Advise About Knocking Down a Rehab and Building New near DFW

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Advise About Knocking Down a Rehab and Building New near DFW

Nathan Veech
Member since 2019 · 10 posts · 1 vote

I am living in Watauga Texas (near Fort Worth) in a 2 bedroom, 1 bath rehab. 1960s home, everything has to be redone. Foundation has to be leveled, sub-floor needs replacing, walls need to be redone, roof needs to be replaced (including rafters to bring them to code), all windows need replacing (16 windows), kitchen needs to be finished. In other words the whole house needs to be re-done. The reason I bought the house was that it was in my budget and it came with an empty lot. I thought I could rehab the house myself slowly over time (which I am in the process of doing). Then I was going to eventually house hack until I could build something on the empty lot. Most people told me I should just knock the house down, but I couldn't afford that kind of thing myself. Enter my investor friend.

I have a friend that want to get me out of a rehab and into some cash flows, and he currently has some cash that he needs to invest in real estate. He likes the property and location, and told me that he would front the cash to knock down the existing property and build 2 new homes (3 bedroom 2 bathroom ideally) on the then vacant lots. Then we get renters in one and house hack the other one.

He told me he wants me to look into how much it would cost to build 2 new homes on the land and what kind of options we have in terms of size houses, and cost to build and then when we have that we could start talking about making it happen. This seems like a no-brainer to me, this would put me 5 years ahead of my plan, and get me into a finished house with some cash flows to pay down my mortgage, and gets me an opportunity to have a future investor.

I am looking for some advice on what I can do to explore the options available, where I could get cost estimates for building new homes in Watauga (near Fort Worth). If you know any builders or general contractors that I could talk to, or where I could find premade plans homes, or any advice that you think could help I am all ears. I am looking to get the ball rolling as soon as possible the longer I wait the more this could potentially cost, and if I don't get started and finished before winter I may have to wait until spring.

Thanks so much,

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  • John Chapman
    Investor · Dallas, TX · Member since 2009 · 718 posts · 913 votes
    6y

    I own rentals in Watauga and am spec home building in Fort Worth.  I've looked at building new stock to rent in the Polytech area and could never make the numbers work. Really need rents and market value to match up.  If you don't mind me asking, what part of Watauga are you in and what are homes going for?  Given your cost basis and size of home, my gut says rehab will probably be better than new build, at least as to the existing house.

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  • Nathan Veech
    OP
    Member since 2019 · 10 posts · 1 vote
    6y

    Thanks for posting John. I am on Plum street, and the surrounding properties were built around 2004 -2005, they are all about 1500 to 1800 sq ft. and sold from 200K to 230K. Rent in the area is about $1300 a month. Not sure what kind of levels rent would have to be vs market value, but I do know that Watauga is a growth area, to be honest most of DFW is a growth area. The current home is about 900 sq ft. 

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  • John Chapman
    Investor · Dallas, TX · Member since 2009 · 718 posts · 913 votes
    6y

    @Nathan Veech That's kind of what I figured.  I think you're going to find that the price to rehab your existing home is going be the most effective way to deal with it. You really need to look at what you will end up with as a finished product and what it will rent for.  (Haven't looked at 2/1's in a while so I don't know)

    I'm really not sure what build costs are in Watauga but they could easily be $100/ft.  If you're GC'ing yourself, then probably less.  (It's really hard to throw numbers out in a vacuum)  More fundamentally, rents tend to be pretty low compared to market values in Watauga.  I'd also be surprised if Watauga continue to appreciate significantly.  The prices you are seeing now are about what people can generally afford in the area (Watauga has always been a little more blue collar).  Just my  two cents.

    So even if you build new, I'd be surprised the house will cash flow at all, given those rents relative to square footage.  I realize the calculus is a little different since you already own the land, but what I found in looking at other areas, is that even if I could build profitably (i.e. with a margin for profit), it never made sense to hold the property long term because rents were too low.

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