Is this GC quote too good to be true?

Question

So I am a prospective first time investor looking to own multi family rental units. I had only been considering house hacking and renovating older properties until I came across something this week that has me wondering if I should shift my focus. My realtor took me to see a rehabbed duplex that sits on a quite large parcel of land. The large empty space behind it has apparently been zoned for three more units. One of the crew members doing the renovations on the property said originally the owner wanted to build these three units but eventually decided to just sell the duplex instead when finished. Of course this piqued my interest and when asked what something like that would cost he told me about $50k a unit. This seemed so, so much lower than prices I've read online. I did get a business card from him for the company and when I emailed was told I could get three 850sq foot two bed one baths for $168k. Now this is just a shell (no flooring, fixtures etc) but still seems unbelievably low to me. Is this price plausible? could I make this happen while house hacking the duplex and eventually have a huge cash flow on this property in a couple years? Just seems way too good to be true.

Chris Seveney · Answer

@Philip McPherson

1. Is he licensed?

2. Did you have plans provided to him to bid

3. Did you give a formal scope with the plans

This could just be foundation and framing with no exterior sheathing/roofing, doors windows etc

How do you define what he is doing.

Get drawings put a scope together and get several bids from licensed contractors

Account Closed · Answer

The last time I built for ~$65 a sq ft in central Texas was 2008.

Aaron Williams · Answer

Why not get a bid for the whole build job so you can compare apples to apples with what's normal in the area? Or maybe your are planning to do the rest yourself?

Mike Smith · Answer

By the time you finish the units to a reasonable level, my guess is you will be $120-$150 per SF.  In my area (Boise, Idaho) large scale multi-family (100+ doors) can't be done for less than $100 SF.  This is your first project and very small volume, in a more expensive market.  You won't be able to touch $100 per SF.

Joel Forsythe · Answer

I’m not in your market, but I find it difficult to see an adequate profit margin for the builder, but I dont know what they have “up their sleeve” that makes the numbers work. IE an existing material inventory, or they are currently deep in similar production so tacking your project on is symmetry/efficiency type savings.

I’d look into how many years they’ve been in business and their volume track record with typical new construction of the type you are considering. A project with no apparent “cushion” is a red flag for me, no different than if a sub brought me a bid that I knew was off.

Philip McPherson · Answer

@Mike Wood it would be two buildings on one lot. A duplex and a triplex

Philip McPherson · Answer

He is licensed yes.

I did not provide him with these so much as just asked him what the original plan the current seller had that been mentioned me while I was chatting with one of the employees on property while I was viewing it.

Mike Wood · Answer

@Philip McPherson As an investor that builds 2/1 duplexes, I can tell you that building a house for $65.88/ft2 is not possible.  Normal allowance items (cabinets & countertops, plumbing fixtures, lighting, appliances, flooring, hardware) will run you right around $20/ft2 on duplexes this size.  That would put construction costs at ~$86/ft2, which is just too low now a days.

I just finished a 2/1, 800ft2 each unit, new construction duplex and it ended up at $121.87/ft2.  3 years ago, I finished a 2/1 895ft2 each unit, new construction duplex and it end up at $102.39/ft2.  There is just no way now a days to finish these duplex small units for less than $100/ft2.

I would guess that they are offering you a shell of a house, with not drywall, insulation, paint, etc.  Likely not even providing plumbing/electrical/HVAC included (likely ~$17-20/ft2).

Lastly, since there would be 4 buildings on one (1) lot, this would have to be a commercial loan, so worse terms on the loan and harder to find insurance.

Is this GC quote too good to be true?

Most Popular Reply