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Our $500,000 Duplex Build For Profit | Full Construction Cost Breakdown — Transcript

by Arthur Ryapolov · 2,920 words · 449 segments · language en · Watch on YouTube

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0:00Profit is 175. Downpayment is 85k. I'm
0:04at a total of 25% return on investment.
0:08In this video, I'm going to break down
0:10the three biggest advantages to building
0:12a duplex. I'm going to cover the
0:14numbers, the actual cost breakdown, and
0:17then the strategies once you build it to
0:20make sure it's the most profitable build
0:22for yourself, whether it's the
0:24investment game or the personal house
0:26game. The first thing is the numbers.
0:28When it comes down to the numbers,
0:30it's really important to understand
0:32there's three things that's not a B when
0:34it comes to the numbers. You've got
0:36land,
0:37you have build,
0:40and you have sale.
0:42In any project I do, today I'm going to
0:44break down my Fircrest duplex. I built
0:47four of them, total eight units. I ended
0:49up selling off three, kept one for
0:51myself, one for rental income and tax
0:54purposes. We'll get to that in step
0:56number three or uh section number three.
0:58But the first thing on this duplex for
1:00you to understand the pricing of
1:01everything. The first thing is going to
1:03be the land. For a duplex, I'm usually
1:05paying 100,000 per door. So 200k is the
1:09land price. For the build, I'm building
1:12at, and let's shift over here, 3,000
1:15square foot unit times 150 per square
1:19foot. To round it up, I built it for
1:20145, but to round this up, that equals a
1:23total of 450k.
1:27Okay? So 450 plus a builder fee, 10%,
1:3245,000, we'll call it 50,000.
1:35It's going to be a total of 500,000
1:38for the build.
1:39And so now you're into this 700k. So
1:42we're into it 700,000. What I'll do is
1:45uh and then I'll go to sale price,
1:48and this is worth approximately 950k.
1:52So right off the bat, I'm in it 700,
1:55it's worth 950. Of course, you have your
1:58holding costs, your agent fees, your
2:00title company fees, things like that. We
2:02can remove that, which is 5% plus the
2:04additional. We'll call it 75 grand. So,
2:07if we look at the actual numbers, 950
2:11minus 950k minus
2:14700
2:17minus the closing costs and everything
2:18else of 75,000
2:20you're going to be at 775.
2:23The total profit on this is 175. Now,
2:26you might say, "Well, I don't have 700
2:29and well, technically you don't need the
2:3075, that's at closing, but I don't have
2:32the 700 grand." Okay, well, on this
2:34number, what did I actually have to put
2:36down? This comes down to the numbers as
2:38well. So, I'm into it 700k.
2:41Hard money lenders through the Build Up
2:43Community get 10% down.
2:45That's the beauty of this game.
2:48Equals 70k. Then you have closing costs.
2:52Closing costs are typically 2% plus or
2:55minus 3% maybe. Call it so 13%. So, if
2:58we take two 3% so plus 15k. If you want
3:02to get into this game for your first or
3:03next project, this is what it looks like
3:05to personally work with me. We have a
3:07shared doc, we have a pro forma we're
3:08building out, we have plans we're
3:09building out, and we map out the
3:11strategy for every single client. If
3:13you're ready to get in the game, click
3:14that link below, book a call with our
3:15team, and let's jump back to the video.
3:18I'm into this deal 85k down and I turn
3:21175,000 of profit plus my down payment
3:27of 85k.
3:28So, really I'm getting back 175 plus my
3:3285, 260 is the wire into my bank
3:34account. What is this number? So, I'm
3:37continuing to break down the numbers.
3:38So, now I know, cost is 700
3:41profit is 175 down payment is 85k. On my
3:46down payment, if I look at the project,
3:48I mean I'm going to take my phone
3:49calculator here. If I take the 700,000,
3:52I go 175,000 divided by 700,000,
3:56I'm at a total of 25% return on
4:00investment. So, if not I did, if I did
4:05this for cash, 700k cash, I would return
4:0925% on my money. Well, I'm not doing it
4:12for cash. What did I put down as we
4:14covered? 85k. So, now I go, "Oh, I'm
4:18interested in the return on my actual
4:20down payment of 85,000.
4:24I'm at a 205%
4:262.05 * 100. So, I'm at a total of 205%
4:33on my cash, my down payment, the money
4:36that left my account, and the money got
4:38returned to my account plus the profit
4:41rose at 200% return.
4:44Real estate's a good game because it
4:46gets around 20% a project. That's
4:48already good. Real estate becomes a
4:50phenomenal, development becomes a
4:51phenomenal game when you start
4:53leveraging and you have this. So, cash
4:56on cash return, I usually try to hit at
4:58least 150% on my down payment. Here on
5:01this project, it's great. I'd go at
5:02least 20 to 25% return on the
5:05investment. I did that. Down payment
5:07return, phenomenal, great project. I
5:09love it. So, that's the breakdown when
5:10it comes to the number side of it. Now,
5:13when it comes down to the second
5:15strategy which I love, this is where a
5:18lot of people don't understand the
5:21advantages of duplexes
5:23and why it's so beautiful.
5:26Before I get to that, what's another
5:28really cool thing about duplexes and why
5:30maybe it's better than a single-family
5:31home in some cases is not every seller
5:35knows you can build a duplex. Well, of
5:37course, right now we have a crisis in
5:39the United States with affordable
5:41housing.
5:42Most states, not cities, not counties,
5:44most states, state of Oregon, state of
5:46Washington, state of California are
5:48passing laws uh I think there are many
5:49places East Coast and everywhere else
5:51are passing laws and code that allows
5:54you to build a duplex on a single-family
5:56lot. Why? Because they want you to build
5:59something more efficient. Instead of you
6:00building a 3,000 square foot house
6:02that's going to sell for a million,
6:03you're going to build 1,500 square foot
6:05units and now have two people live
6:06instead of one.
6:08Property owners don't understand that.
6:10And a lot of times that 3,000 square
6:12foot house might sell for 7 to 800, but
6:15a duplex sells for a million.
6:17The cost of it is roughly the same. And
6:19so your advantage is if you can find
6:21properties where people are interested
6:24in selling and you can meet their asking
6:26price, but then you can increase the
6:28density, that's to your advantage.
6:29That's infinite ROI. You're now making
6:31profit on something that was technically
6:34never there.
6:35Uh and so that's a great advantage. A
6:37lot of property owners know you can do
6:38duplexes, but you can still negotiate a
6:40good 25% return. Sometimes if you
6:42understand the game, you can get to 30,
6:4340, 50% returns. Again, that comes down
6:46to the art of the negotiation in the
6:48land. Not the build, not the sale, but
6:50in the land. The money comes in the
6:52land. All right. Now that we have that,
6:54the second thing is rental income.
6:56Because if you look at a single-family
6:58home that's 3,000 square feet,
7:00that might equal $4,000 in rent.
7:04Right?
7:05Well, a duplex that's 1,500 square feet
7:08times two
7:10equals, let's say per unit, you're at
7:13around 20 25 to 2,700, which ends up
7:17being 5,500 a month.
7:20So your advantage, the cost is the same.
7:22It's It cost us 145 to build this. It
7:25cost us 150 to build a single family.
7:28Because in a duplex I'm not doing tile,
7:30I'm doing plastic tubs, plastic showers.
7:32It's an efficient build. And so now
7:34you're collecting, I don't know what
7:351,500 on 4,000 is, but that's a big
7:38jump. That's almost 50%. So So divided
7:40by 4,000, you're collecting 37% more
7:45rent. That's a big number when it comes
7:47to a duplex. So you're collecting 37%
7:50more rent. There's a lot of value in
7:52that. Your investment now becomes a
7:54great cash flowing product.
7:56Here's the other advantage when it comes
7:58to rental income. Well, you say, "Well,
8:00I wanted to build a single family home
8:02that was 1,500 sq ft or 1,800 sq ft." If
8:05you're going to build a single family
8:06home that's even 2,000 sq ft and you
8:08wanted to live in it, build a duplex
8:10that's 2,000 sq ft per unit. Why?
8:13Because you can take the income from
8:16this duplex, 75% of the income
8:19from this duplex will be counted towards
8:22your total loan approval.
8:24In very simple terms, if you're approved
8:27to build a 2,000 sq ft house, you're
8:29approved to build a duplex. That's the
8:31concept. Okay? But here's where the game
8:33becomes really fun.
8:35Let's say it is 2,500 bucks a month,
8:37right?
8:39Yeah, 2,500 bucks a month. The bank
8:41says, "Well, we can count this 75%
8:44towards your income." So 2,500 * 0.75,
8:47they'll count 1,800 towards your your
8:49active income, which allows you to end
8:52up building this based on the
8:53pre-approval. So if you're approved for
8:54400 grand to build the duplex, you'd be
8:56approved for 600 grand. Example. But
8:58here's the thing that most people
9:00forget. Your payment on this is $4,000 a
9:04month all in,
9:05right?
9:07Okay, well, let's do super basic math.
9:09You're collecting 2,500 from your
9:11tenant,
9:13from your renter,
9:15right?
9:17What are you paying for your unit that
9:19was supposed to be two grand a month?
9:20What are you actually paying now?
9:22Your tenant is not covering half the
9:25mortgage. Your tenant is covering more
9:27than half your mortgage, which means
9:29you're actually paying less every single
9:31month. If you want to pay two grand a
9:33month, take the 500 extra that you were
9:35thinking of paying, put it towards the
9:36principal or the interest and uh I'm
9:39sorry, principal, and now you're paying
9:41down your duplex 5 to 7 years faster.
9:43This right here is a massive advantage.
9:46That's another advantage.
9:47Here's the other advantage.
9:49Because you have the equity, it cost you
9:51700,000.
9:53It's worth 950. Right?
9:56You have a gap of 250k of gross equity.
10:00Why do I say gross? Because this is
10:02equity that sits here, but if you were
10:03to sell it, you have to pay agent fees
10:04and everything else. So, you'll end up
10:06netting a smaller number. Well, don't
10:08you think a payment a mortgage on a 950
10:11loan is much higher than a mortgage on a
10:13700k loan? So, now your mortgage is
10:15actually even less. So, you'll be
10:17collecting even more rent, paying even
10:20less money.
10:21It's why I love this game.
10:23Okay? Somebody might ask, "Well, what
10:25about the down payment?"
10:27The down payment is still 5% on this
10:30entire project. 5% is already a small
10:32number. So, if you're at 700,000,
10:365% is 35k.
10:39You might have some more closing costs
10:40here, call it 15k.
10:42You're coming into a duplex with 50k
10:44down
10:46while your tenants are paying down
10:5070% of your mortgage, and you're living
10:52with the other 30 to 40%.
10:55And what happens, that's why I love this
10:57game. When you have one unit that
11:00appreciates, call it one,
11:04just one appreciates 4% 5% a year, 3 to
11:085% per year.
11:10You're getting only appreciation on one.
11:12But, what happens when you get
11:12appreciation on two? You're building
11:15double the equity
11:18in that same time as somebody who uses
11:20one house, you're getting double.
11:22And your tenant's paying down more of
11:24your loan, so you're getting double
11:26equity and a faster pay down rate
11:28compared to an average home.
11:30There's a lot of different strategies. I
11:32tell my students sometimes you don't
11:33always have to do a duplex. Sometimes
11:35you can build a house with the ADU. So,
11:37the house is bigger, the ADU is slightly
11:39smaller, but you're still playing this
11:40house hack game.
11:42Okay.
11:43So, personal house game and the other
11:45advantage of the personal house game, if
11:46you don't already know this, I say it
11:48all the time, but you can make up to
11:50250,000 of tax-free profit on your
11:52personal primary residence and you can
11:54make up to half a million or 500,000 if
11:57you file taxes with your spouse. So,
11:59when you're living in this home, if
12:01you're taking advantage of that game,
12:02which this is going to bring me to step
12:04number three or uh uh
12:06the third thing I want to cover is if
12:07it's your personal house, you've got so
12:09much tax advantage when living here.
12:12Plus, you got all these other advantages
12:14I just shared. Now, if you're not
12:17And I'm going to now talk to a specific
12:20group of people, real estate
12:21professionals.
12:23R
12:24E P, real estate professional is what
12:27they're called. You could be a
12:28contractor, you could be a fix and
12:29flipper, you could be a real estate
12:30agent, you could be a wholesaler. Before
12:32I get into this, cliffhanger,
12:34I want to take a
12:35sip of my coffee.
12:39All right, that was a great commercial
12:40break.
12:41Cool. So,
12:42real estate professional per tax code,
12:44somebody that's in real estate doing
12:45their thing.
12:47They have this thing called cost
12:49segregation. So, you may not live in the
12:52unit. I call it cost seg.
12:55You may not live in the unit, but the
12:57very simple explanation for this is if
13:00somebody runs a trucking company, they
13:02can write off their trucks
13:04because they're using it for business
13:05purposes.
13:07If somebody is in real estate, they can
13:09write off their real estate. That's like
13:11the
13:11very basic term. Obviously, it's not
13:13accurate when it comes to this.
13:15What you're actually doing on a cost
13:16segregation study is you're saying the
13:18real estate is losing more of its value,
13:20things are depreciating like plumbing,
13:21etc. at a faster rate.
13:24And so, what you're allowed to do is you
13:26can segregate 25% of the building, not
13:30the land, of the building,
13:32and then use that to reduce your taxable
13:34income. So, what does that look like?
13:36We'll call it 500,000
13:38is the building value, and a lot of
13:41times it's you're going to get a study
13:42done. They might end up saying 600,000
13:44cuz the study is going to do its thing.
13:47You take this and you take 25% of this
13:49number,
13:50and you're roughly at 125,000
13:53of
13:55write-offs
13:56or depreciation. You have to recapture
13:59if you keep if you sell it, I don't I
14:01would keep this. I recommend if you're
14:02going to cost seg, just keep it forever.
14:04It's your baby, and then you can do a
14:061031 exchange and exchange it into the
14:08next real estate property as you're
14:10going to continue to grow your
14:11portfolio. But, let's say here is your
14:14cost segregation study. You sold half.
14:17Let's say you sold one unit, you kept
14:19one unit as a rental as a real estate
14:21professional. You were supposed to make
14:22175,000, but because you sold half or
14:261/2, you would technically now make
14:29roughly 80, let's see, 87k.
14:33Well,
14:34$87,000 of profit, $125,000 of
14:38depreciation, you're actually
14:41taking $0 of taxable income because your
14:45cost seg reduced that. The remaining
14:47balance should be able to roll over to
14:49the next year and you're
14:50Talk to your CPA about this. I am not a
14:52CPA. I'm not a professional when it
14:54comes to this. I understand the
14:55strategy. That's the main key is I'm
14:57understanding the strategy. I hired the
14:59professionals to implement that strategy
15:01for me.
15:03But, this right here is a game that I
15:04love playing with our Build Up
15:06community, with our Build Up students.
15:08We love this cost seg side. If you're
15:10full-time in the real estate game, you
15:12get to take advantage of this. This also
15:14gives you an excuse to get into the game
15:17and be full-time because there's so much
15:19advantage to where you can say, "Okay,
15:21the asset is depreciating. I understand.
15:24I'm going to build and sell some and
15:25keep some and I'm going to continue to
15:27grow my portfolio without having to
15:29write massive checks because my assets
15:31are depreciating." Obviously, if you
15:33sell, you've got to pay up. So, the in
15:35this case, there's the strategy that
15:37many real estate professionals like.
15:39It's you hold [music] forever. The goal
15:41is to hold forever. As the Let's say
15:43this duplex was worth 900, my loan was
15:46for 700, now it's worth 1.3 million and
15:49I have a loan of 700, right? So, my new
15:52equity is going to be 600k.
15:55I can tap into that through a HELOC.
15:57Let's say I can tap into 400,000 of it
15:59while my renters are continuing to pay
16:01down my principal and interest. I now
16:03have a line of credit to continue to do
16:05deal flow. So, that's This is like the
16:08more complicated of the three. One and
16:10two are simple.
16:12This is when you begin to get into the
16:14development game. You can see why I love
16:15this game. You will start to do deal
16:17after deal and as you're building your
16:19portfolio, there's so much benefits to
16:22being in this real estate game.
16:24If you're ready to get in this game and
16:26start breaking down duplex deals live
16:29with me and work through your first,
16:30second, or next project, as well as take
16:33advantage of the other strategies on
16:34number two and number three, click that
16:36link below, book a call with our team to
16:38map out a strategy on what's best for
16:40you. And as always, like, share,
16:42subscribe, and let's build up.

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