Hello BP network,
I am closing on a home in San Diego with a zone 4 lot. The house is in an area where rents are raising significantly every year. My plan is to stay in the home and build a 4plex property in the empty lot. I’ve been told that San Diego has recently relaxed its laws when it’s comes to new construction due to the high demand in rentals so i don’t see much of an issue with this but curious to what other obstacles I should prepare for. Has anyone built a 4plex from ground up? What kind of issues did you experience? Was it worth it? Anything you would recommend to someone just initiating the process?
@Joshua Mathis First step is to do a quick feasibility analysis to determine if the project will work financially. You do this by calculating the NOI to help determine value and work backwards. You also need to look at the comps as well to validate your assumptions. Start with the potential gross income then subtract the operating costs to determine NOI, divide that by the CAP rate in your area to give you the value, then subtract development costs, building costs, commissions and interest expense. You want at least a 30% margin above costs and the NOI needs to be enough to pay the debt service after stabilization and then some.
If the project looks feasible from a financial standpoint the next step is to check with the city or county planning and zoning department to get an idea if your concept will work, if you can build what you would like to build and what is required for all approvals including site plan, building permits, proffers, water/sewer tap fees, bonding requirements, inspections, setbacks, lot coverages, parking requirements, height restrictions, C/O process and time frame for all approvals.
You also need to check with the utility companies and get an idea of availability and cost estimates from them for water, sewer, power, gas, cable, installation and connection requirements, tap fees, hookup charges, transformer location and relocation, power line and power pole relocation issues. Check to see if you have to install any manholes, fire hydrants, curb, gutter, sidewalks, street signs, street lighting any specific street design or access requirements, Check DOT requirements for access, stop lights and permits, traffic studies, DWQ requirements for permits, permit fees and time frames.
Once you have an idea of what you can build and what is required in terms of permitting and infrastructure you want to talk to some civil engineers, architects and commercial general contractors that do the type of projects and build the type of buildings you want to build so you can get an idea of costs, time frame and requirements.
This is a brief and broad overview of how the development process works what's required before you get too far down the road or purchase a property.