BTS Duplex Deal Analysis

[James Brown]

Hello all, I'm a rookie to the GUC game and am carefully looking for land that makes pencils out a good deal with contracting expenses currently high in St. Louis market. i want to start of building to sell to grow capital for a bigger future townhome project. There are two adjoining lots. I want to buy both at same time to eventually build another second duplex on the other. Once first project is complete, will use refi profits to start the second duplex. I was hoping anyone could give advice with underwriting since I will be looking for funding after I buy the plans. Should I just buy one lot at a time to keep costs down?

Rundown:

15k/lot=30k

Construction cost roughly=300k (72% ARV)

ARV=425k 

HML interest 12.99%

6 months to complete

30k down (land equity)

[Frank Pyle]

I would not buy both lots up front on your first GUC deal because that ties up capital before the first duplex proves out, and right now your margin already looks pretty thin for a build to sell. Using your numbers, you are roughly all in around 340k before sale costs, so at a 425k ARV and even a normal resale cost load, there is not a huge cushion if construction drifts or the exit comes in light. The cleaner move is control the second lot if you can, or buy one lot, get the first duplex funded and built, then let the first appraisal and sale decide the next step. I would also underwrite this at a lower sale price than 425k and a higher build budget than 300k just to see if it still works, because that stress test is what lenders and your own reserves will care about. What are you using for builder contingency, carry reserves, and actual duplex comps in that submarket?

If you want, send the projected square footage, rent comps, and the sales comps you used for that 425k ARV and I can do a quick reality check. If funding is the next hurdle, IEC can help pressure test the underwriting and lender readiness before you go too far on plans.