new construction-- how to proceed in the initial stages?

12 Replies

I've found a single family home in a market in Chicago that is definitely on the ups.  The house is a total dump, but the area is perfect (I've researched this area extensively and have been searching for a while) and the property itself is zoned for 4 units. 

There is strong potential for this property, but I need to figure out if it would be profitable for me to pursue.  How can I figure out what it would cost to build a 4 unit building on this land?   Also, who must I meet with in order to ensure that what I want to build is up to code/ legal?  Is there one person I might meet with, that would be able to act as consultant in this process?  If so, how is this person paid/ what is reasonable for them to charge?

Any help the forum might provide would be greatly appreciated-- thank you!

Melissa

HI Melissa,

To get some correct numbers for your build, you would need to "permit ready" blueprints. These would be stamped by a structural engineer. An architecture firm can draw these up o you can use a highly skilled draftsman and save yourself some money. Once you have these, you can hire a General Contractor and he can acquire bids from sub-contractors and put together working numbers for you, then you can see if it is profitable. Some RE investors will be their own GC and hire out sub's on their own and manage the job themselves, saving money. As far as what to charge, their is mark-up and profit to be considered, so this would depend on the contractors price points. Once you have all these numbers and can figure what you can rent it for, you will have a good idea of your cost to build and see if you will generate cash flow.  In this up and coming neighborhood, are their any 4 units in dis-repair? One option is to buy one that is already up and that needs some remodeling. You potentially would spend far less cash and generate cash flow faster.

Dan Voykin - General Contractor

www.sonorandeserthomes.com

Hey Melissa,

First, congrats on finding a location that you like and working out some of the preliminary details! First let me start by saying there are multiple ways to put together a design and construction team, it really all depends on the level of your knowledge and the level of involvement you're looking for. Some people start by finding a contractor, others an architect, and some prefer to piece-meal and run the process on their own, it's really all a comfort thing on your end. You're clearly at an early stage to this process where it may be best to talk with an architect, they'll be able to consult with you about feasibility, code restrictions, permits, space planning, construction methods etc. An architect's job is to help his/her client through the construction and design process so most any firm should be able to help you with this. As far as payment, often at your stage of a project an hourly amount with a "not to exceed" amount is the most desirable for both the architect and owner. This can range from $50 an hour to $300 an hour depending on the level of experience and reputation of the firm. I don't want to frighten you, but construction is an expensive and somewhat lengthy endeavor, if you don't have much capital and are looking for something to cash-flow quickly this may not be the best way to do it. 

@Melissa B. The way you find out if you can build 4 units on the property that currently has a SFR is to go to your local Planning Department and talk to them. You may also be able to go online and look at the zoning for the parcel. Zoning is what determines what can and cannot be built on a parcel.

If the zoning is correct for your intended use, you will need someone that is familiar with the codes (set backs, easements, lot coverage, height limitations, etc.) to design a project taking into consideration all of those things. You can use an architect or draftsperson (as long as they have a proven track record in the area) or a G.C. to spearhead the process for you. 

In addition to all of that, you want to check market values so that you know once built, what the units will be worth. You don't want to over build for the area. 

Here's a blog I wrote some time ago on development, this may help. Development Basics

Real Estate Development 101 (this was a 4 part series I wrote) 

first things first...

Buy a 500 piece bottle of ibuprofen.

thank you so much for the clarification and helpful information, all!  so wonderful to receive this feedback, greatly appreciated!

@Account Closed  -- haha :)  

much obliged all!

@Melissa B.   usually a builder or architect can direct you to a RE consultant. I found my consultant through my architect. 125-150 per hour seems to be a reasonable rate for consulting. RE attorney's are most likely going to charge 200-350 per hour. Make sure to check the deed restrictions with a title company, even though the area is zoned for MF dwellings

@Melissa B. Every architect is going to give you a different price. Some will charge based on square footage, some based on the cost of construction, and some based on the number of hours it will take to complete the drawings. It will certainly take more than 15 hours to complete a permit set :). In addition, each firm will provide a different fee based on what they understand the scope of work to be. When you interview them, ask for a cost breakdown so that you can easily compare the different fees. Many people don't keep the architect involved on smaller projects during construction. I don't recommend this. The architect can be a great set of eyes to make sure you are getting what you expect from the contractor.
Start with www.aia.org. You can find firms in your area and they have a few articles which go through helping you understand the design process and what questions to ask when hiring the architect. Most important when making your decision, as with most everything, is communication. Choose one you feel listens, otherwise it's going to be a frustrating process. And as you do with contractors, interview and ask for proposals from at least three!
Regarding hiring a drafter. Your state may not allow this based on the size of the project and the occupancy. It's a great question to ask the building department. While there are ALWAYS exceptions to the rule, I've seen a number of projects that cost the developer more than it should have because the drafter did not understand the code and so the project either couldn't get a permit or construction was halted due to code violations. In addition, please know that the building department isn't held liable for any code violations discovered during construction even though they review the documents and issue the permits. So you want to make sure you hire someone that knows what they're doing!
Good luck!

All of the above suggestions are good, including the Ibuprofen!

I was a building inspector for a year and this came up all the time. People would call or stop in and ask if they could build this or that here or there. The city of Chicago directs you here for Zoning and Land Use, and the Building Code.

What I can tell you is this:

1. Carefully review the zoning requirements to confirm that you can build what you want. According to title 17, it looks like you are wanting to be in one of the following districts: 

  1. RT, Residential Two-Flat, Townhouse and Multi-Unit Districts.
  2. RM, Residential Multi-Unit Districts.

These are further classified by lot area, and floor area ratio (floor area of the building divided by the total gross area of the zoning lot upon which the building is located). There are set back requirements and other things to consider. Read the whole ordinance.

2. Hire an architect or consultant to perform a code review to determine the specific requirements for your intended use group classification, which is Class A-2. This is where the rubber meets the road. There are specific requirements dealing with fire protection, fire resistant construction (fire walls, etc), egress, and other things. You need to determine what you are going to be required to build to assess costs.

3. If you are going to proceed after doing the above, either find a design and have it modified for your requirements, or hire an architect to design your building. Either way you probably will need an architect to get permits. Check with the building department to see if they require an architect to pull the permit and oversee construction or if a general contractor can do it. The GC will build it.

Good luck! I hope you can do it.

what neighborhood in Chicago?  

I don't see too many tear downs and rebuild of Multi Units in the city.  

@Melissa B.  , your answer to how much it costs to build is anywhere between $100-$300 per sq, depending on type of finishes, type of exterior & neighborhood, yes, you read well, I said neighborhood. If you hire a builder to build in Lincoln Park and you hire the same guy to build a lot farther West, North or South, the price to build the exact same home with the exact same finishes will be different. The richer the neighborhood the higher the price per sq. 

Add to that the cost of the demo of your existing property and if the properties next door are sitting on the lot lines, you'll need shoring, which is an additional, minimum 10K each.

You'll have to look into how many sq you can build per unit, and then determine the value of those particular units.

After you know what you can sell them for, deduct the construction cost, lot cost, financing cost &  holding cost and now you'll know if you want to go ahead with the project.

A good architect will be able to inform you right away how much you can build, with only the address of the property, the zoning and preferable a survey. Most architects won't even charge you to give you this info you if you know they will be hired to do the project.

Let me know if you have any other questions

@Lumi Ispas   thank you SO incredibly much Lumi!  thank you @Robert Valenti  , @Caroline Hedin  , @Jason Carter  !  You've all given me so much to consider and research. 

I just found out that there is already a contract on the house/ land I was looking at purchasing (must have happened in the past two days, as the house was just listed less than a week ago!); so it looks like this one is likely a no-go.  I'm still very grateful for all of the insight, so that I might be better prepared the next time something like this comes along!!

@Melissa B.  ,you are welcome, and no worries, there will be a lot more houses. :) You'll learn that you'll have to evaluate, run numbers and write a number of houses before you can get a good project for you.

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