Rental Property Investor · Greenwich, CT · Member since 2015 · 48 posts · 16 votes
I am thinking of selling my home and may be looking at $400K in equity when it is all said and done.
I am hoping to purchase a multi family - owner occupied with about 25% of proceeds - $100K for an estimated 20% downpayment. With the $300K leftover I would search for a piece of land to buy outright then look to get a construction loan to build a new home.
Does anyone see any trouble with this scenario? Is there anything I am not thinking of? I would live in the multi for a full year at least so think I should be fine getting one with a relatively lower down payment and then if I own the land hoping that the construction loan won't be too difficult to obtain. I am in fairfield county connecticut.
Would appreciate any insight you all can share, I don't want to get down the line and figure out there is a problem.
Rental Property Investor · Norwalk, CT · Member since 2013 · 276 posts · 147 votes
10y
Would you be looking to build the house to live in or as a spec build investment? If owner occupied, you should be able to find financing pretty easily assuming your qualified and such. Although spec builds have been tough to finance.
Good luck!
Specialist · Lakewood, CO · Member since 2014 · 1k+ posts · 1k+ votes
10y
Construction loans are different beasts than mortgages, so make sure you understand how much money you'll need to have available for down payment, reserves, etc. You lender can give you all the stats on that.
Real Estate Agent · Clearwater, FL · Member since 2015 · 176 posts · 148 votes
10y
I'm going to ask you one simple question several times, absolutely no offense intended.
You are considering multi-family as an investment.
Why? What are your investing goals? What is your long-term plan?
You are also looking at building a new home.
Why? Is there no inventory of acceptable housing for you (that's fine if that's the case)? Is this a dream-home scenario? Is this speculation for capital appreciation?
You are looking to split 25% towards investment, 75% towards your new home.
Again, why? Why not 75% towards investment? Or all of it towards investment? How much leverage you want in each, and, of course, why?
The reason I ask this is to help all of us better understand your goals and thought process.
I have tons of suggestions (as I'm sure others do), but without your goals / desired outcomes, preferences, comfort level, and pain threshold, we're just taking shots in the dark.
With the sale of my sfh home my goal is to be able to purchase a multi family and a sfh. I currently own a 3 unit and want to add to my portfolio.
Buying the multi family home would allow me to house hack, low down payment but have to live in it for a year. Then I can leave and transition into my new home after land is located and purchased and the build is complete. Since I would not be renting there is added flexibility should timelines become difficult.
The idea of buying land to build a home is because we would have to live in the multi for a year anyway so we would not be in a rush, also I would anticipate almost instant equity...I dont know much about construction loans. Heard if you own the land and use it as collateral you can often put no additional funds into the project and turn it to a conventional loan once complete.
There is a good inventory of homes but a new home seems like a great option to live in and sell somewhat short term 2-5 years. Not a dream home scenario but seems like the least expensive way to get the quality home in the neighborhoods we like.
The 25/75 split is purely due to the price of land. I would put more towards the investment but need to acquire the land...that said I still need to fully understand construction loans. Do I need to buy land outright to obtain a construction loan?
In the end I see this move bringing me from 3 to 6 units, no time spent paying rent, and a brand new home - that I would hope to sell short term and do the same thing. My long term goal is to have 20+ units, the wife wants to continue living in SFH's otherwise I would buy more multi's!
Real Estate Agent · Clearwater, FL · Member since 2015 · 176 posts · 148 votes
10y
Okay, in that context your plan makes more sense.
Yes, there are still many unanswered questions, especially about the construction loan side. I'm sure someone on here can cover that, but I'd make a call to several lenders. You're looking for one that will take the time to understand your strategy and give you the best options. It might be an ARM at 5 years. Long enough to get in, do your thing, and get out.
A quick Google provided this. I have no affiliation, etc., just the first pertinent article.
Once you get a better idea what will be required, the next question is "What else can you do for leverage and / or cash flow?"
Well, if you're going to buy a lot & build, why not consider buying 2, or 6, or 12 lots? Then sell those.
BP Episode 39 would be an appropriate listen.
You're working the property ladder. Intentionally. Great!
I like that you're hitting multiple strategies. It's a solid plan. Just keep digging into different strategies to maximize your leverage and returns.
And when you feel like you have a good foundation in multi-family, look at a 25 unit apartment. Check out BP Ep 4 (I think that's the right one).