Thank you @J Scott for starting the new construction diary.  It's been our inspiration to do one of our own now.  In this thread we are going to track the progress of our first Crowd Funded new construction project in Austin, TX

1122 Linden

So let's play a little catch-up since we've already done quite a bit of work getting to where we are.

DEAL ANAYLSYS

So the main thing we're looking for here is a 20%+ gross margin on the total cost of the project from a financial point of view.  Trees, flood plains, and other due diligence items can impact costs and the size we can build, but we'll get to those later.  Exits for new construction in the area show an exit price of $235/sqft.  The lot size is 181' by 51' = 9231 sqft.  The 40% Floor to Area Ratio regulation allows 3692 buildable interior square feet.  Since the frontage is greater than 50' and the lot size is greater than 7000 sqft, the City of Austin will allows us to build a duplex.  So we can do roughly two sides at 1800 sqft each.  $235 * 1800 = target exit price of $423,000 per side.

Our project cost is $110/sqft = $110 * 3600 = $396,000 for both sides, $198,000 per side.

7% in closing costs is $59,200 which includes both sides.

There were no demo costs on this lot so we don't have to add anything there.

This makes our max land cost to reach a 20% gross margin $260,000.  We were able to purchase the lot for less than that price, so it's good to go assuming we don't have any gotchas in the due diligence.

DUE DILLIGENCE

These are the items we check for in doing a new construction project.  They may differ in your area, so keep in mind this is specific to Austin.  Some may be the same, and there may be others in your market that we don't deal with.

1. Flood Zone

We check the City of Austin GIS database on line to see if there is a flood zone on the property.  There are two zones to worry about.  The 100 year and the 25 year.  If there is any 25 year flood zone on a property, we'll likely pass unless it is very small and only at the edge of a property and the house can be well above it.  A 25 year flood zone will trigger flood insurance for sure and is a big warning light.  The 100 year flood zone is ok in some areas.  Higher end buyers may not be willing to buy something in a 100 year flood plain, but lower end home buyers may be fine with it.  If any part of the house is in the 100 year flood zone, we always build the finished floor elevation to be 1 foot above that elevation, so even in a 100 year flood event, the house will stay dry.  In such a case we will use a pier and beam design, as they can be cheaper to build tall versus a slab.

1122 Linden is not in any flood zone, 25 or 100 year.

2. Lot Size

Here, we are looking for how much space we have to build and how big of a house we can build. The rules for Austin for SF-3 zoning (most common residential zone) are that you can build 40% of the lot area as enclosed space. So it's pretty easy to figure out how big of a house we will be allowed to build. If the lot is over 7000 sqft and has 50' or more of frontage we can build a duplex which increases the value of a lot substantially assuming that duplex condos sell in that market. In Austin we don't sell a duplex as a single transaction. We make a small HOA and sell them off individually to retail buyers. This doesn't work in every market, but it does in East and South Austin.

1122 Linden is 9200 sqft, a very large lot that gives us lots of options.

3. Trees

The City of Austin has a tree code that prevents building too close to some types of trees.  Our architect will do this feasibility study to determine if trees can be removed or built around.  Some trees can be removed, others if large enough will make a certain amount of space around them unbuildable.  There are rules for building a slab foundation vs a pier and beam foundation near a tree as well.  You can build pier and beam closer to a protected tree than a slab because the impact to the root zone is not as significant.  A tree in the wrong place can make some lots entirely unbuildable.  So this is an important step.

1122 Linden has some trees, but they are mostly on the borders of the lot.  Given the large size of the lot we can work around them.

4. Survey

It's always nice to get a survey but we rarely get one from the seller, much less one that is a full tree and topo survey.  The tree survey is required for the aforementioned reason.  The topo survey is important for determining the exact elevation lines if a flood zone is in play as well as determining the slope in the lot.  The City of Austin also has what it calls McMansion rules that prevent you from building above a certain height.  However if you have even a slightly sloped lot, where the top of that virtual tent is can mean the difference from being able to build one story or two.  So if you get this wrong, even though you have 40% FAR you might not be able to build two stories to achieve it.  This is where a good architect comes in to ensure that a design can fit inside that virtual tent.

This also creates another problem at the foundation.  To maximize your space you may be tempted to lower the elevation of your foundation.  On a super flat lot not in a flood zone, this is probably ok.  However if you have any slope to your lot there is going to be water drainage when it rains.  You must be very careful that you can still achieve 6 inches of exposed foundation  regardless of the slop of the lot to ensure proper drainage, otherwise you will end up with a leak and a wet house.  Ripping out carpet and hardwoods after the fact is a messy and expensive process.  So making sure your drainage plan is sufficient is paramount.  The topo survey will help you figure this out.

The 1122 Linden survey shows a very flat lot with all of the trees marked.  We may have to use some pier and beam near the trees, and slab elsewhere.

5. CC&Rs + Deed Restrictions + HOAs

Many of the lots we look at were platted in the 1930s, 40s, and 50s.  Some of the deed restrictions are actually on the plat!  So you have to look everywhere.  These restrictions may include items like only single family homes may be built in this neighborhood, or the servants quarters must be separate, or no people of color are allowed to live here (they are that old).  That type of restriction is obviously outdated and illegal.  The ones we care about are ones that restrict building size or type. 

If you don't pay attention to these, you can risk building your project and have someone complain half way through to the city.  This can lock your project up and potentially force you to tear it down.  If no one complains, and you get it done and sold, you got lucky.  I've seen some builders do this, but I would never risk the $400,000 to $650,000 required to build some of these projects on getting lucky.

For 1122 Linden, there were no restrictions on building type or size.

PRE STARTS

The key expenses you need to cover in addition to the land acquisition are as follows:

1. Architectural Design - We include this cost in our $110/sqft.  This is usually a fixed $/sqft for this service.

2. Engineering Design - We include this cost iin our $110/sqft as well.  This is also usually billed in $/sqft of design.  It is very important to use a good engineer with good insurance and a long track record.  Money spent on good engineering is better than money spent on a warranty in my opinion.  A good foundation and framing design will keep you from having a call back 9 years from now (Foundation warranties are usually 10 years) with a costly failure.  Don't skimp on foundation and framing.  Do it right, and use the engineer's insurance to offload your risk for a foundation failure.  Your reputation is on the line here too.

3. Soil analysis - This is required for the engineer to be able to build the right type of foundation.  East Austin has inconsistent soils, so this is particularly important where we build.

4. Permit fees - The City takes their cut

5. Utility hookup fees - If you are building a duplex where a single family house used to be, you are likely going to have to upgrade the water and waste water taps.  If it is single family, you may be able to simply re-use an old tap and save some money.

6. Builders Risk Insurance - This can usually be purchased in 24 hours if you have a good relationship with an insurance company, so I usually wait to buy this almost the day before construction starts or the day before we close a loan with a lender which will want to make sure they are an additionally insured on the policy.  I only buy insurance for my cost to build, not on the retail amount.

7. Demolition - If there is a pre-existing structure to demolish, you will need to pay for this as well.  Be sure to check with the title company and your lender that it is ok to demo any structure before a loan is issued.  The reason for this being that banks always want to be in first position on the property and a mechanics lien from a demo company would put them in second position if you don't pay the demo company.  Banks will usually be ok with this if you get a lien release along with the work and have a good relationship with them.  Before you demo, make sure to disconnect all of the utility lines!  A good demo company will do this for you, but as the owner, you may need to call the utility company to start the process.

1122 Linden has covered all of the above steps.  We have crowd funded the capital for the entire project so we do not have a bank for this project.  We have purchased the land, designed a building, had the foundation and framing engineering done, created a permit set, submitted it to the City of Austin and we expect our permit to be approved this week!

There is an old slab that needs to be removed which we plan on doing around the time we get our permit.

The rough schedule is as follows.  November and December are holiday months, so those are typically slow in the building business.

7/10 - Receive permit

8/15 - Complete Foundation

9/15 - Complete Framing

10/31 - Complete Mechanicals

12/15 - Complete Finish out

1/15 - Complete punch list, clean, photo, and list