I Need Help Solving This Big Problem W/Duplex

22 Replies

I'll keep a long story short..

So, about a year ago, I came to BP, asking if it were possible to buy a multi-family deal, with the 20'something thousand dollars that I had in the bank. A few people said it wasn't possible, but somehow I managed to make it happen. Sept. 18th, 2018, I closed on my first duplex, 2 homes on 1 lot, in the neighborhood Oak park, in Sacramento, California.

Address: 3501 16th avenue, Sacramento, CA. 95820. 

I was able to put down 4%, with an FHA owner occupied loan, and negotiated to get my closing costs covered( Such a stressful first deal). The total amount of money I have in the deal is around 20k, and I project a 30%+ ROI, once I am able to rent out the home I am currenlt doing a "live-in rehab" on. I purchased both properties for $296k at 4% down(about 15k at the time), leaving me about 6-8k to paint both units, and do some minor repairs, to get the first home rent ready.

Doing a little research through the county, I found out that the 2nd house: 4009 35th street, Sacramento, Ca. 95820, is also it's own official address through the county, but the two homes were sold to me as a legal duplex. My mortgage on both homes, including PITI, is $1,811, which is currently being completely covered by the first house alone, where I rent the rooms out, at $650 a room. The first home is a 3 bed 1.5 bath, 1235 sqft, The 2nd home, 4009 35th street, is a 2 bed 1 bath, 900sqft, which I am currently living in, doing more rehab work on.

My lender just sent me a property evaluation, at a value of $337k, and I'm currently finding myself stuck, unable to pull capital out, to do more deals. I recently just called a few local credit unions, who told me I'd need to wait a few years, to build up at least 30% equity, while advising me to pay more towards principal, each month.

My question is, are there any possible alternative plays here? How can I somehow extract capital from this deal, so that I can go out and either add on another unit to my current live in rehab, or go shopping for my next deal, without waiting 2-3 years? I feel a bit stuck at the moment, and would love to hear your advice BP. 

Thank you for reading fellas! Your responses are greatly appreciated!


Rich

@Richard Swift so to summarize, you purchased at about 4% down. Now a year later you’ve built up about 15% equity. You’d like to pull out some of that equity?

That's tough. Most HELOCs will allow you to pull out 89% (Fannie May guidelines). A new conventional mortgage will be 15-20%. I'm not sure if you're able to refi under an FHA loan.

I would probably try to save as much money as possible and pay the minimum into the current mortgage. It might be worth seeing if you can get a HELOC, I'm not sure the minimums. You can also go to a bank and ask about a HELOC and let them know that you think your house is worth $355K. Let them decide it's worth less :)

That valuation sounds a little low to me for two homes in that location, if I'm understanding you right. A few BP podcasts talk about how to politely question an appraisal -- you might search the archives. Then again, if you're still rehabbing yours, the value might be pretty close. 


I thinkkk the idea of a live-in/ house hack like this is to cut your living expenses, which increases your ability to save $ from your job (plus the cash flow if there is any) and do it again.

Meanwhile you're building some equity and controlling an asset which is better than paying rent. You saved to 20k last time, how long would it take to do it again if you're living free now?

If you want to go out and start buying more investments now, maybe partner up with a $ guy/girl. 

Originally posted by @Mike McCarthy:

@Richard Swift so to summarize, you purchased at about 4% down. Now a year later you’ve built up about 15% equity. You’d like to pull out some of that equity?

That's tough. Most HELOCs will allow you to pull out 89% (Fannie May guidelines). A new conventional mortgage will be 15-20%. I'm not sure if you're able to refi under an FHA loan.

I would probably try to save as much money as possible and pay the minimum into the current mortgage. It might be worth seeing if you can get a HELOC, I'm not sure the minimums. You can also go to a bank and ask about a HELOC and let them know that you think your house is worth $355K. Let them decide it's worth less :)


 

Thanks for the reply, Mike. This is worth a shot!

Originally posted by @Carrie K.:

That valuation sounds a little low to me for two homes in that location, if I'm understanding you right. A few BP podcasts talk about how to politely question an appraisal -- you might search the archives. Then again, if you're still rehabbing yours, the value might be pretty close. 



 

This is exactly my issue, there aren't really any similar comps in my neighborhood to get a solid appraisal. I'll search the podcasts for the appraisal. Thanks, Carrie! :)

Originally posted by @John B.:

I thinkkk the idea of a live-in/ house hack like this is to cut your living expenses, which increases your ability to save $ from your job (plus the cash flow if there is any) and do it again.

Meanwhile you're building some equity and controlling an asset which is better than paying rent. You saved to 20k last time, how long would it take to do it again if you're living free now?

If you want to go out and start buying more investments now, maybe partner up with a $ guy/girl. 


 

Would you happen to know of any hard money lenders in the Sacramento area?

@Richard Swift sorry don't know any in Sacramento, I am about as far as possible from there in NY lol ... but I've heard good things about Lending Home. think they are nationwide or at least in CA as well. Maybe look them up 

@Richard Swift  

This sounds like the property we talked about a few weeks ago right?

Honestly, I think you did alright if you spent 6-8k on very minor improvements and got a 40k equity boost out of it. Appraisers are usually hard pressed to give someone a huge boost in value over their previous purchase price when they know the owner is trying to force equity- so you did well! It doesn't look like a lot of that equity is due to you buying the property at a huge discount either. 

I don't really see how you could pull money out of this property. Your current equity position isn't so thick, and I don't think this property should truly value higher than the appraisal. I think we had discussed trying to get these things parceled out separately so that you can treat them like two individual SFR's. That sounds like a zoning department issue, you might be able to reach out to them. I don't know much about zoning laws though, so this may be doable or completely impossible.

Looks like you're going to have to just go out and hustle up the extra capital the old fashioned way :)

You still have a good deal on your hands. My suggestion would be get the other unit fixed up ASAP, rent it out and save the cashflow. I would advise doing that before moving onto the next deal, anyway.

 After a year do the same thing, owner occupy a live-in fixer upper with low money down.

A HELOC (85 % LTV owner occupy) might get you close to your initial down payment back. But is it really worth it at a much higher rate?

Originally posted by @Elliott Elkhoury :

@Richard Swift 

This sounds like the property we talked about a few weeks ago right?

Honestly, I think you did alright if you spent 6-8k on very minor improvements and got a 40k equity boost out of it. Appraisers are usually hard pressed to give someone a huge boost in value over their previous purchase price when they know the owner is trying to force equity- so you did well! It doesn't look like a lot of that equity is due to you buying the property at a huge discount either. 

I don't really see how you could pull money out of this property. Your current equity position isn't so thick, and I don't think this property should truly value higher than the appraisal. I think we had discussed trying to get these things parceled out separately so that you can treat them like two individual SFR's. That sounds like a zoning department issue, you might be able to reach out to them. I don't know much about zoning laws though, so this may be doable or completely impossible.

Looks like you're going to have to just go out and hustle up the extra capital the old fashioned way :)

I appreciate your time, and response, Elliot. You're correct, we talked about this deal over the phone. Honestly, as a first deal, in my opinion, this deal performs like a home run, but it's frustrating that my equity is tied up.  I'm actually contacting the county, today, to see if I have that "lot split" play, or not. If I can't split the lots, you're absolutely right, I'll have to get out there and get creative, hustle, and claw my way to build more capital. That won't be a problem though, There's no quit in me. Stay hard brother, keep killing it! 

 

Originally posted by @Brian Ellis :

You still have a good deal on your hands. My suggestion would be get the other unit fixed up ASAP, rent it out and save the cashflow. I would advise doing that before moving onto the next deal, anyway.

 After a year do the same thing, owner occupy a live-in fixer upper with low money down.

A HELOC (85 % LTV owner occupy) might get you close to your initial down payment back. But is it really worth it at a much higher rate?

This is what I am actively doing, now. I have about 60 more days of rehab to do, before the unit I'm currently occupying, is rent ready. I even thought about finding a hard money lender, and having my contractor add a 2nd addition to the house I'm currently living in, taking my 34% roi, much higher. Thanks for the response Brian.

 

@Richard Swift Richard, reading this, I couldn't help but think: wait, what?!!! California? I thought there were NO DEALS in CA! 

So, you were able to go against some naysayers and managed to get a decent deal. Good on you! 👏👏👏

That said, it is not too bad to wait it out a little bit so that you don't over-rush things and go buy something else that might be a dud. 

Take your time to reflect and more importantly stabilize this asset and season the debt before going after another deal. 

It is ok to have balance and strategic thinking in business. 

Great job on this deal and good luck...

Originally posted by @Ola Dantis:

@Richard Swift Richard, reading this, I couldn't help but think: wait, what?!!! California? I thought there were NO DEALS in CA! 

So, you were able to go against some naysayers and managed to get a decent deal. Good on you! 👏👏👏

That said, it is not too bad to wait it out a little bit so that you don't over-rush things and go buy something else that might be a dud. 

Take your time to reflect and more importantly stabilize this asset and season the debt before going after another deal. 

It is ok to have balance and strategic thinking in business. 

Great job on this deal and good luck...


 

There are deals out here, now, in Ca, why I'm impatient. I appreciate your advice, Ola. Take care

@Richard Swift it sounds like your trying to over leverage. You already did a home run deal there is no reason to try and leverage it to the guilt when the market is as sketchy as it is right now. Keep that equity as a buffer incase the market drops and let pay down do its job. Save all you can and look forward to the next deal, starting out is the slower days remember everyone says it's like a snowball that starts off slow and then starts growing much faster later down the hill. Later down the road you might find a good use for that extra equity that makes sense to pull it out.. deal number 2 probably isn't the best time to try that

Sorry that you feel like you have too much equity tied up here but in reality you don’t have much equity tied up at all. The only way to do what you are talking about is to buy brrrr properties. I would just keep saving until you have another $20k and do it again. If you want to move quicker you will have to do brrr deals in the future.

Hmm 2 legal addresses

how big is the lot. If its 2 structures can you split the lot. Some cities have something called a small lot subdivision. 

can you refi with fha they go higher if its been a year.

unison.com has an equity sharing program. They buy out some of your equity and share the upside.

Originally posted by @Zack Howard :

@Richard Swift it sounds like your trying to over leverage. You already did a home run deal there is no reason to try and leverage it to the guilt when the market is as sketchy as it is right now. Keep that equity as a buffer incase the market drops and let pay down do its job. Save all you can and look forward to the next deal, starting out is the slower days remember everyone says it's like a snowball that starts off slow and then starts growing much faster later down the hill. Later down the road you might find a good use for that extra equity that makes sense to pull it out.. deal number 2 probably isn't the best time to try that

I agree, needed this shift of perspective. Thanks a lot, Zack. 

 

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