All Forum Posts by: Kip Werking

Quote from @Tim J.:

If you are a new REI and never been a landlord before I would suggest re-thinking the rooming house goal.  Instead, find properties that already exist that you can make money with.  Building a rooming house with an ADU sounds like a zoning/approvals nightmare.

Have you ever developed/built a house project before?

I am a landlord, albeit a new one with just one house rented.

My understanding is that remote/outskirt towns tend to be much easier with zonings and permitting. Is that not true?

I have never built a new construction before, but that's true for everyone who starts out.

Quote from @Robert Ellis:

Quote from @Kip Werking:

Hi, I'm a new REI guy in SLC (attorney by day).

I like house hacking, costseg, STR, and BRRRR strategies, and I'm trying to combine all of them into my next deal.

I basically want to create a new built, from scratch, on the outskirts of town, that was built to be a rooming house for house hacking and then, after one year, can be converted to AirBnB for costseg bonus depreciation.

I'm looking for an agent/realtor/builder/expert who can sit with me on a Zoom call for 10-15 minutes think this out and brainstorm. Even better if I can sit down with a builder and get started on funding and blueprints.

This meta-strategy will use all the above strategies:

1. house hacking: house will be built from scratch to maximize rent/room, while having a family unit/ADU for my family to live in one year
2. costseg/STR: the building will be built from scratch to maximize bonus depreciation. May also want to maximize square-footage of property in comparison to land size, since land does not contribute to costseg
3. costseg/STR: after one year, convert the entire building to AirBnB rentals
4. BRRRR: can add a modular bedroom/bathroom/pool/hot tub to rehab, rent, refinance, and repeat

If I do this right, I think I can still use a 5% conventional loan, although I might be wrong about that? I need an expert who has experience with new builds to help me figure that out. I may have enough HELOC on my current (second house) for a higher down payment.

 I'd encourage separate units not shared based on my experience as a general contractor and developer at all levels in two different cities not a rooming house 

Can you provide some explanation or elaboration on the pro/cons of the two approaches? The interests of contractors and the interests of inventors are not always perfectly aligned...?

I would love that. Do you want to share her contact info or send an intro email? 

Quote from @Jonathan Greene:

What you are proposing is a theory, it doesn't make sense in real life. You created a financial model of what you want to happen to your money and investment, but the actual process makes no sense to me at all. It's like a buffet in Vegas where you can get sushi, eggs, steak, cake, noodles, pasta, you can't decide what it is.

Where are you finding the land for this build? Do you think the cost of the build will work out as you expect? Why would an STR rooming house work? What's the benefit to the guest of being on the outskirts of town?

1. The land would be on the outskirts of an appreciation market such as SLC, where I live. Even cities 1 hour out have still seen great appreciation in the last 10 years.
2. This would be my first new build, so I don't have a strong sense of what my expectations should be (hence the forum post, as well as several videoconferences with experts that I have lined up).
3. The STR rooming house would work, in theory, as a budget option for traveling going through town. But the STR option is to get costseg without REP status. Alternatively, we could do longer rentals and have my wife achieve REP status. The benefit of the rooming house is that rooming houses cashflow more than traditional rentals (i.e., squeeze more tenants into smaller spaces).
4. The benefit of the outskirts of town: easier to find new place to build, land is cheaper, still in the path of gentrification and appreciation due to proximity to SLC market, no HOA to deal with, much less permitting and red tape, and these lead to new builds, which has the benefits of maximizing costseg and minimizing maintenance and repairs because the build is brand new.

Happy to discuss by videoconference if you want, and I can pay you for your time.

No replies to this at all? Any advice is appreciated.

Hi, I'm a new REI guy in SLC (attorney by day).

I like house hacking, costseg, STR, and BRRRR strategies, and I'm trying to combine all of them into my next deal.

I basically want to create a new built, from scratch, on the outskirts of town, that was built to be a rooming house for house hacking and then, after one year, can be converted to AirBnB for costseg bonus depreciation.

I'm looking for an agent/realtor/builder/expert who can sit with me on a Zoom call for 10-15 minutes think this out and brainstorm. Even better if I can sit down with a builder and get started on funding and blueprints.

This meta-strategy will use all the above strategies:

1. house hacking: house will be built from scratch to maximize rent/room, while having a family unit/ADU for my family to live in one year
2. costseg/STR: the building will be built from scratch to maximize bonus depreciation. May also want to maximize square-footage of property in comparison to land size, since land does not contribute to costseg
3. costseg/STR: after one year, convert the entire building to AirBnB rentals
4. BRRRR: can add a modular bedroom/bathroom/pool/hot tub to rehab, rent, refinance, and repeat

If I do this right, I think I can still use a 5% conventional loan, although I might be wrong about that? I need an expert who has experience with new builds to help me figure that out. I may have enough HELOC on my current (second house) for a higher down payment.

Quote from @Lee Ripma:

@Doug Diamond

I’m a huge fan. If you go to my website, which is in my signature, I have an article I wrote about the value of algorithm based cost-seg studies on props under 1M. I’m a huge fan of doing this for myself. Always seek your own tax and legal advice for your situation!

 The link seems out of date. Where do I read the study?

My current rate is 3.5% and my total expenses are about 2400 at my current place.

I don't really understand your strategy above, but happy to discuss. You can schedule a zoom here:

Quote from @Carl Davis:

Dallin, I like where your thoughts are headed but just a few words of caution with this plan.

Using your rental income for your current home to pay your mortgage even if your house hacking can be detrimental if you don’t have cash reserves for that property.

What I’ve seen is people using their cash flow for their lifestyle too early and then whenever there is a turnover or maintenance issue you need to come out of pocket to fix those things.

I’d advise keeping that cash flow until that home can pay for all of its expenses each year including projected vacancies. Still house hack and hope to pay what your currently paying.

You should also look at your return on equity at your current home. since you have over 200k in equity how much cash flow will you be receiving from that? Does it make sense to 1031 into a multifamily asset that’s meant to cash flow? You may be able to reinvest that same equity into something that can cash flow MORE right off the bat.

Just some things I’ve seen with my clients in the area.

Thanks.

I'm not sure either my current/old property or my new property will cash flow (i.e., make profit over all expenses). So I'm not at risk of wasting cash flow since I am not expecting to have any, at least in the short term.

If I move into a house hacking situation and rent out my old house, and it starts to cash flow, then yes I agree that it's smart to use the cash flow for vacancies, maintenance, etc., rather than lifestyle. I'm trying to get away from lifestyle and consumer spending.

I don't have the full $200k in equity because I took about $40k out from the HELOC. So maybe $150k. The option you talk about: 1031 into a big multifamily that cash flows, is smart and I will ask my realtor about it (Jocelyn Kaufman - she has a book on Amazon). We probably don't want to do that though because my loan on my current property is 3%, and we don't want to give that up.

Quote from @Chris Seveney:

@Kip Werking

Have you checked with lenders to see if you could get approved for a new loan?

Do you have cash reserves on the side in case your rent projections are off?

Looks good of course on paper but it always does, make sure to look at this from many angles

I am checking with lenders now. I've been preapproved before for about 500k, but I am doing the process again with a lender that my realtor (BP friendly) favors.

I don't have much cash reserves. However, with extension my HELOC will still have about $48k ready and I will only need half or less for the down payment.