All Forum Posts by: Michael Fundaro

I'm just hypothesizing an exit strategy here so please humor me. My wife and I own a duplex in a residential multifamily zoning area. If done properly, the regulations allow up to 6 dwellings. Our primary plan is to hold the duplex indefinitely, but every once in a while we talk about a situation in which a developer wants our property to build an apartment building.

Selling and cashing out is obviously an option, but I subscribe to the buy and hold philosophy and I would want a piece of this apartment building action. So here is my hypothetical deal:

This is in the future and assumes I would own the property outright. "Apartment Builders, LLC" offers me $X for the property. I say deal, but instead of cash we'd just transfer ownership in exchange for whatever equity stake $X gets me in this venture.

This substantially lowers the amount of cash they need to put into the deal, but it's not owner financing, I would now be a partner in a syndicate (am I using that term correctly?) and instead of collecting interest on a finite loan I'd be collecting a share of the profits indefinitely.

Am I making sense to anyone? Is this silly? Has anyone structured a similar deal? Can anyone weigh in on how this might go if I still owed on the mortgage?

Thanks!

Investment Info:

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

Purchase price: $329,900
Cash invested: $50,000

"House hacked" a duplex in West Hartford, CT. FHA 3.5% down loan. Lived there from Jan 2016 to Jul 2023.

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

Buy and hold rental properties seemed like a no-brainer investment to me. Also, this specific property has attractive zoning that allows for the construction of additional dwellings in the future.

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

Traditional realtor

How did you finance this deal?

FHA first-time homebuyer program

How did you add value to the deal?

Didn't need any extensive remodeling, just replaced old things. Cleaned up the landscaping, fresh paint inside, new front door, new garage doors, replaced water heaters, replaced roof (insurance claim), installed french drain to keep water out of the basement, fixed minor electrical issues (The two units shared some circuits)

What was the outcome?

A nice place to live for 7 years with subsidized living expenses, a pleasant spike in equity thanks to the 2020 market rally which has materialized into a nice HELOC, and now a solid cash-flowing duplex in a desirable location.

Lessons learned? Challenges?

Keep an eye out for anything fishy in the title search to do with the MDC water utility company. At closing it was "agreed" with them that the seller had been paying "estimated" water utility bills faithfully (which she was) and that we were good to close. After closing an MDC tech came out to make an update to our meter. About a year later we had a water bill for $4,000 and multiple letters about liens.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Horizon Home Loans in South Windsor was very helpful with the FHA process.

@Dave Meyers based on 1 & 2 in your list I roughly estimate 250K for a 2bd 1ba "Carriage house." A brand new apartment of that size in my area could bring in 2k/month. Don't really want to pursue that right now. 

Though I am curious about something on the refinance in general... Right now I have a duplex on the property that I refinanced in 2021 for 2.875%. If I build a carriage house and refinance, is it possible to do it with a second mortgage only for the new unit? Since rates are higher now I'd like to keep the one I got a couple years ago.

I'm in a situation that can be a potential BRRRR but with a large gap between the B and the first R but the first R is also a B :)

My wife and I bought and house-hacked a duplex at the end of 2015. We're finally able to purchase a place of our own and get the duplex up and running independently. So 2015 till now was the gap between B and R. But instead of Rehab, we may look to Build some time in the next few years. When we purchased, one of the attractive features was (and still is) the zoning. We can build up to 4 more dwellings if we meet some requirements on size and foundation footprint type things.

So in terms of financing this, where do we start? We have a line of credit against the duplex. Other sources of cash would be loans against my 401k and cash value life insurance policy. That could materialize into a down payment on a construction loan but I'm certain won't cover everything. Then, after it's built and rented, I'll want to be sure we can refinance the whole thing and pay back the HELOC/401k/Insurance loans in full.

I'd love to hear from anyone that is or has been in a similar situation. How did it go? Learn anything unexpected? I'm mostly interested in the financial structure of the project.

I envision this:

B. Buy... then live your life for 8 years which includes buying a primary residence so after that the rest of this plan may just take a back seat for a while...

B. Build... and borrow 100-200 thousand dollars (maybe more idk) from yourself and others to construct another 1-4 units

R. Rent the new unit(s)

R. Refinance, at least cash out enough to cover the money borrowed from yourself. Anything extra is icing on the cake as long as the property cash-flows enough.

R. Repeat? TBD...

Thanks for your input BP friends!

@Edward Burke ya love to see it! Please tell me you'll be doing plenty of surfing in Bali.  Part of the reason I want the freedom with my time is the ability to put everything on pause and go surf when the swell rolls in.  I torture myself by watching surfline webcams from work...

@Caleb Brown bless your soul, my man!  I too was shy & reserved in high school... for what?  It makes me smile to hear you are using that regret to fuel your pursuit.  With that attitude, I wouldn't be the least bit surprised if you hit your FF goal by 25.

@Nancy DeSocio thanks for the wise words. The search continues... 

Your stories are all awesome, thanks for the replies and keep them coming! I think there is a lot of value in hearing an individual's unique story.  There is so much talk about the whats and the hows of Financial Freedom on this forum, I think what's just as important is the "why."   Right? because without that, real estate can just become another job... which is a direction I have found myself heading lately.

@Cameron Tope @Nicole Heasley Beitenman thanks for that insight! Viewing financial freedom as a need or a "must have" is an awesome way to think about it.  Makes me re-frame my thinking to something like "I need to be free, and in the societal system we live in, that freedom looks like financial freedom."  Changing that belief to a need instead of a want sounds like a big difference maker.

@Sarah Brown and @Erik W., I agree 100%. I ask myself if I am going insane sitting in this cube farm.  Seeing people around me comfortable with the idea of spending the next 3 decades here makes me want to shake them and yell WAKE UP! Then the self doubt sets in and I start thinking "well why can't I just be happy with that like everybody else?"  So Erik thanks for your words, what I gather from them is that its true that it doesn't have to be black and white, right way vs. wrong way..  and I think that is what I've been missing. The world we live in is one big grey area and I'm still trying to find my particular shade.

@Brian Spies I appreciate your detailed story.  It's stories like that that I think a lot of investors can relate to.  I find it admirable that you are able to trust yourself with the responsibility of financial freedom instead of succumbing to the fear of being without a steady paycheck.

I'm looking for a little inspiration here. I haven't posted in a while, probably because I haven't been thinking of real estate much lately.  I "started out" 5 years ago when I read "Rich Dad, Poor Dad," and dove in.  24 year old me had stars in his eyes, chasing after this thing I just learned about called "Financial Freedom" without knowing what the heck I'd do with it when/if I ever got it.  Bought a duplex that doesn't cash flow and now here I am, approaching my 30th revolution around the sun as the tired landlord I said I'd never be.

I realized that just not liking my job wasn't enough of a motivator for me.  So I dug a little deeper to find out why I'm after it and scared myself when I found out: I don't know!

So, investors on here, especially people starting out: why are you after this Financial Freedom goal? Does it go beyond the finances? What really makes you enjoy investing in real estate?

One thing I've learned about myself is that no matter how hard I tried, I just couldn't sit down and balance my budget every month.  If you're like me, automation can help.  I learned this trick while listening to the "Automatic Millionaire" audiobook and loved it ever since.   Now all I do is check my expenses once every 6 months or so, and adjust accordingly.  Its been working for me for about 2 years and I love it.  Here's how I set it up.

Assuming you have your paycheck direct deposited to your primary checking account:

1) open a second checking account, this will be your "escrow account"

2) calculate your total monthly fixed expenses: Investments, housing, loans, insurance, utilities.  deposit that as a lump sum into your escrow account.  (this is the trickiest part since you'll need to front load the escrow account for this to work)

3) Divide that total amount by the number of paychecks you get per month.  Usually 2 per month.  This is your "expense per paycheck" amount

4)  Set up an automatic transfer to move your expense per paycheck amount to your escrow account.  Have this reoccur automatically on your payday.

5) Set up all your automatic withdrawals for each bill to come from your escrow account now instead of your primary account.

The way this works for me now is that on each payday, I don't see the money that is budgeted towards my bills.  Whats left in my primary account is free and clear discretionary money that I use for food, bar tabs, hobbies, and filling my gas tank.  In addition to having automatic payday deposits into my 401K, this makes for an effective, hands-off budgeting approach.

Good luck, you are at a very exciting stage, enjoy it!

Mike

Hi Kristy,

Might I suggest factoring the new CT Rail commuter line into your search.  It opened this summer, and might influence your decision on where in central CT to invest.  Call it speculation, but I know I'm excited for the station in West Hartford to open down the road from my duplex!

good luck!

Mike