Demo & Rebuild in Cupertino, CA Area

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Demo & Rebuild in Cupertino, CA Area

Siva Singh
Member since 2020 · 5 posts · 0 votes

My wife is an interior designer in Silicon Valley. She comes across a bunch of investors who buy old homes, rebuild it and sell. So we are wondering if we can take up that as a business. Here are some initial numbers that I am trying to workout. Let me know if I am missing anything.

Purchase cost of an old house on a 7,000 sq ft lot - $ 1,800,000

Architect Fees - $ 30,000

Other Soft Fees (like Permits) - $ 45,000

Construction (3,000 Sq Ft) - $ 700,000

Finance Costs(Borrowing around $1.4 m for 2 years - $ 110,000

as primary residence mortgage)

Selling Costs (5% of $3.3 mil) - $ 165,000

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Total Costs - $ 2,850,000

Selling Price - $ 3,300,000

Profit - $ 450,000

Are these realistic? These will not be realistic if you are from any other part of USA ;)

Anything that I am missing? Any costs that I can reduce?

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  • Jason Hsiao
    Investor · Pasadena, CA · Member since 2015 · 269 posts · 189 votes
    6y

    Not realistic at all. Your mileage may vary depending on experience and relationships.

    Construction hard cost - You're using about $233/sf. I'd use at least $275/sf or prob $350 just to be safe.

    Your soft costs including the architectural is prob half of what it should be. You have fees galore to pay in Cupertino.

    Selling costs I usually use 7%

    Financing costs not sure what rate you're using. Obviously they've dropped quite a bit. It all depends too if you're doing recourse or non-recourse. Banks are not going to use primary residence rates for this. Construction loan is going to be something like Prime/LIBOR + 1.5 or 2, again depending on your experience and relationship with the bank. There's also points for origination etc likely.

    You didn't include land carrying costs and insurance.

    Depending on what part of Cupertino, your ARV is prob closer to $3m give or take. I have doubts about $3.3m but good part of Cupertino and nice finishes sure prob reasonable.

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  • Siva Singh
    OP
    Member since 2020 · 5 posts · 0 votes
    6y

    Thanks Jason for the detailed feedback.

    Will check with more contractors about construction costs.

    Why is selling costs 7%? Most brokers around here charge 5%. Are there any other costs that I am not including?

    As for financing costs, this will be a owner occupied financing as this will be the only house that I own. So I am assuing a rate of 3.5% for a 5/1 plus $10,000 towards closing costs.

    What are land carrying costs? I will add insurance costs. How much do you think it will be for 2 years for such a construction project?

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  • Jason Hsiao
    Investor · Pasadena, CA · Member since 2015 · 269 posts · 189 votes
    6y

    Yes, there's bunch of closing costs you are not including. In Santa Clara County seller pays for escrow fees, title insurance, and county transfer tax - https://www.firstam.com/title/ca/resources/who-pays-what-in-california.html

    Depends on how you negotiate with your agent, you also have photography, staging, inspection report just to name a few.

    You bought a property, even though it's just land you still have to pay property tax on it. Or I guess the case you used is an old house of $1.8M I don't remember the exact tax rate, let's say 1.3% that's $23,400/yr. Again mileage might vary but let's say it takes you 6-9 months to get your permit and then another 9-12 months to build it, you're looking at prob 1.5 - 2 years that's $46,800 in property tax that you left out.

    Insurance, I don't know I'm not an insurance broker you should have them quote it out... $3m project for 2 years just a random shot in the dark a couple of thousands while you're getting your entitlements and $10k for builders risk while it's under construction.

    Speak w/ your lenders before you pull any triggers... it's not just a remodel. After you demo it there's no house as collateral only land value, plus I'm reading this post as you're going to build and sell, not build to live in that's mortgage fraud in my opinion but I don't deal w/ too many lenders that's not my strong suit.

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