and rent out or airbnb the bottom portion. The other alternative would be a single family home with an additional structure - I have seen folks finish a garage to convert to a rental on their primary residence. In Matthews, this is allowable to rent to unrelated persons (though would have to confirm with Meck county this is OK to do as well).

Diving In Headfirst - How does my plan sound?

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