By 2016 we still hadn't fully grasped the power of real estate but we were definitely starting to see the benefits as we were living life in a brand new home where payments were only costing us about 1/3 thanks to the income from our basement unit. We could of stopped there and lived happily every after but the fact is that we both didn't make big money from our full time jobs, plus we both always dreamed of having a business together.
After about a year of toying with the idea of doing something more, we found a small piece of land for sale for 30,000$. This was about half the price of an average vacant lot in the area at that time. It was a problem lot on an older street that needed some outside the box thinking and it had been on the market for about a year or so. It took Rob a couple weeks to convince me since it seemed like such a huge risk to me at the time. (It's funny to look back and think how crazy I thought he was being. If that deal came to me today, I wouldn't even hesitate!)
To help convince me, I remember I asked Rob to give me a rundown of the potential numbers. While he worked on that, I called my Go-To person (outside my marriage) who is my mom and asked for her advice. All my mom said was that she wished she had done that when she was my age. Then after seeing Rob's math and the potential income this property could generate, it just felt like it would be stupid not too. Opportunity was knocking, we had no kids and we had the time and energy, so I figured it’s now or never!
Thankfully with my full time job as a custom home designer, I was able to quickly prepare a preliminary design of a duplex that could fit on this bizarre small lot while we moved to make a conditional offer. When our offer was accepted, we met with the municipality to make sure we could build our design and we also met with the bank. Meeting with the bank was an eye opening because that's when we realized that it was a different game to build secondary residences (AKA: a residence that you don't plan on living in). It basically came down to the fact that the bank would not approve us to build a duplex.
Why? Because instead of being able to replace the down payment with our labor like we did for our our own house, we had to have the 20% down available in some form (line of credit, actual cash or loan). Now at this point we almost gave up, but instead we figured: why don't we just build it as a Single family home instead? That way the value isn’t as high and we wouldn’t need as much for the down payment (while still making sure we could design it to easily convert to a duplex in the future). The bank accepted this solution. We had enough from our HELOC to show for a down payment to get approved, and on top of that the city had already given us the green light so we were able to lift conditions. Yay!
This project was a huge learning curve for us in the construction side of things because we knew we had to do it alone. Asking for help from family and friends can already be tricky, it's not too bad if it's a favor for personal gain but when it's for your own monetary gains, it's a no-no. When it's business, you have to do it on your own UNLESS, and only unless you are able to compensate them for their time. DON'T ASK FOR FREE FAVORS! This only creates resentment and family feuds.
The bottom line for us at the time was that we couldn't afford to compensate for any extra help because this was essentially our first investment build and we didn't know how everything was going to turn out with the budget, so we just gave it our all and plowed through. We built this home while we both worked full time jobs, we were tired and we had zero social life, but we knew it would be worth it in the long run. It was tough but we're very happy we did it because it built our confidence to learn from mistakes, mitigate risk, problem solve better and build for a very conservative price.
When we finished, we rented the entire home for 1,600$ + utilities for 2 years. During that 2 years we built another single family home, a side by side duplex and we were starting the build of a top and bottom duplex as well. Inflation had also kept climbing up like crazy so before our tenant's lease ended, we sent notice that we had to increase rent upon renewal of the lease, which lead them to giving us notice that they would be leaving. This was our chance to do the conversion! Thankfully Rob had been able to quit his full time job just a couple months back to focus on the business so the timing was perfect.
We advertised the rental as a top unit only and we told every potential tenant that the basement would be converted into a separate unit and that there would be construction noise for a few months. That way everyone is aware of everything from the start and there are no surprises. We quickly found a tenant for 1,300$+utilities. When the existing family moved, it only took Rob a day or 2 to close off the doorway that accessed the basement from the main floor to have it ready for the new tenant. Now that the building was monetized, before jumping in the basement unit right away we had to shift our focus back to the build we were doing at that time in order to get that one monetized as well. Once that build was done we came back to this building and built the basement unit then.
When we finished and had both units rented, we refinanced the property to get its new value as a duplex. Seeing as we had built this property so conservatively 2 years before and had paid such a low price on the land, we could allow ourselves to pull out 75,000$ from the refi and still cashflow nicely every month. As of today, the top unit rents for 1,400$+utilities and the basement for 1,150$+utilities.