East Austin Spec Duplex

32 Replies

Last year I bought a house on a corner lot one mile east of the Texas state capital building. An agent brought it to me before it was about to be listed. The seller was asking 250K so I wrote up an offer for that amount.  However, other agents were shopping the deal too, so I had to raise my offer to 270K to get it under contract.

I wasn't so interested in the house as I was in the lot.  It's a corner lot, about 10,000 SF close to downtown and the University of Texas.  270K was too much to pay for a lot if I could only build one house, but the numbers seemed to make sense if we could build a duplex.  The plan was to build a two family house, and to sell the units separately to owner occupants.

The most obvious challenge with this lot were the two heritage trees (Pecan and Elm) growing in the yard.  The city has strict restrictions about new construction close to protected heritage trees, and if we demolished this house to do new construction, we were going to be very limited in what we could build. Because of this, we decided to keep the foundation and footprint of the old house, a 1950's rancher, and use it as the basis for our new duplex. Here's what it looked like before we started.

That's a great lot in a great area. How hard is it to sell a duplex as two separate dwellings instead of one? What makes you go this route instead of keeping it together to rent out, or sell to a buy and hold investor as a duplex? 

You lose a percentage of your prospective buyers when you sell duplex halves vs. SFR's. You also take a 12-18% price hit per square foot. It's still worthwhile, though, because you can sell a lot more house than you could othe wise. On this lot, I can sell 4000SF as a duplex, but a lot less as a SFR. There aren't 4000 SF SFR's in this neighborhood, so the price per square foot drops as you go above the area norm.

Owner occupants are paying a premium over what investors will pay.  I could hold and rent, counting on continued appreciation. However, my returns should be better by selling, and then repeating the process.

@Jon Klaus  I love this new forum!! Your project is very interesting! We are building two units that will be attached in San Clemente , but will be doing them as "condos", allowing us to sell them separately. 

So then, keeping the foundation gives what benefit? Is it then considered a rebuild rather than a new build, and less costs? Also, are they crediting you back for any of the fees that were paid on the original build? Sometimes they'll do that. 

Can't wait to watch this come along. Where are you on plans? 

In order to sell the duplex to two different owner occupants we must set up a condo association.  This involves the survey, the writing of the covenants, and obtaining the right insurance.  Fortunately it does not require city involvement other than meeting zoning requirements.  This may be different in your city or state.

Keeping the original foundation and footprint allows us to be grandfathered in regard to the tree regulations.  We are still required to protect the trees according to the city arbrist department standards during the construction progress, and  they send out inspectors to ensure we are doing so. 

If we were to scrape the existing house we wouldn't be able to build within 20 to 25 feet of the existing trees, and there would be no way we could build anywhere close to 4000 SF on this lot. 

We aren't really saving any money building from the old foundation versus building new. Really no breaks from the city, and we have additional complications tying into a 60-year-old foundation that was designed for a single-story, but where we are in building two stories.

Updated almost 4 years ago

Spelling; City Arborist, AKA Tree Police

@Jon Klaus  I love the strategy of keeping part of the old house to "grandfather" it in. I have seen this done with my construction background but have a whole new appreciation for what it can accomplish as a newer investor. I am seriously considering this play for my next deal where I live. Any tips or pitfalls for acquiring the lot initially? I'm planning on picking out distressed properties and contacting the sellers directly to see if the want to offload them. 

This one was unusual in that I found and bought it through an agent.  Most of my lot buys have been through yellow letter campaigns. In other words, doing what you are planning, David, contacting potential sellers directly.  This has been very effective, though not In high volume. 

@Jon Klaus  Thank you for explaining the process of selling a duplex as two separate properties. I'm just getting into multifamily investing, and love hearing about different strategies. I'm curious to see how the build turns out. Keep us posted. 

The seller of this property is about 60 years old, and has lived in the home almost her whole life. She didn't want to list it because the condition was pretty bad, and she had a relative (not an owner) living with her who was antagonistic towards selling the home. I viewed it when the relative wasn’t home.

She did hire an agent, and the agent reached out to other agents to try to get it sold to an investor.One of the other agents was one who found a lot for me close by a few months before.  She brought me this deal.

The seller was very happy on closing day. We paid $270K.  A few years ago this property would've been worth less than $100K, so she felt like she won the lottery. She bought a new condo the same day we closed on this property.Double closing, of sorts.  She referred us to her neighbor who wanted in on a pay day, but another investor bought and rehabbed that one.

Rendering of plan. 

Unit A on left, 1960SF

Unit B on right, 1920SF

Both are 3 bedroom, 3 bath

@Jon Klaus  

Thanks for this post.  I looked into a similar project here in Washington state which is not as business friendly as Texas, but I got talked out of it by the city.  They said I would have to subdivide the lots and I didn't have enough land.  I always feel like they know very well how it could work, but won't tell me unless I know the passwords.  Will this be a subdivided lot, as in a regular subdivision, or more like a small condo development with buyers owning the land in common?

Also, subject to what you want to share, what kind of value will these have to justify a $250,000 lot and site specific plans and a build made complicated in this way?

This lot would be too small to subdivide into legal lots, so it will remain one lot.  We will set up a condo regime, or condo association.  On a couple other projects, I am subdividing, and on yet another I am attempting to rezone and build 4 detached homes in a new condo  regime.  My applications are at the city now.

I don't want to be too specific on all numbers until the project is sold, but it's somewhere near a million, total.

it takes months to get a building permit for a duplex in Austin. Fortunately, we have done it before and know some of the pitfalls.  The city was very backed up at the time of our application. It took us 7 months to get the permit for this one.  Definitely not for the impatient investor. 

Our architect also takes us through the building permit application process. She has the relationships and deeper knowledge of trouble-shooting city issues when they arise.  

@Jon Klaus

are you using a new construction loan, private money or some sort of crowd funding to make the deal come together? Thanks in advance.

@Jon Klaus  looking good! Maybe you can post your floorplans? 

@Don Coumbs The "buzz words" you may need in talking to your Planning Department is to ask if you can develop as a PUD (Planned Unit Development) You basically get the density of the subdivided lots, but don't actually split the lots, though each property owns and is responsible for their portion of the lot, and hence why it's necessary to have a HOA or Condo Association.

Every region has their own terms depending on if units are attached, detached, townhomes, condos, etc. Talk to the Planners, tell them what you're trying to accomplish and ask how you can get there, or a civil engineer may be able to advise you too.  

Originally posted by @Jason Carter :

@Jon Klaus

are you using a new construction loan, private money or some sort of crowd funding to make the deal come together? Thanks in advance.

 Each deal has it's own financing structure. On this one, another investor and I put up the purchase money and we got the construction loan from a local bank.  

We only kept one wall, the rock wall with the fireplace on the left side of this picture.  Demo was more tedious than a scrape since we are saving the pier and beam foundation. We also have to save a portion of the lumber to build back into the new framing so the home won't be considered brand new construction.  

 Karen Margrave, I have floor plans in PDF.  What's a simple way to post in a thread?

@Jon Klaus  you can convert it to a jpeg file and then upload as an image. Do you have Adobe? Many of the versions have file converters. If not, you can download a free pdf converter online (be careful where you get it from) Also, another way to do it is if you have a 8.5 x11 printed out, you may be able to scan it with your printer and save as a jpeg file. If none of those work, send me the PDF and I'll see what I can do. 

Should have mentioned I'm on IOS. I can do it tomorrow with my PC.  Thanks Karen. 

Interested to see your floorplans, I read through your other build and I love the contemporary designs you are following. 

I really like the design. I look forward to watching this progress. 

@Jon Klaus  Can't wait to see the build pics! I'm wanting to do some "MODERN" houses here in Atlanta and am interested in seeing your roof systems and how your windows and siding numbers compare to traditional materials.

I feel your pain on the MONTHS for a permit!  Sometimes in bigger cities with a lot of action that's just the reality.  At least you we're prepared for it.  I know several investors that have tried to do deals in City of Atlanta, got a hard money loan, had the permitting process take FOREVER and lost money on their deal.

Wow, this project looks amazing!  Can't wait to see the finished product!

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