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

[Shane H.]

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.  

[Mike Wood]

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.