My New Construction Journal From Start To Finish

My New Construction Journal From Start To Finish

Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes

Hello fellow investors!  I began a post a few months ago in regards to a new construction project I will be starting soon and after all the great input I thought it would be nice to start a journal in order to help new investors who plan to start new construction projects for their first time.  Here's the down low in a nut shell.

I am building two SFH in Northern Liberties, this is a very sought out neighborhood in the city of Philadelphia. Minutes away from downtown and all major highways. Each home will be as follows: I bought the lots for 720k in total

1. On 2400sqft lots

2. 5800 sqft houses

3, 4 stories , garage parking, roof deck, elevator, and skyline views

Attached are the 3d Renderings of what I plan to build

Last week a home 4500 sqft just sold for 2.1 million dollars in one day. So thats the market as of now and I am told that pre-selling these within a month of breaking ground is very realistic and that I could get as much as 2.3 million per house. We shall see!

Here's how I started. As I am new to the new construction game I hired a consultant to guide me on my journey .  I interviewed 3 builders and 5 luxury real estate agents and their team.  I was told to not use my usually agent as when doing luxury at this level, you want someone who specialized in selling high priced homes.  Someone who has the clientele , know how, and team to get it done.

So I interviewed builders and got budgets from all three. One builder said he could do it for 180 sqft another quoted me at 225 a sqft.  When I compared their budgets I began to feel a bit worried since thats a large discrepancy between the two.  During my interviewing process, I visited projects these builders have done and are doing to get a feel and look at the quality of work they produce.  Both builders have experience in luxury home and the one I am going with just finished a 16 unit project in the heart of covid, which is one of the main reasons I chose him. He will know supply issues and how to circumvent them (ordering wolf appliances the day I break ground because he knows they are a year out, Anderson windows, same deal, etc etc). But back to the budget discrepancy .  The builder I chose has it at 1 million per house and the other is closer to 1.2....That said I am going to build in a contingency and put money aside just incase.

I am using hard money which makes this very risky, but I sold 3 of my 9 duplex's so that I could have a cash reserve of 400k to make sure I do not run into money issues.  I also have a buyer lines up, who is willing to buy the land with permitted plans for 1.2 million which would give me a profit of 500k without doing anything. I lined up buyers as another contingency/ exit plan, incase the lending doesn't work out, or some unforeseen issue , where I need to unload the lots.  So as backup I have some built in exit strategies.

Onto the steps I have had to take :

1. I had to first subdivide the lot from 4 1200 sqft lots into 2 2400 sqft lots

2. I hired an architect to build out the plans, submit zoning permits, do a structural survey of the land, and ultimate after getting zoning approved we just submitted the building plans.  This is a process in itself.  You want to make sure your architect knows the zoning laws in the area you are building, this is very important because, if my architects did not have the knowledge, I could have run into problems where zoning would not approve and I would need to wait months just to get variances IF I could even get them. So make sure your architect knows their zoning!  As a matter of fact, my guys knew their zoning but they assumed I knew it too...The original plan was to build 4 homes on 4 1200 sqft lots, and the architect went along with this (assuming I knew I would need a variance since it did not meet the 1400sqft per lot requirement) BUT I DID NOT KNOW....this set me back another month because I had to pivot.  It turns out it worked out for the better because with my original plan, I would not be able to get garages (which is a huge selling point in the city) After finding all this out, I had it subdivided for a second time into two 2400 sqft lots and looked up zoning laws where I saw that if I put a 5ft side yard on each side, it will be considered a detached home and not a row, which would allow for built in garage by right.  This pivot ended up working out because instead of having to wait another 6-8 months for a variance to sell 4 homes at 800k each, I am now able to build two larger homes for just about the same price but am able to sell each for 2.2 to 2.5 million , so I went from a gross profit of 3.2 million to a gross profit of around 4.4 million with a lower building cost. 4 homes would have been approx 650k each to build for a total of 2.6 million where as two larger homes cost 1 million each to build, maybe 1.2 million, either way it ends up being less to build but almost close to the same amount of profit.

a. the architect gave me schematics of the build

b. we went over them in stages and made tweaks here and there until I was satisfied with the final schematic

2A) Got general liability insurance and preparing to get builders risk, but not paying for it until the building permit is approved

3. While all the was happening, once I got the preliminary plans I gave them to my builder so he could price it all out. I learned that builders or yourself have to give the plans to a supply house and they run whats called "take offs" on all the line items and give you estimated prices of what everything will cost (Wood for framing, windows, siding, and the list goes on)

4. After this was done my builder had a budget which my hard money lender wanted and I needed so I know how much I will need to get a loan for in order to build these homes.  After careful consideration, since hard money is expensive and risky, I decided to build one house fully and one "under roof" which means exactly how it sounds, build just until the roof is on so outside elements cant get in.  The plan is to pre-sell one then have the lender release the rest of the money needed to finsih the 2nd house

5. Now we are at today. I am waiting for the building permit and in the mean time I am working with my builder to make sure we get the budget as close as we can to the actual cost.

I purchased the land in February, but began the process in November, so its taken 6 months to get to where I am now (submitting for building permits) To be continued.....The permits should be approved in about a month from now and we will break ground.

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Boise, ID · Member since 2018 · 203 posts · 188 votes
3y

@Douglas Gratz I think you need a reality check.  You are over the moon happy because you got a pre-sale.  You've spent at least 12 months on this project and accomplished what seasoned builders would have done in 1-2 weeks.  You haven't even started construction yet, and the pre-sale makes this build much,much more complicated.  Being your first build, you will make mistakes.  On a spec home, you can simply just live with them.  On a pre-sale, the buyers will make you tear out/remodel anything that doesn't meet their expections.  Because you are new and this is a very high end build, you are going to struggle to set proper expectations/understandings with the buyer.  

I struggle to set expectations with buyers despite:

1. Been building houses for 24 years now.

2. Have multiple completed spec homes/model homes for buyers to tour.  Many times the exact floorplan they are puchasing.

3. A 5000 SF idea home/design center where they select every finish going into the home with a professional, full time designer.

4. My homes are 1/4 the complexity of your build.

You don't realize it yet, but the hard work and heartache is just starting for you.  You haven't reached the finish line, you just now arrived at the starting line of a grueling 18 month grind.  If this build is a 50k endurance race through the mountains, you just walked through the parking lot to the signup table.

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  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y
    Quote from @Douglas Gratz:

    I think my biggest difficulty will be in doing some value engineering , because the architects chose a really expensive siding. 

    Maybe choose another type of siding to save some $$ ?

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    4y

    @Bruce Woodruffthats the goal, I just cant find anything that will live up to what I want to sell the house for, I have been shopping around for different suppliers who can make the same metal just not name brand....

    What might you suggest?

  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y

    Try Corten...

  • Rental Property Investor · Winnipeg, MB · Member since 2021 · 35 posts · 9 votes
    4y

    @Douglas Gratz Hey, thank you for posting this, it is helpful! Before I forget, you should look at Nichiha Fiber Cement products for a siding alternative, city and architects will like it because it's fire retardant, they have a profile called "Illuminations" that looks like metal panels, plus a ton of other profiles.
    Any way, I wanted to ask you if you can let me know the name of the bank you used and the contact you have for it? I am in a very difficult situation right now, where I was trying to do two full gut fix and flips and build a garage under existing houses, but contractor I hired did not have his team built properly and now we have a stop work order, 3 months now... Project is in Pittsburgh PA, is your lender trying to get in there as well?

    So, I am pivoting and tearing it all down and building new (no other option as the land is not that valuable to be able to break even, I got variances, subdivision and surveys already, just need insurance for demo and then building permit) I got a builder lined up, willing to come on the loan with me for the experience side, I am not expecting them to put any money down, just be there for the experience. You did a 70/30 split with your builder, what would you do if you did not need your builder to put any money down?

    Cheers, good luck and thank you.

    Andres

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    4y

    @Andrés Uribe Thanks for the siding substitution, I will look into it. As far as the bank I am using First Bank; however, it's hard these days to get construction loans for the non-experienced and experienced. Banks have slowed down on giving them out.

    Contractors are the worst! You need to keep an eye on them throughout the day, all day all hours and if you pay cheap you get cheap bad labor. I just did a flip in 2020 and was supposed to be done in 6 months, my contract robbed peter to pay paul, and was end up using bad subs for my job.  Took 1.5 years, luckily I was using cash. I ended up suing him and you should as well. Here in PA small claims is for 12k or less if that's what you want to win, large claims, are for a lot more but also more expensive in lawyer costs, but I would definitely sue. Take pics before you tare it down of everything and before suing show it to the contractor and try to work out a deal. You have to show him he will for sure lose the case.

    My contact for the bank is a loan officer who struggled hard to get the loan for me because the first few fell thru after he swore to me we are okay. I had a hard money lender ready to close , canceled this new loan with the new loan officer, and when the loan fell thru he worked his *** off to get it because of what he did.

    What are you going to build? Also, the way I structured it with my builder and another partner was to add them to the LLC, my builder is in 16% and the other guy 14%. This way they have to help pay the loan payments on the lot we are not building until the first one is done. Its good to have the builder invested, he will do his best.

  • Investor · AZ · Member since 2022 · 8 posts · 2 votes
    4y
    Quote from @Douglas Gratz:

    @David P. not sure where you got 225/sqft but yes 185/sqft includes everything.


    Is the $185 sf price turn key? includes site and building? It sounds good because that was what a couple of contractors quoted initially here in AZ. However, pen to paper when the actual plans are in front of them... they add 40/50 cents more... 

  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y
    Quote from @Douglas Gratz:

    Contractors are the worst! You need to keep an eye on them throughout the day, all day all hours and if you pay cheap you get cheap bad labor.

    Only a very few Contractors are the worst. You probably went with a cheap bid in your 2020 project, right?

  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y
    Quote from @Cindy M.:
    Quote from @Douglas Gratz:

    @David P. not sure where you got 225/sqft but yes 185/sqft includes everything.


    Is the $185 sf price turn key? includes site and building? It sounds good because that was what a couple of contractors quoted initially here in AZ. However, pen to paper when the actual plans are in front of them... they add 40/50 cents more... 


     I believe that was just his building costs.

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    4y

    9/16/22 Update:

    Today at 9 AM I met with my partners and lawyer to go over the Amended LLC Operating Agreement in which I am managing partner as I own a majority stake. They were added to my LLC instead of doing a joint venture for two reasons taxes and ease. We signed the Amended Operating Agreement and went over any questions anyone had. One of the partners, my loan officer hooked me up with and is a good friend of the president of First Bank who is giving us the construction loan so that is good in terms of getting the loan and networking (which is most important) I now have a partner with connections that I can use for future deals! I think that has been the best thing about doing this project, the networking, and all the people and banks I have started business relationships with. From Architects, surveyors, lawyers, partners, hard money lenders, and much more. 2nd best thing is the knowledge I have gained. @Steve K. So far so good. It's taking a lot longer to get to the digging stage, but that's because I had to do a lot of maneuvering to get funded along with underwriting taking a lot longer these days. Turns out the Bank will take over the loans on both lots which I had with a hard money lender at 11% and now at 7% without an expiration date. We had it at 6% but since we have not close and rates are above 6%, we believe we will end on 7%, but maybe construction loan rates are different.

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  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    4y
    Quote from @Bruce Woodruff:
    Quote from @Douglas Gratz:

    Contractors are the worst! You need to keep an eye on them throughout the day, all day all hours and if you pay cheap you get cheap bad labor.

    Only a very few Contractors are the worst. You probably went with a cheap bid in your 2020 project, right?


     Well on this particular project, I did with my father ( to bond, we don't have much in common so I thought this would be good) He wanted to choose the contractor and he found a good company. I told him to do research and look up reviews and he looked up reviews for the wrong company. Ultimately my fault as I did not double-check so I take full responsibility, and yes he was cheap and you get what you pay for. The biggest problem was waiting on permits, he used our down payment for another job, overextended himself, so hired cheap labor for my flip to make up for it. Sued and won. Would have gone to large claims, but I would not have gotten a judgment for at least 6-8 months if not more along with higher attorney fees. I could have gotten 30k, instead, I got 18k, which after time and fee is close to what I would end up with if I went large

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    4y

    @Bruce Woodruff small claims are maxed out at 12k, but I had so much evidence that I convinced him, if he didn't want to lose 50k, he would pay 6k extra and sign a contract with his car as collateral 

  • Rental Property Investor · Winnipeg, MB · Member since 2021 · 35 posts · 9 votes
    4y
    Quote from @Douglas Gratz:

    @Andrés Uribe Thanks for the siding substitution, I will look into it. As far as the bank I am using First Bank; however, it's hard these days to get construction loans for the non-experienced and experienced. Banks have slowed down on giving them out.

    Contractors are the worst! You need to keep an eye on them throughout the day, all day all hours and if you pay cheap you get cheap bad labor. I just did a flip in 2020 and was supposed to be done in 6 months, my contract robbed peter to pay paul, and was end up using bad subs for my job.  Took 1.5 years, luckily I was using cash. I ended up suing him and you should as well. Here in PA small claims is for 12k or less if that's what you want to win, large claims, are for a lot more but also more expensive in lawyer costs, but I would definitely sue. Take pics before you tare it down of everything and before suing show it to the contractor and try to work out a deal. You have to show him he will for sure lose the case.

    My contact for the bank is a loan officer who struggled hard to get the loan for me because the first few fell thru after he swore to me we are okay. I had a hard money lender ready to close , canceled this new loan with the new loan officer, and when the loan fell thru he worked his *** off to get it because of what he did.

    What are you going to build? Also, the way I structured it with my builder and another partner was to add them to the LLC, my builder is in 16% and the other guy 14%. This way they have to help pay the loan payments on the lot we are not building until the first one is done. Its good to have the builder invested, he will do his best.


     This contractor in particular was a huge mistake on my end. I made the rookie mistake of going with cheap, and it ended up costing me more than the most expensive guy at the beginning. There are bad contractors out there for sure, this one needed a daily check in like you said. Other I have worked with, I speak with them for a week and the get the job done.
    I am going to build 3 attached townhomes (maybe), still waiting to hear loan terms. All with garages, rooftop decks a 4/3.5, plus parking pad for two card and a small yard, they will be unique in the area for sure, especially with the 4 off street parking spaces and small yard.

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    4y

    @Andrés Uribe I would be careful building homes in the range below 1 million, those are the people getting hit the worst, they want to move but don't want to give their rates up...They shouldn't mind and have it in their head they can refi down the road, however, people that are not in business or do not invest do not think like that. Also, who knows when they will get lower We are 9% now, it's crazy. I won't lie I am worried, but by the time I am done, all I think is now that it will take longer to sell whereas before I probably could have pre-sold them....My thought behind that is if you are buying a 2 million dollars home then you are most likely either putting down a large downpayment, do not care too much because they know they can refi later, buy cash, and look at it as an investment since there is no more land in the area. When these lots were bought in 1980 for 40k, the house next door (which the lots were part of as their yard) was purchased for under a million and is now worth 4-5 million.  Appreciation in this area is amazing. If I had the capital, I would not be building at all. I would hold the land pay the taxes and use the equity to invest and either sell them 10 years from now for double or eventually build. But I do not have that choice, I have to build

  • Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    4y

    What a great post and lesson in taking action and figuring it out along the way...particularly, in the face of high construction costs (although your pricing is good), high interest rates, and a recession, the magnitude of which is TBD.  Many entrepreneurs jump out the window and grow wings on the way down.  They make decisions with incomplete information, focus on the big picture, don't get hung up on small stuff, and pivot along the way.

    With limited experience and economic uncertainty, having your funding locked up is huge.  That's a tribute to your buying right...it solves a lot of ills and creates cushion for the learning curve or the unexpected.

    This is one of the most real posts I've ever read on BP.

  • Boise, ID · Member since 2018 · 203 posts · 188 votes
    4y

    @Mike Dymski I agree that we should all commend @Douglas Gratz for creating an in depth diary of his first build.  However, I feel we are getting way ahead of ourselves in complementing him on "jumping off a cliff and sewing the parachute on the way down".  This can work out great and it can also result in a large SPLAT!!

    IMHO, building a 2m+ spec home as your first new construction project is similar to buying a 50 unit apartment complex as your very first real estate investment.  Compliment the courage, but also question the wisdom...

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    4y

    @Mike Smith I don't disagree with you, but I believe the team I put together will give this a very good chance to succeed. my builder is 16% partner and my other partner is in for 24% and on the board of the bank getting us the construction loan....The builder is very experienced in high-end homes.  We have the lead times on most of the material so that we can order it on time to get it on time...For all the tile and kitchen materials I am working with a company called Porcelonosa, my builder uses them, and they are very good at making sure materials are on time. They say how long it will take and that's how long it takes. I might as well just be the person with the lots, and consider the builder the one doing it all..Would you tell the builder who built over 30 high-end homes, a 15 unit build during covid, that he won't succeed? If you look at it that way, yeah its my first big project, but not his first, so there is a high probability of success

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    4y

    @Mike Dymski Getting up to this point has been difficult, but all the bumps I had on the way led me to the one most important partner, and that's the guy whos on the board of the bank. . I have been pivoting for months.  My first loan fell thru. At that point, I was doing this myself 100% with no partners. Because it fell thru I had to pivot, so I had my loan officer who I hold responsible for messing up the first construction loan (which was hard money) I had that locked, at the same time I had been working with other banks as a back up (thats where the loan officer comes in) Let me back up a second

    So with the hard money lender, we were about 2 months away from closing, at the same time I called TAM Lending where I got this loan officer I mention above. 1.5 months passed and he said he got me a loan. The hard money was 10% and 3 points, and the loan officer said he got me 9% and 2 points. I said to him I need some type of commitment letter before I blow off the hard money lender. They sent me the letter, I called off the hard money lender, then the loan officer from TAM, said the loan fell thru when the economy started going to ****. So I got on his ***. I told him I would be building by now if he did not screw me over because I would have closed on the hard money construction loan.....Well all things do happen for a reason.

    He's a salesman and I told him straight up, you told me what I wanted to hear and not the facts and it is screwing up my project. I had all the documents and told him, my lawyer said I have some recourse here, but I don't want to go that direction, so you need to get me a loan some way somehow....and so he reached out to his friend on the board of first bank, got him to invest and in doing so, made it easy to get the loan. I got really lucky, to be honest. At the same time, I am grateful, I am not 100% invested because I took on partners, and having my builder as one of them makes me very comfortable, because like Mike smith said, it is not wise to start on such a large project, but with the builder invested $150,000, he is going to want to do this right as opposed to him not being invested, it would not mean anything to him.

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    4y

    @Mike Smith I was born with one very special gift, and that gift is that I can become average or above average at anything I try. From juggling to advanced botany (splicing plants together, cloning etc) I learn very fast. I graduated with a 4.0 GPA....not that that means much to this, but speaks to my IQ....

    I have right now 8 duplexes, so 16 units that cashflow after all expenses an average of $1000 each. I started buy business in 2014 but I want to make general post to everyone about my past and what I have battled to get here

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    4y

    If you read the post above, I told Mike that I wanted to talk about my past, so here it is

    I have always been smart and stupid. Book smart, and life stupid (choices) bad ones...I always got straight A's in high school but I was suspended at least once a month. In my senior year of HS I was kicked out. Went to another HS for the last 3 months but still walked graduation at my original HS.

    I then got into Penn State and this is where life really went downhill. I stole an econ test, not for me, but for my dorm, I was seeking approval ...before I continue, most of my hardships were self-inflicted and I was 100% responsible for them happening...So I was kicked out for one semester and not allowed on campus...next semester I was given permission to get a ping pong table I bought out of my old dorm. Apparently, the person was not allowed to give me permission so I got arrested for trespassing and kicked out another semester. That same week I got my first DUI coming home from a frat party. Self-inflicted because I only had 2 beers, stupidly refused the breathalyzer not knowing if you do that, you automatically get the highest tier DUI. Kicked out for another semester...So I enrolled in another college nearby. this is 2006. I did ARD and did not have much trouble. In 2007 my roommate gave me an ounce of weed for free because he was going to another country for a little. 

    I have never sold drugs in my life nor did I want to. But I didnt smoke weed so I wanted to make a quick buck. I ended up selling it to and under cover...Court was set for sometime in 2008. I decided to move home and go to a community college. I did that, then I enrolled at Temple University . On my way to PSU 3 hours away I got another DUI, this time for adderal. I was not going to get a DUI because I was just pulled over for speeding, but the cop wanted to search the car, I should have let him, but It was such a mess I had no idea what he would find so I told him no. He said he would have to impound the car. I asked if I could call my lawyer to which he said yes, but my phone was in my car and he said I could not get it. I went for it anyway and he decided to blood test me at the hospital.

    2nd highest bracket DUI. I had to do 3 months in jail, 3 months of house arrest, and 3 years of probation. In jail, I was introduced to opiates being fully ignorant of addiction. When I got out I had a nasty habit. Because of this I kept pissing dirty and going back to jail (Opiates are hell, anyone reading this, if you get surgery deal with the pain because if you ever get hooked, its the worst because the brain compels you to do it even when you know the consequence. it literally pulls you to the drug no matter how hard you try) so I went back to jail a lot of times, 3 months, 6 months, 9 months....

    I got clean in jail but eventually relapsed and I knew what was coming, more jail....I could not handle it. At this point in time, it was 2013 and I was a Junior at Temple University....I became suicidal (but not really because I didn't do it) but my dad knew I had a gun because I told him what I was going to do. I eventually calmed down and went to sleep. But my dad wanted the cops to check on me so they broke down my door at Temple. I am not allowed to have a gun so I went running to hide it, the cops saw me with it so and the situation went from 0-100. I reacted, I pointed at myself and told them to leave. Long story short this ended up being a 17-hour standoff with swat, homeland security, and police. I demanded one thing, a phone charger. I wanted to call my probation officer and the news so that I could make sure it was on record that this we a mental issue (for future purposes in court) There's no service in the basement so it took 12 hours before I finally got a full call through.  https://www.nbcphiladelphia.co...

    BUT EVERYTHING HAPPENS FOR A REASON and let me tell you why and also tell you how messed up the justice system is....I am on probation in Montgomery County, and the incident was in Philly. Montgomery county picked me up from the hospital and put me in jail for 8 months. In jail, I read every book on real estate I could. My lawyer worked out a deal to hold off my court date and let me do a program. So I was enrolled in a very extensive 18 months halfway house program. At this point I am clean....I knew that if I did not do better than my best then I would go to jail for a very long time.

    So I enrolled in La Salle University in 2015 and bought my first REI flip. By the time I finished the program I had completed 8 flips and owned 4 duplex's . Mind you when I kept going back to jail for dirty urines, every time I got out I enrolled in school, I don't give up what I start, so I wanted to graduate. In hindsight It is probably why I kept relapsing, I should have focused on my recovery. When I finally went to court in Philadelphia the judge gave me 5 years of parole, no jail time! WHAT, I did 3 months for Adderal DUI where I was introduced to opiates and hard drugs to help the time go by (yeah I made the choice to take them, but I was ignorant about addiction, I didn't know) so that's why I feel the justice system is messed up, if I never went to jail for a harmless DUI then I never would have become an addict which I have to live and deal with for my entire life.

    BUT NO JAIL FOR SHOOTING A GUN WITH POLICE OUTSIDE (I FIRED OFF SHOTS IN THE BASEMENT) 

    Anyway from 2014 to the end of 2016, I stayed clean. Dec 2016 I was diagnosed with stage 3b melanoma (this is how bad addiction is when I got the call all I thought was YES! PAIN MEDS.) Had to get 3 surgeries one of which was full lymph node dissection. I don't have any family and no support system. I made a poor choice and did not tell them I was an addict.

    So I relapsed because I made a bad choice AGAIN! While dealing with cancer I was still in school and running my business. I graduated in 2018 with a 4.0 GPA. I went to rehab and have been clean ever since. From 2014 to 2019 I had done 15 flips and owned 7 duplexes. I was lucky with having cancer because my Probation officer would not put me in jail for being on pain meds, but then again if I never got it, I would never have relapsed...So I guess i was not lucky. 

    From 2009 to 2017 I had been to jail for a total of over 2 years, rehab if you put it all together 2 years, and a halfway house for 18 months. Having spent approx 5 years out of 8 locked away in some form and being diagnosed with cancer I still managed to succeed because there were two options give up and die or keep on trucking and live. I chose the latter and it was beyond difficult. But if all of the above never happened I would not have a business, I would never have read those books in jail, and I would not have forced myself to buy my first flip (because I only did it when I was going to get sentenced) I could have done 20 years....

    Now it's 2022 and I have been sober for 4 years now and in remission for 5 years and have my dream project! These plots of land I saw for the first time in 2014, my girlfriend at the time, it was her parent's backyard (you don't have yards in the city so they bought the lots to keep them as a yard, the first thing I said when I picked her up on our first date was when her parents want to sell them CALL ME! From 2014 until recently, I help my ex-girlfriend start her own business and stayed in touch helping in any way I can for the sole purpose that I will be the first person they call when they are ready to sell....I got the call and jumped on it. However, I did not have 720k to pay for the land. But I got the AOS and figured it out. I had just enough in my bank to put the down payment. I stalled closing as long as I can, refinance some homes, and found a hard money lender willing to loan $500,000, so all i needed to close was 148k...that's where the refinancing came in. Rates were so low it made sense either way. So I got the money (not knowing in the beginning if I would, but I refused to let it slip out of my hands) Mind you this is the first time I ever did anything in the sense of winging it. I always plan first, and make sure if I am going to buy a deal that I have everything needed, so this was WAY OUT of what I am used to, talk about stress. I didn't even know if I would be able to get a construction loan, but I did know so long as I owned the lots if I couldn't get the loan I could at least sell them for $1,000,000.

    At first my plan was to build 4 SFH row homes 3500sqft each on 20x60 lots. Saw how much it would cost and decided to sell two and keep two. When zoning came back and told me the lots did not meet the sqft of 1440 per lot and that I would need a variance, I was like ****, I don't have time to wait for variance I am using hard money. I convinced the sellers to let me subdivide and give me 8 feet onto their property line through an easement. BUT they had side decks that would need to be removed or shortened, this direction was going to be too much. My architects told me I would have garages by right on these SFH, but that was not true either, I would need variance.

    In the end, I found my loophole. First off I did not sell the two lots....the loophole to get garages by right solved my sqft problem too. Instead of building 4 homes, I would build 2 larger homes. The code says if you have 5 feet of open space on each side, you can have garages by the right. Before subdividing, I did research and saw homes in the area of the size I planned were selling for 1.7 to 2.1 million dollars and they were selling in a matter of days. (Those days are over, so I know it might take longer to sell now) but this area is in the top 3 best places to live in Philadelphia. 5 min a drive to the city with highway access really close. 

    So I subdivided them, got all the approvals, building plans approved, zoning, street etc etc you name it I got the permits for it. At this point , March 2022, I still did not have a construction loan yet. So that was the next piece of the puzzle. Solved that by getting partners, and will be breaking ground real soon. 

    I am scared and worried about our economy, but I do know that in the worst of the worst I could sell these homes for the money I have into them and not lose a dime (1.3-1.5 mil) if I listed them for that, there would be the biggest bidding war in history. 3000sqft homes are selling for $1 million... Now @Mike Smith is right in I am starting to big and that's unwise, however the way I see it, if I built a smaller home or a bigger home, I'm still building, i just have a different clientele profile and to be honest, homes for sale in the $500k range are getting hit the hardest. People want to move and upgrade because they have a larger family now, but do not want to go from 3% rate to 9%. People who can afford a 2 million dollar home, are affected by the recession, of course, but if you have that kind of money, you are either putting down a large payment or buying cash, and if not cash are thinking they can refinance down the road knowing that these houses make a good investment so would be willing to pay a higher rate. Appreciation in this neighborhood is about 5% a year and on a 2 million dollar house, in 10 years the house would be worth $3 million.

    In conclusion, hell yeah this is a scary venture for so many reasons. Number 1 is that I am building when the prices of everything are extremely high. We are heading into a recession , Inflation, rising rates, you name it. If I had the capital I would buy out the mortgage and hold the land, but I only have two options, sell the lots for a litter over what I bought them for (because in this economic climate, $1,000,000 that I could have sold them for is not there now, I am closer to $875,000) or build them. I choose to build, but one at a time hoping by the time I start the second, things will have gotten a lot better. It was a scary venture when things looked good, I am entering a new game with no experience in it. Scary but exciting at the same time. But so long as in the worst case I can sell them for enough to get my money back, then I am happy because the connections of people I have met through the process are worth it. I now have a board member of a bank as a resource for future projects, I have a great builder for future projects, and when people see them being built I will make more connections to my network. The network of the people you know in this business is one of the most important parts. They help with the financing, they bring you deals, they partner with you, and they allow you to expand! AND THE KNOWLEDGE, even if I lost 100k on the project, would be worth it! And most important the experience. Banks want to see experience before they lend. If I succeed, I will be able to get loans to do much larger things because my ultimate goal is to build a large apartment complex with 50+ units or to buy a distressed complex and do some value-adding.

    I worked very hard to get where I am today as you have read above, and going through what I have, gives me confidence! Everyone who has commented about this (the experienced people) they have been giving me tough love, telling me things I dont want to hear, advising me, etc etc and most of them are not wrong. BUT I BELIEVE IN MYSELF! and to be honest if there was no good exit plan, meaning that my price point is 2 mil+ to sell them, but if I was not sure I could sell them for a min of 1.4M then I would probably have sold the lots but to me with the ability to sell them at a min of 1.4M its all worth it ! Experience, networking, knowledge, pivoting, adapting, learning, gaining patience, and so much more! 

    I thank everyone for being a part of this journey and I will keep you updated as things move forward!

  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y

    What a story Douglas! You should write a book.

    My concern with your current setup would be that with your very apparent lack of experience, you could get taken bigtime by the 2 experienced partners you have.....

    And then you are starting off with the economy in a tailspin with no direction in sight....

  • Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    4y
    Quote from @Mike Smith:

    @Mike Dymski I agree that we should all commend @Douglas Gratz for creating an in depth diary of his first build.  However, I feel we are getting way ahead of ourselves in complementing him on "jumping off a cliff and sewing the parachute on the way down".  This can work out great and it can also result in a large SPLAT!!

    IMHO, building a 2m+ spec home as your first new construction project is similar to buying a 50 unit apartment complex as your very first real estate investment.  Compliment the courage, but also question the wisdom...


    Yep, I read the other post last night and Doug has hundreds of doubters, no doubt about it.  It takes a lot of wisdom and hard work to source and buy a property that has $1-2 million of upside.  And to source a great builder, construction contract, partner, and consultant.  And to qualify for, arrange financing, and pivot financing midstream...that was awesome work.  And to take action with $1-2 million in cushion for mistakes.  Many entrepreneurs and executives make decisions all day every day with millions on the line and with limited information.  Doug is just one of them and seems to be making good decisions with a lot of room for hiccups.

  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y
    Quote from @Mike Dymski:

    Yep, I read the other post last night and Doug has hundreds of doubters, no doubt about it.  It takes a lot of wisdom and hard work to source and buy a property that has $1-2 million of upside.  And to source a great builder, construction contract, partner, and consultant.  And to qualify for, arrange financing, and pivot financing midstream...that was awesome work.  And to take action with $1-2 million in cushion for mistakes.  Many entrepreneurs and executives make decisions all day every day with millions on the line and with limited information.  Doug is just one of them and seems to be making good decisions with a lot of room for hiccups.

    Lol, Mike, you're gonna give him a swelled head....last thing he needs. He needs to stay grounded. Even those of us who gave him a hard time in the beginning are rooting for him....
  • Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    4y
    Quote from @Bruce Woodruff:
    Quote from @Mike Dymski:

    Yep, I read the other post last night and Doug has hundreds of doubters, no doubt about it.  It takes a lot of wisdom and hard work to source and buy a property that has $1-2 million of upside.  And to source a great builder, construction contract, partner, and consultant.  And to qualify for, arrange financing, and pivot financing midstream...that was awesome work.  And to take action with $1-2 million in cushion for mistakes.  Many entrepreneurs and executives make decisions all day every day with millions on the line and with limited information.  Doug is just one of them and seems to be making good decisions with a lot of room for hiccups.

    Lol, Mike, you're gonna give him a swelled head....last thing he needs. He needs to stay grounded. Even those of us who gave him a hard time in the beginning are rooting for him....

     I'm just brown-nosing in case I need a bailout!  On a serious note, can't wait to see how this turns out.

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    4y
    Quote from @Jim Flynn:

    How many projects have you finished. Was a architect so understand problems that will come up. 


     This is my first new construction but ive done over 15 flips and own 8 duplex's

  • Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes
    4y
    Quote from @Bruce Woodruff:

    What a story Douglas! You should write a book.

    My concern with your current setup would be that with your very apparent lack of experience, you could get taken bigtime by the 2 experienced partners you have.....

    And then you are starting off with the economy in a tailspin with no direction in sight....

    Well I am the managing partner and with the majority stake, all decisions rest on me. In the addendum adding them to the LLC it is clearly stated how the profits will be distributed, I made sure of that. With the sale of the first house before anyone takes a profit, the second house mortgage gets paid off. Then I get everything I have put into date after I am paid back to the last cent, that's when the profits split 60% to me 24% to one partner, and 16% to the other. My attorney drew up the LLC addendum in my favor every which way he could. They even have to pay their % of the interest on the mortgaged lot not being built yet and their percentage of interest on the construction loan.

    As for the economy, im too deep in now, however, there is a clause that if I sell the lots, which is still on the table... Before we build, that the addendum is void and they are not involved in any way with the money that comes from the sale, essentially it would revert back to me being 100% owner.

    By the time we finish the build a year from now, I hope things start to turn around, if they don't I will have to sell for less, which is also in the addendum, that if we have to sell for less than 1.6 million dollars they are not entitled to any profits, they can just get paid back what they put in. In a way, I am happy we did not start sooner because it would be on the market at the heart of the recession we are heading into. The second house won't start getting built for at least a year from now, so 2 years until that is on the market, so I can only hope that things get better, material prices come down etc etc.....So far we have not seen a reduction in home prices in the area yet, just a longer time on the market.  The houses that are having trouble being sold are homes 1 million and down.

    If I did not have faith that I can sell this house for a min of 1.4 million no matter the economic conditions then I would be selling the lots now.  


    The government should never have printed so much money. I understand the ripple effect that would have happened if they didn't help out small businesses, but they helped too much. Ever since 2008 it's like our government is in the bail-out business, don't let anybody get hurt .  Businesses that did not have a safety net saved up should have been allowed to fail, that's the cycle of life. A business should plan for everything. It gives other businessmen and women the opportunity to buy out these troubled businesses at a discount, it allows for people to get good real estate deals, etc etc. I know it sucks for anyone who would have lost everything but life is not fair. The government has to learn to keep its hands off the wheel, they created this mess. The country shutting down was a mistake. People should have either stayed in if they did not want to get sick (lock themselves down voluntarily) and other if they wanted to chance it, go out. Businesses that want to stay open, stay open, if they wanted to close they could close.

    I have actually been having this conversation with a few people, what do you think would have happened if the government did not print so much money and let businesses fail and people lose their jobs?

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