All Forum Posts by: Clayton Smith

Samantha, 

Building a small multifamily is one of my long term goals. It's a great way to get good value and make sure your rent is high and your costs are low! 

As far as the loan for the small ADU I think you could find a bank willing to fund the unit and they may even consider your equity in the main house as part of your down payment. Another option would be to try to secure a HELOC on the main unit and use that to fund the ADU then refinance the entire property after completion. That would be a great way to access your equity without having to spend so much on financing. HELOCs are very cheap and my local credit union as done them for me for around $500.

If you could get $1k rent for a 1 / 1 unit then it would defiantly be worth the trouble. 

Good Luck!

Thanks for the reply. 

Yes, I am going to talk with my CPA. Just wanted to have a base understanding of it before we talked. I will be sure to check on the categories. 

I built a house this year that is now a rental property. I have all the cost and paperwork to back them up. This sounds like a perfect situation for using cost segregation depreciation. I am looking for a breakdown of how to organize my cost? 

Do I lump light fixtures in with framing that sort of thing.  

I live and invest in Tuscaloosa and it is very hard to find anything meeting that criteria unless you want to go to a D class neighborhood. Tuscaloosa is a great market but it is very competitive because of the University of Alabama. Good money to be made on student rentals but they are expensive. 

I rent to students in my area and have some about 10 minutes from campus and it is possible. I get less rent than the "oncampus bubble" in my area. So I think you would be able to rent to students but don't expect the same rent per room. Also, if you are wanting to make a 6 bedroom house you need more bathrooms. If you want your house to stay rented and for a good price you need at minimum 1 bath per 2 bedrooms. 

My local bank was willing to let me borrow 85% of total cost, land plus construction costs, or 80% of after construction value. They said that they chose the lowest of the two options. I had to get a preconstruction appraisal and provide two construction estimates to determine the value of each. Since I had already purchased the land with cash they would accept the land as part of my down payment. They would have let me finance the purchase of the land if I was in your situation. Based on what my bank let me you would only need to come up with approx. $60k plus closing cost. (188k land + 200k construction) x 15% down payment. 

But this is a local bank in my community so it may completely different in your area. One thing to remember is your carrying cost would be much higher because you would need to draw out half the loan from day one to purchase the land. Because I owned the land I did not have to make my first draw until much later in the process. 

Good Luck 

That is much better than I have been quoted. I am having a very hard time finding 80% LTV. Can you send me the contact info?

I used a GC and the day to day and was very hands on. I approved everything and helped shop for finishes. All things considered with COVID and the unusually high amount of rain during construction things went very smooth. I have found a very good contractor and he keeps me up to date on all costs. I am currently flipping a house with him right now. I would love to have enough work so that I am his sole source of work but I am not there yet. We went over budget by about 2% but that was mainly because I wanted to do a few things that made the costs go up some. 

Address:    2609 6th Court Tuscaloosa Al 35401.

In my area you rent the house out as one unit and the college kids usually always find enough roommates themselves. I know some people like to rent by the bedroom but in my area you get the same price per room and you are more protected. Because the lease states that they are responsible for the full amount of the rent I do not get burned if one student does not pay because the others will have to pick up the slack. However when you tell the students how much the house costs I say $525 per bedroom so $2100 total. Yes, you always want to have a cosigner for students. This protects you more than anything. 

I used to manage the properties myself but switched over to a PM this year and it has been good so far. 

Covid was pretty tough this year. I had to reduce rents on several of my properties and it is going end up costing me about $8k in cash flow this rental year. I had a group ready to sign on this house for $2400 a month but the students were sent home 2 days later. Things have been much better since the students have returned and I am hopeful next year things will be back to normal. 

You will not recognize the changes on campus. It has changed tremendously just in the last 10 years since I graduated.  

You are in the right spot to learn! Listen to the podcast and read some of the books from the bigger pocket guys. If you are planning to hold a property for 20 or 30 years and it is cash flowing every month it doesn't matter if the value drops some. But it will affect you doing the BRRRR method so you just have to be conservative in your numbers. Plus, I believe that as long as mortgage rates stay low the market will stay strong.

There are a couple of reasons why real estate investors use debt. One is that you can write off the interest paid on your properties and pay less tax. Why not get to keep more of your money that you put in the time and effort to create. The second is the opportunity cost of your money, mortgage rates are really low right now. If you have a loan paying 4% interest but your investment is making an 10% cash on cash return you are netting 6% more on your money plus the debt pay down. Plus you will be locked into the low rate for the life of the mortgage. I have mortgages on my properties and once I have the loan paid down some I will get a HELOC against the equity in my property. Run the numbers and look at the cash flow difference. You will make more cashflow buying 5 -$100k houses using 20% down than having just one $100k house paid off plus you keep more money based on tax savings. Some people can't stand the idea of debt but it one of the best tools in real estate.