All Forum Posts by: Aaron Duthie

You have way more details about the property than the rest of us, but by the investment fundamentals, this is a liability, not an asset. Your tenant should be subsidizing your housing expense at the very least, not the other way around. 

Both units fully renovated means you can't force appreciation. This becomes a speculative investment beholden to the whims of the market. What sort of market analysis have you conducted?

I'm a big house-hack advocate, but if the fundamentals don't make sense, there's no reason to rush into a loss. 

Hi Taylor - so cool posting a plan like this at 18. You're in a coveted position to accomplish anything you can envision.

Like you said, there are many different routes to take in real estate. Plenty of good advice, proven strategies, and sound wisdom out there, but ultimately it's up to you to align your approach with your own personal style.

Here's my take on your plan, given this will be your first time investing in RE: 

1.) Absolutely house-hack (2-4 unit multifamily, or ADU's are trending now too). It will give you the foundational skills to pursue any other strategy in real estate. How to acquire property, how to add value through renovations, how to manage tenants, how to grow rental income, how to sell for profit. The best part is - you're actually living there, so all of your work will be self-inspired. You make it better because you want it to be better for yourself. You'll also have a lower risk of default/running out of money since you're likely financed through 30-year Fannie Mae/Freddie Mac. Starting out with a fix and flip using hard money will put you under the gun to move quickly, budget accurately, with less room for mistakes. Mistakes are good, since it's where you learn the most, so do everything you can to make the most room for potential mistakes.

2.) If you purchase the original property using FHA/Conventional, a Cash-out Refinance within the first year works if you've bought the property at a discount. Otherwise, there won't be any additional equity to pull from, unless the sub-market you're located in skyrockets on it's own. More than likely, you'll need to force appreciation through value-add renovations over time. But once you've built up equity, a HELOC or cash-out refi should serve you well to take on a fix n flip

3.) Majors - If your goal is to use a job to quickly feed your RE growth, then I'd recommend Finance, Engineering, and/or Business Admin. Find a career that you can get started in quickly, and double your W-2 income quickly. Doctors and Lawyers are big on the income potential, but they take alot more time/money to get established in. 

thanks @Vitaliy Volpov! I'm creating a fund with my proceeds and raising from other investors to go in on larger multifamily opportunities around the DFW area

thanks @Julien Jeannot! Checking out your content now.

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $390,000
Cash invested: $70,000
Sale price: $600,000

Purchased a Full-Duplex in DFW area at the start of the pandemic, Buy and Hold house hack with value-add renovations across 3.5 year period.

What made you interested in investing in this type of deal?

As part of my journey to FI, the initial goal for this property was to cut down on my biggest living expense: Housing. I used house hacking as the primary strategy and slowly forced appreciation over the hold period while living in each unit.

Shout out to Scott Trench and his book Set for Life for laying the educational groundwork, and to the BiggerPockets community for all the help along the way.

How did you find this deal and how did you negotiate it?

Purchased on MLS through local buyer agent during a time when everyone else was sitting on the sidelines due to massive uncertainty (beginning of the pandemic).

How did you finance this deal?

Financed through FHA Loan 3.5% downpayment

How did you add value to the deal?

Awesome hands-on learning experience:
- House-hacked each side across 2 years, then moved out and fully rented out in Year 3+.
- Started small on the renovations and progressively worked on more skill-intensive projects, while also subcontracting out various jobs.
- Managed all Leasing
- For the Sale, I listed on the MLS through flat-fee broker and represented myself as Owner/Seller

What was the outcome?

Results:
- All capital gains tax free through 121 exclusion
- 3X Equity multiple
- 70%+ IRR

Lessons learned? Challenges?

Everything is a challenge. Nothing ever goes as smoothly as it's supposed to:
- Look forward to the frustrating situations, because those will be your greatest drivers of growth
- Conserve your energy with gratitude instead of burning it up in anger
- Stay committed for the long-term

The positive big impact results will follow!

Hi Kevin - after a year you can do whatever you want with it. It goes without saying during your first year as living primary in one unit, you can already rent out the other units if it's a 2-4 unit building.

Also keep in mind if you intend to sell the property within 5 years, live at property for 2 years to satisfy the 121 exclusion and get $250k/$500k capital gains tax exemption. 

As the owner/seller of a Frisco duplex recently hitting the MLS, here's what I've seen:

- The market is still very active with interested buyers

- Increasing interest rates and volatile employment are making it hard for those buyers to close successfully. Pre-qualification letters provide very little assurance. 

- The imbalance between seller expectations and buyer's capacity has to be offset somewhere. Cookie-cutter sales procedures aren't making sense. There should be some sort of special offer, creative financing, or right-fit concession involved to make the deal work for both parties. 

I'm leaning towards providing more Service than typical as a value-add. Immediate, transparent communication. As soon as a purchase agreement is shared, spending time talking through what is actually important to them, what issues they foresee, proactively sharing info you think will help them along each step. Critical thinking is back in style. 

@Jason Sung my experience with Ownwell has been great, they make it very hands off for the owner. I'd recommend it. I'm sure there are other service providers out there, though I haven't done any comparisons. 

 Yes - even if the original holder already satisfied the 1 year primary residence requirement, the new assumptor will have to live 1 year as primary residence. 

Nathaniel - did you ever complete this process? Curious to hear how it went.