Good way to nail down cost of new const build duplex?

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Good way to nail down cost of new const build duplex?

Shane H.
Investor · Wichita, KS · Member since 2015 · 769 posts · 279 votes

Hello,

I have found an opportunity that I do not believe will last very long.  A development near me has been re-zoned for duplex construction and many of the lots are available.  This development was started a year or so after the downturn (wheels were set in motion before then) and it has for the most part sat idle for a # of years.  

The developer as I alluded to earlier had most of the development re-zoned for duplex construction to spur things along as he is wanting to get rid of the lots and the "specials" taxes he is liable for.  (In our locale, the developer does not pay to put the sewer/water/roads in...the city does and then levies a "specials" tax payable for 15-20yrs by the lot owner)

I think I have found a partner though I'm not sure - he doesnt seem as excited about the opportunity as I do.  He is a contractor who does sub work for high end custom homes here (his primary trade is finish carpentry) though he can do the gamut of tile, drywall, siding etc)  I'm also capable of a lot of this work though I work better assisting someone else, some I can take the lead.  So together I think we'd be a good fit - he knows/sees who the good subs are for the various areas of work that would need to be hired out, has been in the industry for a good # of years and does work for quite a few well known/respected builders.  Back to that in possibly another post.

So given the scenario above, where my partner would have his GC license and can pull the permits, between the two of us have a good handle on high quality materials and where to source them, the general knowledge of the order to get things done, dealing with inspection etc...Is there a good way to gauge how much we could collectively build the duplex for?

Keep in mind some parts of the job (such as finish work - hanging cabinets, trim, doors, decks etc) putting up fences etc would be done by us/his crew, other parts would be hired out and we'd be paying full retail for nothing.

8 bdrms, 6 baths two 2 car garages (so 4 bd 3 ba ea unit) would be the ideal layout with a basement.  There'd be appx 3500-3900 finished sq ft per duplex so about 1750-1950 sq ft per unit finished - each would be a ranch with ideally a view out basement.

Another builder in the area is offering to build similar units with the same grade of materials we'd use/craftsmanship for $300k all in with the lot/turn key - you buy appliances. 

I've been told figure $75-100 a sq foot but that seems so general.  @ $75/sq foot I do not think pursuing this makes much sense unless I have loads of cash burning a hole in my pocket.  If we could get the cost down to $50/sq foot I want to build as many of these as I can as when completed they should appraise $275-300 and some change.  

(My idea for the partnership would depend on two scenarios - we have not sat down yet and came to a solid conclusion at this juncture, however option one would be he stays in the long haul - I help finance the deal, take care of that side, put in my sweat equity/management where I can, then take care of lease out, property mgmt - we'd split equity 50/50 - second option would be for his exit at a pre-determined point in time.... cash out refi - and he gets 50% of the equity - walks away or keeps a percentage of equity leave some cash in the deal etc)

Am I out on cloud 9 as far as getting build cost down to $50/sq ft or so?  He was thinking it was possible with a simple well thought out floor plan and our combined connections and based on his experience.  However he is supposed to run it by a couple builders he works for to double check - I have not heard back yet and they may not want to give up any proprietary info.

A similar high end builder in town builds Grade A+ duplexes which rent for $1700-1800 per unit and his all in cost is around $280 or so with him GCng the deal.   (I had insider info for this figure and it is accurate) Ours would be a tad smaller and may not have all the high end touches - he's also hiring everything out and no hands on.  Building his own duplexes/multi-family has been his business model for years and years and he's done quite well.  

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Mike Wood
Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
10y

We did not intend to sell the 3/1.5 duplex when we started construction. We have another 2/1 duplex in the immediate area and its been successful, but we do have a decent amount of turnover (its across the street from a local university.  Our thought was a 3/1.5 would attract more families and our turnover would be less, the rent would obvious more, and it would be successful. The are is a working class area with good affordability (rent wise).

There were a few other 3/1 and 3/2 duplexes in the area, and we were seeing asking rents in the $1200-1400/month, so we set our rent at $1300, given it was brand new and had several upgraded features (hardwood cabinets, granite countertop, SS appliances, wood look tile throughout, etc). We had lots of showing, and rented one of the units very quick (although there was some red flags we ignored in our tenant screeening, which eventually lead to having to evict them). But we were not getting alot of submitted applications. We did get some comments regarding the price, and figure it was just people being cheap, trying to negotiate a deal. A few mentioned that they were looking at 3/1 and 3/2 SFR. After having our second unit on the market for 3 weeks and no real applicants, we decided to move the rent of the second unit to $1225, which got some more interested persons thru the door, and after a week or so, we found a qualified tenant.

Our other 2/1 duplex in the area does not have any issues renting quickly. We charge market rent and have upgraded finishes compared to the comps.  Generally, we rent them withing the first week or so of being up for rent.

So we decided to look into the area and see what SFR rentals in the area were renting for. We stated to see SFR in the $1200 (older homes without amenities) to $1500 (with similar amenities). There are some obvious advantages of a SFR over a duplex from a tenant prospective, less noise, full use of the yard, privacy, etc. There are some addition responsibilities, but for a well qualified renter, they are minimal, and the SFR provides more of a sense of home. We come to the conclusion that we were either going to be forced to get less rent ($1200 or less) to get a good qualified renter, or we would be getting tenants that would not qualify to rent a SFR (bad credit, marginal income requirements, etc).

So after we had our eviction, we decided to see what we could sell it for.  We meet with our realtor with the goal of clearing $20k after all fees, not sure how doable that was.  He ran some comps and was pretty sure we can we could get what we needed.  We were sure that it was prefect fit for an owner occupant that could rent one of the units out.  In under a month, we were under contact for full price (less $5k in buyers closing costs).  This allows us to free up the capital for another project, as I had over $40k of cash tied up in this project.   I am now focusing properties where the completed construction value is considerably higher than my construction costs, I am finishing up another 2/1 duplex where we will have builtin equity of over 20%, allowing me to finish with little money trapped in the project (the 3/1.5 finished with only 8% built in equity).

Around me, it is not easy to sell a duplex as townhomes, unless they were originally built that way, There area issues with local zoning.  Similar problems with condo conversions.  So for us, we either had to sell the whole thing or keep for a hold rental.

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  • Mike Wood
    Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
    10y

    @Shane H.If you can buy a turnkey duplex for $66/ft2, then I dont see how you make much money building one.  I build new construction duplexs, althought at a much lower size then yours (1800-2450ft2).  The lowest I have gotten my construction costs (NOT including land) is $69/ft2 for the larger houses and $93/ft2 on the smaller houses.  The level of fit and finish is not the same on all my builds ($93/ft2 is nicer, i.e. hardiplank siding, hardwood floors, 10ft ceilings, SS appliances, granite, etc). 

    In order to get down to $50/ft2, it would be super hard unless you had massive volume.  My estimates (not including GC overhead) indicate framing (materials & labor) in the $11/ft2, Plumbing & electrical in the $4-4.5/ft2 range each, HVAC in the $3.75/ft2 range, sheetrock & insulation in the $4/ft2 range, cheap vinyl siding in the $3/ft2 range.  Just those put you at $31-31/ft2, that there is still lots to go.  

    I just don't see how $50/ft2 is possible, even given your large square footage.

    I would also be super concerned with partnering with someone that has never GC'd a complete project like this before.

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  • Shane H.
    OP
    Investor · Wichita, KS · Member since 2015 · 769 posts · 279 votes
    10y

    @Mike Wood

    I should have clarified - the $66/ft cost is the builders cost - he only builds for himself/partners as far as I know.

    I'd agree after analyzing more that it would be extremely difficult to get to the $50/sq ft # - however I'd think it wouldnt be impossible.

    My thoughts were if I could get it in the high $50s to below $65/ft or so you are in the project less than it will appraise for, can lease out, keep the property for 5 years for example, sell each side of the twin home as a possible exit, or sell the investments to others at near retail pricing thus recapturing the equity you created.  I'm sold on the future of the area - the growth will be there soon as long as we do not have another serious downturn.  Good schools, shopping etc are all close by.

    Ideally I'd like to use hard wood base trim at $1-2' cost from a supplier out of the area, the casing of course would be more, Masonite doors $70-80 ea, Schlage Door knobs, LP Smart Siding, basic roofing materials unless I could snag a good deal on class IV shingles - 5" concrete for the slab, Basic Vinyl windows.   

    I have a good grasp on what I can get siding, windows, trim, interior/exterior doors, decks, guttering roofing, flooring, landscaping and concrete done for and who to use/where to source materials, along with electrician/plumbing -- lacking site prep, foundation/framing/roof trusses cost -- I could get the cost of the rough in from a buddy who runs a plumbing co.

    My challenges are A - not being able to be there all day to run things, and B - still missing some of the key contractor connections.  Need this second person to step in and be a part...if he isnt interested I will find someone else if I move forward. 

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  • Mike Wood
    Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
    10y

    @Shane H. Maybe the right solution is looking to acquire the land and sit on it for a bit, see where the area goes.  If the deal is right on the land, it might make sense given how you feel about the area.  Once things get better, then build.  By then you will have more equity in the land.  

    Given that your clarified that the other builder is holding the property at $66/ft2 costs, I assume that does not include land costs.  That seems right to me given your comments about high end finishes.  Remember that the cost per sq ft always go up with a smaller home, if the level of finish is the same (i.e. less total ft2 to average the cost of the kitchen over). 

    If your not going to be very involved with the build, I agree you need a GC partner or pay a GC, which will add to your costs.

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  • Shane H.
    OP
    Investor · Wichita, KS · Member since 2015 · 769 posts · 279 votes
    10y

    @Mike Wood

    My thoughts were involving the partnership is to have a 50/50 split of the equity.

    I'd fund it (down payment, dealing with lending etc) be involved in some of the sourcing of materials, paying bills, some of the grunt work (yard, painting possibly, handling setting the plumbing fixtures or hiring out some of it...then lease up, paperwork and management.  I thought that was fair - he is also going to look into getting a line of credit to throw a little cash into the deal or keep it as a reserve so he has some skin in the game.  However his work and employees work on certain items would be a major contribution.

    My partner would have the GC license, be able to run things day to day give direction where necessary, pull permits etc.  I've dealt with the inspector once before when he filled in for the neighboring cities inspector on my rehab project - he was easy to deal with.

    I'd need to talk about taking a management fee when the property is rented out to make up for my time/systems and dealing with the taxes.

    I only live about 10 mins if that from the development so it wouldnt be a big deal to check in or hop over and work when I could.

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  • Mike Wood
    Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
    10y

    @Shane H.I'm not sure with a build and hold that a 50/50 split makes much sense.  Lets says construction ends up costing you $230k ($60/ft2 x 3800ft2).  For simplicity sake, lets say that is all inclusive and does not require either of your time/labor or your partners.  A GC is generally going to take somewhere around 20%, so that would be an added $46k, which would increase your total cost to $274k (or $72/ft2, which is absolutely doable for me).

    So your partner is worth about $45k, given that is what your 50/50 partnership is saving on the build.  But the problem is how does the 50/50 split work?  If you were to sell the house, you guys split the profits after all of the costs are covered, thus his chance to get paid (his $45k in value added), this makes sense.   With your scenario, your personally into the project for +$230k (that cost does not include the land) and your partner is only into the project for $46k (the value saved by his  GC work). But with a build and hold, are you planning on splitting the rent? If so, this would be a deal killer for me.  Analysis the deal with only half the rents, and this will surely be a real stinker.  See how this deal is not evenly distributed?

    Also, dont under estimate the value of picking out the design elements of the house. These decisions take time and add a ton of value if done correctly, so if you were doing that, your adding value. Building a custom home is not a simple as picking the floor plans and telling someone to build it. I mention this as it sounds like you are minimizing your value add to this project.

    Given the build and hold nature, I would recommend finding a qualified GC and give him the contract.  A good GC will be able to get better pricing (mostly on labor) than someone with limited contacts, and you dont have to worry about splitting the rent.  For me, I would never consider a partner that was not adding equal money.

    All of this assume the comps in the area support the total build costs (land plus construction).

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  • Shane H.
    OP
    Investor · Wichita, KS · Member since 2015 · 769 posts · 279 votes
    10y

    @Mike Wood

    So you're thinking I might be selling myself a bit short or vice versa?

    When you say splitting the rent I'm not sure how you mean?  My plan would be to have a mortgage out for about 100% of the money invested in the project when it's completed which we'd both be on, however my connections/credit lines are what will allow the build to start out hypothetically.

    So yes, he is not putting a ton of cash in the deal, however he would be using his company/employees to do things they are capable of.  So he would have a capital contribution, it's just not as cut and dry as him writing a check.  Am I thinking about this wrong?  

    The way I'm looking at it is without him, I cant do this, as of right now he doesnt have the time, financing in place or other knowledge I have to make it happen.  

    Was thinking 50/50 would be fair and give everyone a stake in the game.  I'd take a management fee when the property is rented out and the rents would obviously pay the mortgage, expenses, tax prep etc.

    Thanks for the input so far.  Enjoying the discussion.  We will be meeting some more this weekend to discuss.

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  • Mike Wood
    Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
    10y

    @Shane H.Initially I was thinking your were selling yourself very short, as it was initially indicated that you were to "help finance the deal", which lead me to believe that you were providing all of the capital (either in cash or loans in your name).  That appears to be wrong.

    Second, I am not sure how you will be able mortgage out for 100% of the money invested, even with a refi (Fannie/Freddie limits cash out refi's on MFR to 70%LTV, purchase to 75%LTV). While not impossible, it is not easy and requires the right property and area. Given that the land as been vacant for years, I serious doubt that's possible (otherwise others would have already done these developments).

    There is definitely going to be cash required to build the house.  Unless you have some very generous private money loans, I don't see how anyone will give you 100% of the costs to build the house (best I can find is 80% of costs).   I Don't mean to be so negative, just trying explain what I have found.  If I could build and hold with 0 money in the project at the end, I would quit my dayjob and build houses all day long.

    If both of you are 50/50 responsible for all of the loans, then I think he getting the short end.  But truthfully you really haven't given enough info to tell.  Are you bring initial capital to the deal? If not, all you are bringing is the idea of the deal, and he is the one that is going to be working for free for 4-6 months acting as the GC. Sure you will be doing things for free, but likely not as much as a GC has to.

    If it were an equal partnership, then 50/50 would work.  So with a 50/50 partnerships, the rent would be split 50/50 (after expenses paid). Sure it might make sense for you to get some management fee, as otherwise you would pay the to an outside company.  Me personally, I would not take a management fee in a 50/50 partnership.

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  • Shane H.
    OP
    Investor · Wichita, KS · Member since 2015 · 769 posts · 279 votes
    10y

    @Mike Wood

    More of the details - I would provide all of the capital for the down payment...purchase of the lot and any other equity initially required.  When we sign the construction loan I could get it by myself, however I would request he be on the loan as well so there is skin in the game on his end.  Between my credit lines and other property etc it will be funding the payments while the property is built.

    I'm 99% certain that once it's built and occupied it will appraise to the point we could pull out the capital invested in a refi into more permanent financing.

    I know I wasn't real clear before - hope that made sense.    IE it should appraise for $275-290 or so when done depending on level of finish, size and what I end up renting them for depending on if it were a 3 bd or 4bd model.

    Hoping to have no more than $225-250 invested so if property completed/rented out is worth $275k, then financing at 80% should be able to take out permanent financing for $220 - leaving maybe 5-15k or so of our own money in the deal after it's completed depending on exact construction cost, then move on to the next one.  

    The goal would be to get 4-5 or more built on contiguous lots, have them going for a year or two then finance into a HUD multi family non recourse loan - either keep the property for the duration of the rate term or keep another year or two after that and hopefully spin off to a retail investor as the note would be assumable at that point.

    Thats how I have it drawn up in my mind. The problem would be meeting the UW guidelines on the HUD loan of having a networth equal to the loan amount across all properties. I am not there yet. He is not there yet, though he might be much higher than he thinks depending on how the goodwill in his business would be valued.

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  • Mike Wood
    Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
    10y

    @Shane H.As you described, the deal is not split 50/50, and I personally see you as get short changed.  

    You mentioned 80% LTV, but unless your are not using conventional residential mortgages, that will not be possible for multifamily. Check around. Most banks either sell the loans to Fannie/Freedie, or adhere to their guidelines, which for 2-4 unit buildings, its max 75%LTV for purchase, max 70%LTV for cash out.

    So with your anticipated value of $275k, your max loan would be $206k (purchase) or $192.5k (cash out). You can likely do some creative cost information with your construction loan such that your construction loan finishes at $206k, which would allow you to roll that amount into the a 75% LTV permanent loan.

    But at $60/ft2, your build costs are $230k WITHOUT your land costs.  Not sure how much your paying for land, but with a final value of $275k, I would personally not do this deal.

    For perspective, my last two deals worked out as follows;

    1) 3/1.5 duplex, 2450ft2, total cost $200k, pre-construction appraisal value $223k, post construction appraisal value $216k, $39k of cash stuck in the property at refi (75%LTV), sold 10 months after completion for $245k

    2) 2/1 duplex, 1780ft2, total cost ~$179k, pre-construction appraisal value $230k, still under construction, estimated $10k (my construction loan is for $172k) at refi (75%LTV). Do not plan to sell.

    As you can see above, deal #1 was not so good.  I picked this location out of familiarity instead of profit/value.  I don't plan on making that mistake again.  

    If you are spending much more than $20k for land, I would trash this deal.  With the true cost of the GC, this build is likely underwater.  With sales prices in the $72.36/ft2, your area is not very good at supporting new construction.  Around me, anything less than $100/ft2 does not support new construction.

    Good luck, but please proceed with caution.

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  • Shane H.
    OP
    Investor · Wichita, KS · Member since 2015 · 769 posts · 279 votes
    10y

    @Mike Wood

    Lot is $12600 - lots are cheaper here since the developer does not have to pay for the infrastructure improvements. out of pocket. They are passed on to the new owners in the form of "Special Taxes" that have a sunset once they are paid off.  The developer is of course responsible for these taxes once the infrastructure goes in until the lots are sold to the next owner - either a builder or end user.

    Specials are $1100 a year per lot.  

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  • Mike Wood
    Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
    10y

    @Shane H.Thats pretty good price for land.  Around me that does not buy much, and most of my target markets have land in the $40-100k range. Although I have purchased land for as low as $10k, but that was more of a fluke.

    The margins are pretty thin on this deal. Once complete and rented, are you getting a good CAP rate (your return on cash will be skewed if your able to refi with near 0 in the deal).? Assuming its somewhere around 10, your rents would likely be around $1600 per unit (assuming expenses run at 35%, which might be too low for your area).

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  • Shane H.
    OP
    Investor · Wichita, KS · Member since 2015 · 769 posts · 279 votes
    10y

    Prelim #'s I'm running show cap near 8% - however I'm fudging high on water (irrigation) if we tied into the city water - I'd like to have a well drilled and put in a warm season grass so the mowing season is shorter and it requires less water.

    Putting in vacancy of 5% though what I've noticed is the new developments stay full - also figuring Cap Ex as well, which honestly if we build right and dont own more than 10 years or so the only thing we should look at having to replace is carpet or a water heater which is minimal unless a hail storm or tornado goes through.  So I'm probably going overboard figuring a percentage on that. I would just take a flat $100 mgmt fee per mo to compensate me for my time.  Either way when running the #'s - having one unit rented would make the mortgage payment which is most important.  I've seen enough things fail I've got a good idea on how to put things together for longevity sake down to the wax seals on the toilets.

    Rents for 3bdrm 3 bath are 1375 ea w no lawn care.  If we provided lawn care and built 4bd/3ba depending on level of finish should be able to get 1450-1700 per unit.   Wide range I know but would have to test the market.  If I'm kicking in lawn care which I prefer they'll pay for it by collectively paying a $100 premium a mo in rent which will take care of the lawn bill over the course of 12 mos.  Warm season grass you only mow from May to Sept - maybe oct depending on how soon it gets cold here.  Fescue here is my preference but it requires too much hands on to look good.  I only have that at my personal residence.  

    This isnt a create millions overnight thing, something I've always wanted to do though.  The other construction groups in town (the smart now wealthy ones) have done this through partnerships and I want to emulate that model.  They're getting older so it's time for new blood to move in, start with one and scale up while the opportunity is there.

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  • Shane H.
    OP
    Investor · Wichita, KS · Member since 2015 · 769 posts · 279 votes
    10y

    @Mike Wood

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  • Mike Wood
    Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
    10y

    @Shane H.Vacancy is really for turnover. Sure you can rent it quick, but its still takes time to turn over the unit and re-rent it.  I use 8%, as that's one month lost.  For a duplex, my goal is 4%, only one unit vacant for one month per year.

    As for the lawn care, given its a duplex, having them take care of it might be tough.  One tenant might do a great job, but then the other might not mow it much, which would piss off the first tenant.  I dont allow any of my tenants to take care of the lawn, every time I have tried it, I was sorry, as they didnt even do a marginal job. 

    I would check what 4bd SFH rent for in the area. If you think you are going to get that price, I would caution you about that. The duplex I sold was cause I built too large of the duplex 3/1.5 for the area, and what I needed in rent was not much less than a SFR, and my prospective tenants let me know. I sold it to an owner occupant, so they only have to worry about finding one tenant.

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  • Shane H.
    OP
    Investor · Wichita, KS · Member since 2015 · 769 posts · 279 votes
    10y

    @Mike Wood

    There's a good # of comps to support the rent close by.  A billionaires conglomerate is HQ'd close by as well along with 3 or 4 new schools built in the past 3-4 years.  

    I agree on the lawn - I like a nice one most tenants do not care about the yard frankly along with a lot of home owners in some areas.  The top end of the spectrum $1700-1800 there are certain features you need in the house.  So it would depend on our layout and final finishes.

    I dont check all the time, but you wont find many newer 4bd rentals available, especially new ones. 

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  • Kyle H.
    Investor · Bryson City, NC · Member since 2013 · 162 posts · 122 votes
    10y

    @Mike Wood

    Would you care to elaborate on the rental price point for your 3/1.5 duplex you sold, and the potential tenant feedback and were you also not able to rent before you sold?  We just finished developing a parcel with 2 duplexes (1 side by side 2/1.5 and 1 over/under 2/1) and the rents we are charging are more than market rent for a house with the same specs.  We are closing next week on a parcel right down the street and my partner and I were out there today laying out a 3/2.5 duplex, a 2/2.5 duplex and 1/1 quadplex, however your comment has my wheels turning about the decision to do the 3/2.5.  Your numbers and finishes seem very similar to ours the only difference is probably our drastically different metropolitan area (our town pop. is 1600).  We were going to try to sell the units or individually as town homes during construction and rent if they were not sold by completion.  Thanks for your input and I have enjoyed reading this thread as it is very pertinent to our build and hold strategy with duplexes.    

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  • Mike Wood
    Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
    10y

    We did not intend to sell the 3/1.5 duplex when we started construction. We have another 2/1 duplex in the immediate area and its been successful, but we do have a decent amount of turnover (its across the street from a local university.  Our thought was a 3/1.5 would attract more families and our turnover would be less, the rent would obvious more, and it would be successful. The are is a working class area with good affordability (rent wise).

    There were a few other 3/1 and 3/2 duplexes in the area, and we were seeing asking rents in the $1200-1400/month, so we set our rent at $1300, given it was brand new and had several upgraded features (hardwood cabinets, granite countertop, SS appliances, wood look tile throughout, etc). We had lots of showing, and rented one of the units very quick (although there was some red flags we ignored in our tenant screeening, which eventually lead to having to evict them). But we were not getting alot of submitted applications. We did get some comments regarding the price, and figure it was just people being cheap, trying to negotiate a deal. A few mentioned that they were looking at 3/1 and 3/2 SFR. After having our second unit on the market for 3 weeks and no real applicants, we decided to move the rent of the second unit to $1225, which got some more interested persons thru the door, and after a week or so, we found a qualified tenant.

    Our other 2/1 duplex in the area does not have any issues renting quickly. We charge market rent and have upgraded finishes compared to the comps.  Generally, we rent them withing the first week or so of being up for rent.

    So we decided to look into the area and see what SFR rentals in the area were renting for. We stated to see SFR in the $1200 (older homes without amenities) to $1500 (with similar amenities). There are some obvious advantages of a SFR over a duplex from a tenant prospective, less noise, full use of the yard, privacy, etc. There are some addition responsibilities, but for a well qualified renter, they are minimal, and the SFR provides more of a sense of home. We come to the conclusion that we were either going to be forced to get less rent ($1200 or less) to get a good qualified renter, or we would be getting tenants that would not qualify to rent a SFR (bad credit, marginal income requirements, etc).

    So after we had our eviction, we decided to see what we could sell it for.  We meet with our realtor with the goal of clearing $20k after all fees, not sure how doable that was.  He ran some comps and was pretty sure we can we could get what we needed.  We were sure that it was prefect fit for an owner occupant that could rent one of the units out.  In under a month, we were under contact for full price (less $5k in buyers closing costs).  This allows us to free up the capital for another project, as I had over $40k of cash tied up in this project.   I am now focusing properties where the completed construction value is considerably higher than my construction costs, I am finishing up another 2/1 duplex where we will have builtin equity of over 20%, allowing me to finish with little money trapped in the project (the 3/1.5 finished with only 8% built in equity).

    Around me, it is not easy to sell a duplex as townhomes, unless they were originally built that way, There area issues with local zoning.  Similar problems with condo conversions.  So for us, we either had to sell the whole thing or keep for a hold rental.

    2Reply
  • Kyle H.
    Investor · Bryson City, NC · Member since 2013 · 162 posts · 122 votes
    10y

    @Mike Wood

    Thanks for the reply.  Definitely food for thought, we have a slightly different rent spread into the 3 bedroom from 2 bedroom.  I like the two bedrooms for the type of tenant we usually get, but I think we are going to give it a go with the 3/2.5 and see how it goes.  We close tomorrow and will be breaking ground on Monday.  We seem to have very similar strategies with our build to rent strategy and equity position, we shoot for 70% equity built in and were able to get around 75% on our last duplex and 65% on our first.  Thanks again and good luck!

    0Reply
  • Mike Wood
    Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
    10y

    @Kyle H.Good luck with your project. I definitely like the built in equity numbers you've been able to get.

    0Reply
  • Shane H.
    OP
    Investor · Wichita, KS · Member since 2015 · 769 posts · 279 votes
    10y

    Have a contract on 2 lots on a cul-de-sac - since I had posted about this most of the lots are gone - another contact I have met through BP may buy some of the remaining ones and we were going to see if we could combine forces in some way.

    Met with the draftsman today to finalize the designs - he has an off the shelf one he's used over the years for some other large duplex builders over the years he'll modify for us.  Should have the plans by the end of next week to so we can finalize our costs and then move on to the lending piece next.  Only will have around $750-1200 wrapped up there.

    Developer agreed to carry the note for us on the lots -- we paid half up front - he carries the other half for 6 mos at 4% interest per annum.  Lots cost a tad more than I quoted but we are in a slightly better location IMO so it was worth a couple extra thousand.  Closing on those next week I believe.

    I'm nervous but am jumping in - Hoping when we're done the economy is still decent - little worried about that end but hoping nervous and cautious is good.

    0Reply
  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y

    You should be nervous, building at 50/sf is not impossible but very highly improbable, specially for a newbie. Good luck though.

    0Reply
  • Shane H.
    OP
    Investor · Wichita, KS · Member since 2015 · 769 posts · 279 votes
    10y

    @Manolo D.

    We're budgeting for around 63-65 and optimistic we can get in the $50 range.  

    Just under half the finished sq footage will be in the basements so that should help lower the cost.

    0Reply
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