New construction/6 units/hiring a GC insights?

Question

One of my bankers referred me to a GC she has built spec homes with successfully. We’ve been talking about replicating that model. He finds land, gets it zoned, handles site prep and construction. He approached me about a lot that is off market and in a zone good for multifamily. I reached out to a friend to invest with me. Is this a good deal? What else do I need to know going into contract?

$365k land purchase price.

$140-145/ft. Construction including site grading, tree removal, current house removal, fencing around perimeter, 6 build with 2/2.5 1250 sq. Ft. Located in East Nashville, TN and 5 minutes from downtown Nashville. Street has several new construction multifamily units. Anticipated conservative sales price $300k each.

My friend and I will buy the land. We will set up a construction loan at 85%LTV or 100% construction cost, whichever is lower. Banker will let us do 20% down which land purchase will cover.

Contractor says we can structure the loan to include interest payments and marketing money - creatively. Assuming 7% sales commission worst case.  12-14 month project.

Would you do it?

Is this a good deal?

All responses appreciated as we have to pay for the land by Friday if we proceed.

Jennifer

Alex Olson · Answer

@Jennifer Stradtman 3-5 years if it goes pretty smoothly. I would recommend finding a gp and you be the lp so you can learn how they do it. Taking the risk and not having done it before puts you in a bad spot if the economy turns. Hope this helps!

Greg Dickerson · Answer

There is a lot to consider before going into a deal like this. One thing is you want to target a minimum of 20% profit margin on a new build. Best if you have 25% going in so you have a little room for error.

Devan Mcclish · Answer

Sounds like a lot of work for very little money. Without holding costs, engineering, surveying, etc. I am calculating about a 35k margin per home. If you build it for more or sell it for less, you spent a year and a half of your life improving a neighborhood. I would really try to hit 50k margin per door or more

Jennifer Stradtman · Answer

Thank you @Greg Dickerson. That is what I needed to know.  Makes sense.

Just out of curiosity - what is a standard timeframe for something like this start -finish ? Is there a standard?

Jennifer Stradtman · Answer

Thank you @devan Mcclish.  We got a firm quote for land clearing grading today and it’s coming in around 30k. Is $140-145/ft. Including site prep, GC fees, and construction costs in a normal range?

The seller is giving us his architectural/civil eng. plans and the history of his zoning approvals which have since expired. We’ll have to resubmit for variances one setbacks.  But, the plans will need to be stamped.  I don’t know what stamping plans costs.

I don’t know how real any upside on a sale price would be - maybe $310-325k?  I have an 1115 sq ft unit that just appraised for $289k nearby which would support this price range.  But, do you think the market will continue to rise over the next year in your experience?  I ask because some agents tell me it’s slowing down.

I like your number of $50k per unit.  I want to figure out how to get it there if it’s realistic in this project.

Thanks for your feedback.

New construction/6 units/hiring a GC insights?

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