All Forum Posts by: Matt Z.

That's what I forgot to mention - I think zoning will be okay, but that would be something for the building department to confirm.

The house is steps from 3, 4, and 6, and greater unit buildings.

I checked the zoning code, and it doesn't seem to place a restriction on the number of units per building.  (There is an ambiguous "units per acre" requirement that uses the word "about").  Most of the regulations are regarding the building height and lot dimensions, which wouldn't change.

Hi BP Forums,

Have a question that may be tough to answer - it's probably very dependent on local regulation.  But I need to start somewhere, and formulate my approach...

I viewed a 2-family house yesterday.  Beautiful 200 year old historic home in amazing condition, with all the right upgrades & maintenance (including foundation, electrical, etc).  Outside the "historic district" so not subject to those restrictions. The place has it all - great architecture, historic details, a rare landscaped backyard.  I'm very familiar with the market and have a 175 y.o. 2-family 2 blocks away - high-quality tenants go crazy for houses like these.

Currently, this is the configuration (roughly):

1st Floor & 2nd Floor - Combined into an owner occupied apartment, ~1200sqft per floor. Amazingly well cared for, kitchen is jaw-dropping, etc.

3rd Floor - Small (~660sqft) 1-bedroom. Active lease with happy, professional tenant. Above-average condition/fixtures.

Up until ~25-30 years ago, the 2nd floor was its own apartment. The current owners combined the 2 floors into a big owner-occ unit. There are remnants of the 2fl kitchen still visible - including a sink and a couple floor cabinets. The rest was ripped out and a built-in closet installed, making the kitchen into a bedroom.  The bathroom is still in place, and is fine as-is. In theory, the 2nd-floor "apartment" needs only a kitchen and a few locking doorknobs to be ready to lease as its own unit.

The question is, what would I be in for here?  The positives are that all units have 2 means of egress (interior staircase down to front doors, and rear staircase/porches). However, I have no idea what they would require to bring the place "up to code." Would they just require 100% compliance on the new kitchen, or would they start to nitpick elsewhere - for example, number/distance of electrical outlets in all other rooms (would be a major pain), or even the rise/run of the 2 egress staircases (impossible to do anything about, and Id have to walk away)?

It is located in New Haven, CT. In my experience, regulations/approvals here are tough, but fair.  They are very safety conscious, but understand that the majority of 1-6 family housing stock is over 100 years old.

My tentative thought, were I to make an offer, would be to make the offer contingent on an Approval to Start Work (or at least something preliminary) from the Building Department. Never approached something like this though. If I am able to make this place into 3 apartments, it would provide good cash flow even if I was to owner-occ 1 unit. If not, I would have to pass. The combined 1st/2nd apartment is way too big for me, and way too big (with a pricey market rent) for what the majority of tenants in the area need. I could see getting stuck having to rent it below market value just to get someone in there. The little 3rd floor apartment is only worth $1000-1100/mo.

Hi Stephanie,

Totally aware of over-improvement, and not the case here!  There are a number of other duplexes and triplexes on the "quality" level of mine - makes it much easier to retain the A+ tenants and avoid vacancies. Problem is, those buildings don't go on the market, thus are not part of recent comp data.

There has only been one building the same quality level that was sold in the past year, and it was a fourplex.  Not a valid comp for a duplex. 

As for the 450k ballpark - 425-500k has been the selling price of duplexes in the neighborhood recently.  All of those homes had significant negatives compared to mine - a few I wouldn't touch with a 10 foot pole unless the price was half or less.  An agent threw a significantly higher sale price on mine, but I take that with a grain of salt.

My neighborhood is small, which limits the comps.  There is another much larger neighborhood nearby that is considered about the same caliber as mine, and half-decent duplexes have been recently selling in the 500+ range, even in need of updating. 

Thanks for all the quick replies.

Looks like my first step is to start working with a lender.  But I will also gather receipts for some of the larger improvements, as well as the building permits.  I did the vast majority of work myself, so the permit best captures the scope of work. 

I guess my concern with the comps is there aren't any that are truly "comparable."  Nature of the beast when operating in such an old neighborhood, where the buildings are so varied and have met vastly different fates through countless renovations, multi- to single back to multi- conversions, crap interior layouts, dirt floor foundations, etc.   I'd assume that appraisers in this area know how to compensate for this, so I'm probably overthinking it. 

Thanks,

Matt

Hi All,

I'm reaching out for tips as this is my first time considering cash-out refi. 

Exactly 1 year ago today, I purchased a duplex for $~348k in a fairly high rent area with a top-quality tenant pool. Put down 15% on a conventional loan, couldn't do more because I needed cash for renovations. 4.25% interest w/ ~$50/mo PMI,.

House appraised at $375k at time of purchase. Based on the renovations, and increasing values in the neighborhood (based on recent sales), it should appraise at a bare minimum of $450k.  

I'd like to make sure the appraisal isn't a disappointment, which would thus affect the amount of cash I can pull out and still maintain 20% equity. 

This is an urban neighborhood of very old (100-200 y.o.) homes, many with historical and landmark designations.  My house has a few important & unique advantages that boost rent value & reduce likelihood of vacancy - amazing layout that rivals many new-construction apartments, huge back deck and fenced-in landscaped yard, driveway that can fit 2 cars, high-end boilers that keep energy bills low, massive combined 2nd+3rd fl unit with 3bed/2ba, high-end fixtures, beautiful common spaces, ample secure storage, blah blah blah. 

However, having an appraisal during the winter months poses a few disadvantages: Some remaining paintwork including rear deck refinishing needed outside that can't be done until spring, landscaped yard isn't at its best in the winter (though I have pictures of it), I still have some work I want to do to the foundation/basement, etc. 

Do I prepare some sort of research package to present to the appraiser, with my own comps and such?  Or would this insult the appraiser?

Also, do I hire an appraiser myself then approach lenders for a cash-out refi?  Or do a approach the lender first?

Goal of Cash-Out Refi:

- Have cash on hand for another possible purchase

- Get rid of PMI on this property

- Maintain 20+% equity on this property to avoid PMI and have a nice cash flow.

Thanks,

Matt

@Steve Vaughan what you're describing is exactly what I'm envisioning.  

I know this all seems excessive at the moment where I only have 1 building with 2 units, but it seems smart to plan ahead rather than scramble to set up a proper business structure in the future, while possibly handling a several tenants, renovations, etc.

Also, in the time since I originally posted this thread, I've been solicited by at least 4 people regarding renovating their old/historic multi-families in the area.  So there's some out-of-the-box potential here...

I appreciate everyone's input, gives me a bit more clarity.  I'm planning to consult with an attorney, as well as an accountant, to make sure whatever path I take is set up correctly the first time. 

@Kurt K. That seems to be along the lines that I'm thinking. My insurance is adequate for right now, and I'm fine with owning the structure in my name. The LLC could just be a name on a bank account and a credit card. Maybe a dedicated vehicle or other equipment if the need arises.

@alex zuroff Possibly. But add credit card to that also.  And supply house accounts, etc, etc. 

I do essentially all my own work, typically the only exception is if it absolutely requires a building permit for a skilled trade (not just framing and drywall).

With an 1842 multi-family that I bought at a discount due to the work needed...you can only imagine the volume of credit card transactions I have (which I go to painstaking lengths to track every single one, and allocate by percentage to which unit it effects, etc).

Looking a bit forward, what if I wanted to have a vehicle (truck, naturally) to ONLY use for the purposes of working on the property/properties? Seems like if that truck was in my name, it would be yet another nightmare to track it's usage at the federal mileage rate for tax purposes.  More trouble than it's worth.  I've logged countless miles in my personal vehicle that could be attributed to the house, but its not even worth trying to quantify (never mind create a paper trail).

Looks like I will probably have to speak with both an Accountant and an Attorney.

@John Clark you are correct, it would essentially be like having a 3rd party handle the management.  The goal would be to better separate finances, especially as the number of rent streams grows above the current 1.

What, if any, tax benefit would need to be calculated with help of an accountant. 

The kitchen example was probably a bad one.  I just happened to be thinking about that at the time.  Better examples would probably be regular maintenance, repairs, marketing a unit for rent, etc. 

The thought was to use the business entity as a way to better separate finances & activities that are related to the property separate from my personal finances.

For example, "The Business" performs a kitchen renovation in the rental unit.  "The Business" handles everything involved with that process - any payments for materials, to contractors, etc come from accounts in the name of the business.  The business ultimately sends a single bill to me, the property owner, for the service of renovating the kitchen. 

Think this would achieve the opposite affect and add unnecessary complexity?  Open to opinions and alternate suggestions.