I'm in Denver, where there is currently a shocking lack of inventory. I'm more interested in redeveloping homes in the city as opposed to building out in the suburbs.
Some neighborhoods are zoned for duplexes, but are still filled with primarily 2bd 1ba prewar 800 sq.ft. ranches. The numbers work well:
1. Buy the old house for $200k.
2. Invest $650k in a new duplex.
3. Sell each unit for $525k and walk with $200k.
Redevelopers in nearby single family neighborhoods can't build profitably for less than about a $900k price point. This makes the similar sized duplex units look like a steal.
One big problem is that the current owners of the old houses can't find a replacement home.
My idea is to let them trade up into a duplex in their same neighborhood. It would be a win-win. I'm currently building a few units and I'm starting to think I'd be nuts to sell two units without getting a replacement property. Otherwise, I'm out of business pretty soon. Or I'm stuck in bidding wars with the other redevelopers.
Has anyone tried anything like this before?
@Kevin Dickson first of all I don't know where you are finding $200K houses in the City zoned for duplexes. I'll buy all you can bring me for $250K and then turn around and wholesale them for $300K. The buyers will be getting a steal.
I have wholesaled a couple of these scrape properties in the past year. The sellers are going to areas like GVR and Westminster but the sellers made way more than $200K. There is virtually no inventory under $200K so unless the seller is leaving the area it's impossible to find a replacement so your observation is correct. The sellers I was aware of bought a bigger nicer house in GVR which was pretty much a straight across trade. They may have kept a bit of cash. The other seller bought a foreclosure that had issues and since they were paying cash they could fix it up themselves. Other sellers are moving to cheaper markets like Pueblo where their dollar goes further on all fronts. Your other opportunity might be someone going to assisted living or downsizing to a condo. The trick is finding those in off-market situations.
I think what you are suggesting is basically a house trade. I think you will face the same issue they do. There are no cheap houses for sale in Denver.
$200k would be a deal for sure, the places where the average on market property is selling for $200k and also is a TU lot isn't really happening anymore. One neighborhood I'm following was at $205k still for lot value purchases, now is $250k + and nobody is building over there yet. The builders I talked to who have bought in there are going to rent the properties for a few years before building.
You guys are right that the old homes are quickly on the way to $300k. But the redevelopment numbers don't work as well.
Anyway, I think a yellow letter that says they could move into a brand new home like the one down the street for just an additional $xxxx/month.
I'm getting the feeling I should build asymmetric duplexes, with one side smaller and simpler. The old home seller could get that one for just an additional $xxx/month
I think it sounds like it's worth a shot and I like the creativity. Worst case scenario you don't get any bites and then sell it like normal. However, if you are finding decent $200k lots that would sell for $525k per side when turned into a duplex then I would love to know where you are looking. I think you may have to sit on any $200k lots for a few years before you see returns like you are suggesting.
Most of the E-TU-C zoning in SW Denver has single family homes selling for $180-$220k.
Vacant lots are almost nonexistent, although I'm trying to sell one at 2209 S Fox for $139k.
@Kevin Dickson the problem with SW Denver is that the duplexes are not yet selling for the price point needed to support new build for most of the area.
Sounds like a chicken and the egg problem. Someone will have to build the first one and lose a little money. That's what I did at 2642 S Cherokee. Now there are about 12 units permitted.
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