Building a 5 unit building in my back yard

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Building a 5 unit building in my back yard

Michael R.
Investor · Cary, IL · Member since 2014 · 124 posts · 95 votes

Hey Everyone!

Let me just start by admitting that my whole day revolves around BP, whether it's reading the forums, or listening to the amazing podcasts driving from place to place.  Very excited about this first post and looking forward to hearing your feedback.

I just bough my first investment:  A duplex, completely remodeled in 2007, with existing tenants on an 11 month lease.  I'm house hacking at the moment and will pull some great cash flow out of the deal once I move out.  The house is right across from the train station in a town called Cary, IL, and the 6 houses on either side of me are all multi-family with long term tenants and very low vacancy.  The house is also a 5 minute drive from my job so a huge win there.

Now, I'm not sure how common this is but, being that the lot is a narrow half acre all of my neighbors have separate 4-5 unit apartment buildings in their back yard.  After speaking with some of their tenants (most of whom have lived in those units for 8-10 years) they are all 2 BR units at $850-$900 a month.  The idea of doing the same has me really excited for the possibilities, but I really have no idea what such a venture might cost.  I have a line on the capital I would need for the project through a private investor so that's reassuring.

When I came to look at the property the seller informed me that he had drawings made, presented them to the village, and after a couple attempts they told him they wouldn't let him go through with the project since they plan for that strip of buildings to "go commercial" in the near future.  The land is currently zoned multi-family.  I will be investigating this further on my own of course.

Here are some pictures, one of an overhead view of the open part of my lot highlighted in green & the neighbors "backyard buildings" circled in red, two others of my neighbors houses where you can see their 4-5 unit buildings in the back yard (also circled in red):

- Can anyone give me a brief overview of what this type of project would look like in terms of time and capital?

-If you were facing this type of resistance from the village/county what avenues would you consider?

-Would it make more sense to put a couple 500-700 sqft "small" or "manufactured" houses back there instead?

-Would you just take your cash flow from the deal, be happy, and buy more multi-family housing elsewhere?

Thanks in advance!!

-Michael

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Edward Hamill
Professional · Nokomis, FL · Member since 2013 · 123 posts · 99 votes
11y

Look into modular multi-family.  In my past life, I was involved with a number of these in the Southeast and the benefit is that they go up in a few days so are not open to the weather (rain for us...snow for you) and can be move-in ready in under 6 months.  Also, they are more cost effective generally (unless you can run as GC on your build, which would help keep costs down) and usually come with a 1 year (or longer) warranty so your out of pocket the first year is lower.  

Not sure of pricing in your area, but definitely worth looking into. Here are a few samples of ones I was somewhat involved in (I focused more on higher-end net-zero homes vs multi)

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  • Michael R.
    OP
    Investor · Cary, IL · Member since 2014 · 124 posts · 95 votes
    11y

    Any insights would be greatly appreciated!

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  • Tyson Taylor
    Denver, CO · Member since 2014 · 56 posts · 68 votes
    11y

    @Michael R., It bugs me when Cities have some grand vision but don't update the zoning to reflect it.  It also bothers me that they're not the ones paying for the new development but somehow it's "theirs"...but I digress.

     It wouldn't hurt to have another conversation with them. From your side it should sound something like "I have this land that with the current zoning will allow me to build 3-4 more units, I'd like to do that." If they say they have other plans and won't let you, then they need to tell you what you can build. 

    If it's zoned multi-family, then they pretty much have to let you build it if it meets all the regulations.  They can make life difficult, but ultimately they cannot say no (again, only if you've met all the zoning/development requirements in the code).  This is considered being "arbitrary and capricious", they have rules adopted, if you follow them they can't deny your application- otherwise what's the point of the rules? 

    I think you're in a decent position.  If they do end up rezoning it to a commercial zone, then it'll probably make the land worth quite a bit more.  Worst case scenario is that they let you build more units...which isn't bad at all.

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  • Michael R.
    OP
    Investor · Cary, IL · Member since 2014 · 124 posts · 95 votes
    11y

    @Tyson Taylor My feelings exactly.  I will be working the email correspondence angle with the village and, if I can't get any headway, hire an attorney who specializes in these matters.  

    Do you have any advice on what to put in that space?  I really like the idea of manufactured/small housing, but would be open to building a larger structure for an all-in-one approach.  

    Thank you so much for your input.

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  • Tyson Taylor
    Denver, CO · Member since 2014 · 56 posts · 68 votes
    11y

    @Michael R.,

    I wouldn't go the small/manufactured house route, not because I don't like the idea, but I think you'll end up getting into building code issues.

    Separate structures end up invoking all kids of building code/fire code requirements for fire resistive construction, building separation, etc. Utilities will also be harder. It could work, I'd run the numbers against a 4-plex, I think you'll probably end up with a better ROI, more units generally always win.

    I don't know your local market though, if 2bd apartments aren't renting or are overbuilt and folks love the little houses then obviously consider that.

    Good luck! and please update with the results from the discussion with the village, I'm curious to see where they land.

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  • Edward Hamill
    Professional · Nokomis, FL · Member since 2013 · 123 posts · 99 votes
    11y

    Look into modular multi-family.  In my past life, I was involved with a number of these in the Southeast and the benefit is that they go up in a few days so are not open to the weather (rain for us...snow for you) and can be move-in ready in under 6 months.  Also, they are more cost effective generally (unless you can run as GC on your build, which would help keep costs down) and usually come with a 1 year (or longer) warranty so your out of pocket the first year is lower.  

    Not sure of pricing in your area, but definitely worth looking into. Here are a few samples of ones I was somewhat involved in (I focused more on higher-end net-zero homes vs multi)

    1Reply
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