Major Rehab and New Construction on Inherited Property

New Orleans, Louisiana
Land & New Construction
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Major Rehab and New Construction on Inherited Property

Laurent N.
Investor · Member since 2020 · 7 posts · 1 vote

All,

First, thank you in advance for all the insight I will receive from all of you.

My sister and I will inherit our Grandmother's property in New Orleans, Louisiana. The house is paid off free and clear, but we have no intention of selling it; we want to keep it in the family and turn the lot into a vacation home, Airbnb, or even a rental. The property will likely require substantial work to make it a rental. Furthermore, the property sits on a nearly 6,000-square-foot lot. We believe we have enough space to rezone the lot and construct a duplex, bringing the number of doors from 1 to 3.

We have a couple of questions. Please excuse my ignorance.

1) In an attempt to learn from folks who have done this, what is the best way to finance the gut rehab of the existing property and the new construction of a duplex?

My initial thoughts would be to secure a construction loan for the total rehab amount based on the entire property's ARV. In order to not have to put any of our own money into this deal, we intend to leverage the equity of my Grandma's home as a down payment for the loan.

2) Should we leverage a construction loan or some other form of financing? 

3) Is all of this reasonable and possible to do? My initial assumptions are yes, based on the “build to rent” strategy. We still need to work with the city to ensure we can rezone and get permits to start construction (but for this thread, it's implied that we will get the permission to rezone and start construction.)

4) What other steps should I be thinking of?

Thank you again for all the insight.

-Laurent

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Jacob Sherman
12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes
2y

if inherited can definitely do a refinance cashout construction loan with no waiting period based on the arv . no income no doc and welcomes first time investors . what are the numbers looking like ? 

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  • Melanie P.Pro Member
    Rental Property Investor · Member since 2023 · 1k+ posts · 922 votes
    2y

    AirBNBs are in a precarious legal state in New Orleans. There is a major movement in local politics to ban them completely. Presently they are only allowed if the owner lives full time at the same property. Are you planning to make New Orleans your new home? New Orleans residents feel that AirBNB's have ruined the neighborhoods and character of living in New Orleans, making housing unaffordable for musicians and service industry workers and that the city has plenty of hotels for tourists to stay in.

    Adding units may be very easy or next to impossible depending on the zoning and neighborhood where the house is located. If it's in any of the planned communities, which is most of the area outside the historic core with large lot sizes it's going to be tough. 

    One thought is to sell it and buy something closer to home that you could manage yourself.

    0Reply
  • Laurent N.
    OP
    Investor · Member since 2020 · 7 posts · 1 vote
    2y

    Melanie, 

    Thank you for your insight on that. You're right; AirBnB is in a precarious state around the country writ large with tightening local regulations. I don't want to get too caught up with Airbnb for this project. We intend to underwrite this so that we would break even if we rented out both units as long-term rentals. 

    Zoning is something we need to look into. The neighborhood is Milneburg within Gentilly. Do you have any insight on that?

    We do NOT intend to sell it. 

    -Laurent 

    0Reply
  • Jacob Sherman
    12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes
    2y

    if inherited can definitely do a refinance cashout construction loan with no waiting period based on the arv . no income no doc and welcomes first time investors . what are the numbers looking like ? 

    2Reply
  • Laurent N.
    OP
    Investor · Member since 2020 · 7 posts · 1 vote
    2y
    Quote from @Jacob Sherman:

    if inherited can definitely do a refinance cashout construction loan with no waiting period based on the arv . no income no doc and welcomes first time investors . what are the numbers looking like ? 


     What numbers are you looking for?

    0Reply
  • Jacob Sherman
    12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes
    2y
    Quote from @Laurent N.:
    Quote from @Jacob Sherman:

    if inherited can definitely do a refinance cashout construction loan with no waiting period based on the arv . no income no doc and welcomes first time investors . what are the numbers looking like ? 


     What numbers are you looking for?


    How much is the current value of the property ? 

    How much in renovation does it require ?

    How much will it be worth after it is complete ? 

    2Reply
  • Melanie P.Pro Member
    Rental Property Investor · Member since 2023 · 1k+ posts · 922 votes
    2y
    Quote from @Laurent N.:

    Melanie, 

    Thank you for your insight on that. You're right; AirBnB is in a precarious state around the country writ large with tightening local regulations. I don't want to get too caught up with Airbnb for this project. We intend to underwrite this so that we would break even if we rented out both units as long-term rentals. 

    Zoning is something we need to look into. The neighborhood is Milneburg within Gentilly. Do you have any insight on that?

    We do NOT intend to sell it. 

    -Laurent 


     Laurent, 

    Unfortunately that neighborhood is almost all Suburban Single Family Residential zoning. Unless you are in one of the few blocks that is zoned for two family, you are going to be stuck with the one house on the lot and no AirBNB at that location. Many developers have tried to obtain approval to split vacant lots into two with one single family home on each parcel and have been denied. This is after spending a lot of money to provide the appropriate paperwork and drawings to the City in hopes of a zoning change.

    I believe Milneburg is part of an HOA. You sould check with the HOA to see if you're allowed long-term rental of the home that is there and what the terms and conditions are.

    To check the zoning you can call the city or put your specific address into the New Orleans Property Viewer.

    Good luck!

    1Reply
  • Ann Marie Brennan
    Member since 2022 · 8 posts · 1 vote
    2y

    Have you also looked into property and flood insurance rates? Many major insurance companies are not writing new policies in New Orleans.

    1Reply
  • Braden Smith
    Investor · New Orleans, LA · Member since 2012 · 969 posts · 747 votes
    2y

    A construction loan would be the route to go to get the lowest interest rate. I typically use bank money for my deals. They are short-term, interest-only commercial loans. The rate will be lower than hard money or private money, but the catch with these loans is they will require 20% down and the interest rate is a floating rate that typically runs around 1-1.25 over prime. Currently, the prime rate is 8.5% so these commercial loans are around 9.5%. The interest costs will be hefty and eat up a lot of profit. 

    A few things to keep in mind:

    Getting a property rezoned in New Orleans is rather difficult these days, and city hall is a disaster. You can't even get anyone to answer the phone at city hall. And getting anything done with the city is a painfully slow process lately. 

    Ever since Hurricane Ida, the last major storm to hit us in AUG 2021, construction costs (material and labor) in our area are up about 25-30%. Hiring a contractor to build is going to start around $165/sqft and will be more for a multifamily. A full gut rehab is going to run about $85/sqft at cost. I just spoke to a contractor I know last week who just wrapped up a full gut on a double and that was his cost with no contractor markup. Add 20% to that to hire a contractor. 

    Insurance is an absolute nightmare in our area. Premiums have doubled, tripled, and even quadrupled in some cases. Folks are seeing their monthly payments jump up hundreds of dollars and in some cases $1000 or more per month. We have very few insurance carriers to choose from. This is part of the aftermath of Hurricane Ida as well.

    Short-term rentals in New Orleans have become next to impossible to do legally. The city just won a court case and the last round of rules and regulations that were in question are now in full effect. See here:  Federal judge gives New Orleans City Council green light on short-term rental limits

    It has been rather difficult to get deals to pencil in our area, to say the least...

    1Reply
  • Jacob Sherman
    12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes
    2y
    Quote from @Laurent N.:
    Quote from @Jacob Sherman:

    if inherited can definitely do a refinance cashout construction loan with no waiting period based on the arv . no income no doc and welcomes first time investors . what are the numbers looking like ? 


     What numbers are you looking for?


    Hey good morning ! 

    Current as is value ? 

    What is the renovation amount ? 

    What is the ARV ?

    1Reply
  • Laurent N.
    OP
    Investor · Member since 2020 · 7 posts · 1 vote
    2y
    Quote from @Braden Smith:

    A construction loan would be the route to go to get the lowest interest rate. I typically use bank money for my deals. They are short-term, interest-only commercial loans. The rate will be lower than hard money or private money, but the catch with these loans is they will require 20% down and the interest rate is a floating rate that typically runs around 1-1.25 over prime. Currently, the prime rate is 8.5% so these commercial loans are around 9.5%. The interest costs will be hefty and eat up a lot of profit. 

    A few things to keep in mind:

    Getting a property rezoned in New Orleans is rather difficult these days, and city hall is a disaster. You can't even get anyone to answer the phone at city hall. And getting anything done with the city is a painfully slow process lately. 

    Ever since Hurricane Ida, the last major storm to hit us in AUG 2021, construction costs (material and labor) in our area are up about 25-30%. Hiring a contractor to build is going to start around $165/sqft and will be more for a multifamily. A full gut rehab is going to run about $85/sqft at cost. I just spoke to a contractor I know last week who just wrapped up a full gut on a double and that was his cost with no contractor markup. Add 20% to that to hire a contractor. 

    Insurance is an absolute nightmare in our area. Premiums have doubled, tripled, and even quadrupled in some cases. Folks are seeing their monthly payments jump up hundreds of dollars and in some cases $1000 or more per month. We have very few insurance carriers to choose from. This is part of the aftermath of Hurricane Ida as well.

    Short-term rentals in New Orleans have become next to impossible to do legally. The city just won a court case and the last round of rules and regulations that were in question are now in full effect. See here:  Federal judge gives New Orleans City Council green light on short-term rental limits

    It has been rather difficult to get deals to pencil in our area, to say the least...

    Braden,

    Thank you so much for that insight. That's valuable knowledge, especially regarding the building costs of hiring a contractor. We'll definitely take that into consideration when planning what we plan to do with the property. It's looking more and more like a construction loan is what we will go after.

    Regarding rezoning: That's not good news regarding the City Government and City Hall, but that's par for the course with NOLA. The dilemma of rezoning is something that my sister and I are going to tackle together on future trips back to New Orleans.

    I'd like your opinion on how the Blue and Green Corridor Project/Gentilly Resilience Project will affect the neighborhood, i.e., positively impacting urban development and flood insurance premiums. Additionally, during my future engagement with the city, I'd like to know if this project will affect the building process, building code, and permitting process, considering our property is along one of the roads at the heart of this project.

    I recently saw the news about short-term rentals. We intend to underwrite this to ensure we would be profitable with long-term tenants at a minimum, with MTR being our preferred cash-flowing strategy.

    Before we do anything, this will be a lengthy paper/spreadsheet drill to make sure the numbers work.
    0Reply
  • Laurent N.
    OP
    Investor · Member since 2020 · 7 posts · 1 vote
    2y
    Quote from @Melanie P.:
    Quote from @Laurent N.:

    Melanie, 

    Thank you for your insight on that. You're right; AirBnB is in a precarious state around the country writ large with tightening local regulations. I don't want to get too caught up with Airbnb for this project. We intend to underwrite this so that we would break even if we rented out both units as long-term rentals. 

    Zoning is something we need to look into. The neighborhood is Milneburg within Gentilly. Do you have any insight on that?

    We do NOT intend to sell it. 

    -Laurent 


     Laurent, 

    Unfortunately that neighborhood is almost all Suburban Single Family Residential zoning. Unless you are in one of the few blocks that is zoned for two family, you are going to be stuck with the one house on the lot and no AirBNB at that location. Many developers have tried to obtain approval to split vacant lots into two with one single family home on each parcel and have been denied. This is after spending a lot of money to provide the appropriate paperwork and drawings to the City in hopes of a zoning change.

    I believe Milneburg is part of an HOA. You sould check with the HOA to see if you're allowed long-term rental of the home that is there and what the terms and conditions are.

    To check the zoning you can call the city or put your specific address into the New Orleans Property Viewer.

    Good luck!


     Thank Melanie, 

    We're eager to speak to the city about what we can do for this property/lot. Hopefully, sentiment has changed, and the city is amendable for us to do as such. Regardless, we would happily renovate just the single-family house on the lot.

    0Reply
  • Stephen KeigheryBusiness Member
    Rental Property Investor · New Orleans, LA · Member since 2018 · 717 posts · 555 votes
    2y

    Good luck with this. If you ever decide to sell it I buy houses in New Orleans so reach out. 

    Home Buyer Louisiana4.855 Reviews
    WebsiteView Page
    0Reply
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