Build a duplex or waste of time?

21 Replies

Hello all,

My parents are willing to give me a big lot in San Antonio, TX. I would like to build a duplex (I'll attach the link below to the plans I'm looking at) so that I could move tenants in there. Do you think it's a bad idea to build new even if the land is being given to me? Will lenders lend enough money to do something like that? Does anyone know how much it costs to build in San Antonio? I bought, rehabbed, and rented a house two months ago and everything so far is going great. I'm not really experienced, any advice would help! 

Here is the link to the plans I'm thinking of buying. 

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@Account Closed  I think they are zoned single family, but those lots over see an access road. Before the access road was built, they were single family. But then those lots got cut in half when the govt. bought the land to build the access road, but I don't know if they can be changed to multifamily. 

@Paul James  They are two lots located right behind 411 Mckay St, in San Antonio. They are next to the access road of highway 90

I see the plans are for a two level. I have a two level rental, and learned that they have some disadvantages. 

  • Elderly and disabled people can't or don't want to use stairs, so it narrows the pool of people to rent to.
  • True or not, people perceive two levels to have higher utilities.
  • Maintenance cost are higher. Anytime workmen climb a ladder, the price goes up.
  • Here in Phoenix, pigeons love them.

Let the numbers be your guide. 

What's the lot worth?

How much can you build for?

How much can you rent for?

How much could you sell it for at completion?

If the lot is worth enough, a lender may let you borrow 100% of construction costs. 

I'm building duplexes in Austin, but it makes more sense to sell them rather than renting them out. They can be divided and sold individually to owner occupants. 

Originally posted by @Jon Klaus:

Let the numbers be your guide. 

What's the lot worth?

How much can you build for?

How much can you rent for?

How much could you sell it for at completion?

If the lot is worth enough, a lender may let you borrow 100% of construction costs. 

I'm building duplexes in Austin, but it makes more sense to sell them rather than renting them out. They can be divided and sold individually to owner occupants. 

What he said.. take your time and do the homework. I work with some builders and am in the area often. I also look at a lot of builds out there from SFR to four-plexes. Let me know if I can help.

Check the zoning first.  If they are single family, you won't get them changed to multifamily, with single family lots adjoining them.  Also, you won't build "one" duplex, on two legally separate parcels.  If you could get them rezoned, you'd also have to combine them.

@Jon Klaus  

I really don't know what the lot is worth. They are actually two separate lots that are right next to each other. Any idea of how I can find value of land?

I also don't know how much I can build for. According to the plans I saw, they say the average is $105 per square foot, making the project at least $185k. I think that is extremely steep for that San Antonio.

I am pretty sure I can get $800 per unit, so a gross of $1,600. 

I don't know if I would want to sell it after completion, but I would consider it. I would like to cash-flow it for at least 5 years if not more. 

Hopfully the lender will want to do 100% financing. 

@Wayne Brooks  They are two adjacent lots. Is combining them an option and possibility? 

@Chris Marroquin  Do you happen to have any idea of what the average in SA is for building something like this? Per square foot. 

Thanks to everyone for the help so far!

Hi @Aroldo Villarreal  

I've been working on a video series to help new investors and I have one that might be useful to you. It walks you through some initial numbers to help you analyze a property for a new construction spec home.

This spreadsheet is specifically built with the sale of the property in mind, but in it I talk a little about how to put the numbers together, evaluating comps (which is what you can do to determine the value of the land) and how to determine what you can build on the property.

Here's a link to the video:
http://vimeo.com/99876448

And here is the spreadsheet:
https://www.evernote.com/shard/s3/sh/a42d0a1c-3f16...

There are a couple of things to think about based on your conversations above:

  • Depending on the size of the lots, you might have the option of building 2 duplexes, one on each lot. From what I understand, the City of San Antonio is pretty easy to get answers from. A quick Google search turned up this website https://www.sanantonio.gov/dsd/ If it were me, I'd take a trip down there and start asking questions. You'll probably walk out knowing exactly what you can do from the zoning side. Oh, and protip: bring a book, newspaper, or handy electronic device. You might be there a while.
  • If the lots are combined, meaning that they are technically 2 lots, but at some point the city combined them to make them 1, it might only be developable as a single lot.
  • If the cost of a new build it too high for the area, you might want to consider having a house moved to the lot. In Austin we're tearing down houses like maniacs. I just gave away a cute, well kept 3/2, 1500 sq. ft house to someone taking it outside of the city. The estimates that I've heard about for moving a house, then re-hooking it up to new utilities, etc. is around $50k. 

@Lynn Currie  - this is an awesome video. It deserves a thread (or a blog post) of its own, rather than be buried here! Its hugely helpful to people who are new to fresh builds like me. Thank you so much! 

BTW, there is a way to restrict Redfin to show only the correct comps. If you click on "More Options" right underneath the black button called "Search Listing" - it will give you the option to restrict the search by sq footage, #beds/baths, year built etc. 

Please keep up the great work with these videos. Looking forward to watching more.

Account Closed 

I'll eventually start sharing the videos. This is my first and in the process of building the site to host them all.

The ultimate plan is to do videos from start to finish for a build, showing the step-by-step process. I just hope I can improve enough along the way to not spend as much time creating and editing!

I'm glad you find it useful.

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Hi @Paul Lopez  

I build fairly highish-end specs and my builds generally run $110-$130 per square foot. The variation on price is dependent on the finish-out.

I know folks that do more volume that build at a lower cost - generally in the $90-$100 per square foot range.

I've never built in a small town, but I would imagine that 60 miles from a major city in Texas isn't that big of a deal as long as the subs are looking for work. 

Originally posted by @Paul Lopez:

Hey @Lynn Currie  I looked at your spreadsheet, nice tool thanks. Are construction costs in Austin really $110 sqft?  Do you guys have any experience building in small towns? These would be say within 60 miles of a major city.

 I've built a couple homes in the country for $60-70psf with me as GC. I've also spent as much as $130psf in Austin.  

Originally posted by @Aroldo Villarreal:

@Jon Klaus  

I really don't know what the lot is worth. They are actually two separate lots that are right next to each other. Any idea of how I can find value of land?

I also don't know how much I can build for. According to the plans I saw, they say the average is $105 per square foot, making the project at least $185k. I think that is extremely steep for that San Antonio.

I am pretty sure I can get $800 per unit, so a gross of $1,600. 

I don't know if I would want to sell it after completion, but I would consider it. I would like to cash-flow it for at least 5 years if not more. 

Hopfully the lender will want to do 100% financing. 

@Wayne Brooks  They are two adjacent lots. Is combining them an option and possibility? 

@Chris Marroquin  Do you happen to have any idea of what the average in SA is for building something like this? Per square foot. 

Thanks to everyone for the help so far!

 $185k for a duplex that gets $1,600 in rent doesn't seem like exceptional numbers for a buy and hold rental property in TX.  That doesn't even meet the 1% rent to price ratio rule.  And TX has such high property taxes that are cash flow killers, so you need to be even above the 1% rent-to-price ratio I would think for a good return on a buy and hold rental.  Could you just buy and existing duplex cheaper and for better cash flow and not have the whole hassle of building new?    

Originally posted by @Lynn Currie :

Hi @Aroldo Villarreal  

I've been working on a video series to help new investors and I have one that might be useful to you. It walks you through some initial numbers to help you analyze a property for a new construction spec home.

This spreadsheet is specifically built with the sale of the property in mind, but in it I talk a little about how to put the numbers together, evaluating comps (which is what you can do to determine the value of the land) and how to determine what you can build on the property.

Here's a link to the video:
http://vimeo.com/99876448

And here is the spreadsheet:
https://www.evernote.com/shard/s3/sh/a42d0a1c-3f16...

There are a couple of things to think about based on your conversations above:

  • Depending on the size of the lots, you might have the option of building 2 duplexes, one on each lot. From what I understand, the City of San Antonio is pretty easy to get answers from. A quick Google search turned up this website https://www.sanantonio.gov/dsd/ If it were me, I'd take a trip down there and start asking questions. You'll probably walk out knowing exactly what you can do from the zoning side. Oh, and protip: bring a book, newspaper, or handy electronic device. You might be there a while.
  • If the lots are combined, meaning that they are technically 2 lots, but at some point the city combined them to make them 1, it might only be developable as a single lot.
  • If the cost of a new build it too high for the area, you might want to consider having a house moved to the lot. In Austin we're tearing down houses like maniacs. I just gave away a cute, well kept 3/2, 1500 sq. ft house to someone taking it outside of the city. The estimates that I've heard about for moving a house, then re-hooking it up to new utilities, etc. is around $50k. 

 I know it's 2 years later, but thanks so much for this video and spreadsheet Lynn-- extremely helpful!

@Lynn Currie - Wow, thank you for the info! Even though it's two years later, for some reason I guess I missed this post. I never did go through to building. I am wholesaling, landlording, Sub2's, owner financing, and several other things but I don't think I am ready or even want to get into new builds. I'll leave that to the pros like you!