Build or keep looking?

3 Replies

I've got a single family home that sits on a large lot. Its big enough that I could build a duplicate of the house next to the original. I would love to use the land and build a duplex since I already own it. How could I finance this? Would I get a construction loan and then later refinance with a mortgage? Advice needed. Thanks!

You need to talk to several local and regional banks as well as mortgage lenders to discuss options as they all have different appetites at different times and offer different rates and terms.

Some banks will offer construction to perm others only the construction part. Mortgage lenders offer many different programs for new construction.

@Rogelio Lopez , first thing you have to do is talk to the town and see if you can divide the lot. How large a structure could you build? There are set-backs, FAR restrictions, etc. to consider. Are you zoned for a duplex? How would your neighbors feel about this? They'll have their say at the P&Z meeting when this comes up. Get their buy-in ahead of time.

Next, run the numbers. What would the construction costs be? Ground-up construction of small MFRs rarely pencil out due to construction costs. Since you already own the land, maybe it works out. Only the math can say for sure.

Two other points to consider: 

  1. When you sub-divide your land, your current house is on a smaller lot and will likely be worth less money, especially when situated next to a MFR, which most SFH buyers won't like.
  2. Would this be your best use of capital? How much are you going to have to spend out of pocket? What kind of rents / cash flow will you achieve? Could you do better by just purchasing an existing property?

How large is your lot? How much is it for an empty lot? I would venture to guess the amount of depreciation your current SFH will get when the lot is cut in half and it becomes a duplex is more than the cost of buying a new lot. Additionally since this is not a "new" duplex the cost savings associated with contractors only needing to be on one job-site is nullified.