Hey all. I have been trying to come up with a way to turn my duplex into a quadplex. Here is a brief overview of the situation. I would appreciate any advise, ideas, or experiences you might have.
My wife and I bought a duplex in Roosevelt, UT just over two years ago as a house hack. It has done well for us, but we have since moved north to Bear Lake where I am from. It is difficult to find housing in Bear Lake as most of the available properties are being used as either vacation homes or short term rentals. We are hoping to be able to turn the equity be have built/appreciated into a place for us to live as well as provide some long term housing for locals.
I bought the duplex I own just over two years ago for $210k. It was fairly beat up and I have put over $20k of cash into it as well as several weeks of labor. There is not a lot of comps of recent sales of multifamily properties in the area, but my realtor says that she has notifications on for anytime a multifamily gets put on the market because there are lots of interested buyers, just not a lot of them being sold. I currently owe $197k (I used and FHA owner occupied for a small down payment), and I think that I could sell it for at least $275k. After paying off the credit card debt I have from remodeling, realtors fees, and closing costs from the sale, I would have about $50k.
My grandparents recently received $300k and a half acre lot in return for their investment in my dad's business. They don't want to put their money in the bank, and don't know what to do with the lot. I am working on a deal where I put my $50k in with their $300k and the lot to build a quadplex. My dad was trying to build one himself a year ago and the builder estimated the build cost to be $1,000,000. The bank estimated the ARV after completion to be $1,200,000. In the deal I am working on I would act as the general as well as provide some of the labor that I am competent in such as dirt work, landscaping, cabinets and trim. I believe that between managing the project and providing this labor I can save $150-200k on the build cost. (Builders here are charging 15% for their contractors fee.)
That means that the investment would be:
$300k cash and $150k lot value from my grandparents for a total of $450k
$50k cash, project management, and some construction labor from myself.
To get it built we would need $800-850k. The down payment would be $350k so we would need a $450-500k loan to build it.
I would like to buy my grandparents out and repay them with a return for their investment once the construction is complete. The only issue is that I don't think I can qualify for the loan I would need to do that. I would need to pay the construction loan of $450-500k as well as $500k to pay my grandparents back with a good return. Since this likely isn't possible, I am considering proposing that we leave all the cash in the deal and rent it out for 2-3 years. If I am still unable to buy them out at that point then we can list the property for sale.
Here is the link for the RENT NUMBERS with all of our cash still in the property and my family living in one unit. $2,000 a unit is on the low end of what we expect to be able to rent the units for and the other numbers are conservative as well. We would plan to contribute at least $1,000 monthly in addition to the cashflow you see in the report. That means we could pay my grandparents $2-3k monthly as a return on their investment. That is a 5-8% return yearly. If we sold the property after two years and it appreciated 3% both years Then I would pay them $500k in addition the to $50-70k that they got in monthly payments which works out to be at least a 22% return in 2 years.
I am talking to some lenders, accountants, and realtors and they seem to think this deal is possible. I would appreciate any thoughts you have.
Thank you!
