building a fourplex as my first deal. trial by fire.

building a fourplex as my first deal. trial by fire.

Contractor · victoria, bc · Member since 2014 · 74 posts · 21 votes

Well, as the title says I am going to try an build a fourplex. And its my first deal. This will be my diary. Come hell or high water, you will have a front row seat.

Before we get into the deal, understand that I am going to consider this a diary so I will put almost all of my thoughts on what I am doing and it might get a little.. verbose. then again, maybe it won't! really, I have no idea since I have never done anything like this before,

 Okay, so before everyone freaks out, I work in construction and have run crews before, I can read prints, and do layout but my experience lies in condo construction and I frame with steel as opposed to wood. I have done wood frame before and though I cant claim to be any good at it, I know enough that I know what I don't know, if that makes sense...

okay the property.

I live on Vancouver Island, in the city of Victoria, but am buying in Nanaimo, which is an hour and a half from where I live.

The property is zoned for a 4plex and currently has a little one bed one bath on it, the listed price was 199,000 with a city assessment of 151,100 (land value 134,000 and the house 17,100) . the lot is 9372 sq/ft and the house is 576sq/ft. super small.

I didn't think the property was worth anything close to what was being asked, but I called the agent anyway, and asked about the property. the agent said that the owner owed 180,000 and wasn't going to go any lower, but as the property had sat vacant for four months he wanted it gone. I know the property is not worth that now, but I think it might be in a year or two because of what is happening next year.

the downtown core in Nanaimo is starting to develop. they have broken ground on a new hotel tower and next spring a new walk on ferry service is starting that will travel between down Nanaimo and downtown Vancouver.

Vancouver is one of, if not the, most expensive place to live in Canada. the prices for a 3 bed 2 bath in Vancouver can easily reach a million dollars.  there is currently a 3/2 listed for 2.9 mil. the average price for the same in Nanaimo is in the 250-300 range. the closest price point on the main land is a two hour drive in heavy traffic. the ferry will be an hour and it goes straight downtown.

I have 50,000 that was borrowed from people who believe in me and I not really willing to risk a large chunk of that to buy a currently overpriced property that the owner refuses to move on, but that isn't to say he wasn't motivated. it had sat vacant for four months, and the same before the last tenant was there. this guy did want it gone,

so I offered a lease with option to purchase. i offered the 180,00 that he owed with 10,000 down on a two year term, with a one year extension for 5000. both would be taken off the purchase price, bringing the price down to 165,000 in three years. I will also be covering all the costs for the property during the term, so the owner can basically wash his hands of it unless something catastrophic happens.  along with the lease, the seller is giving me an appointment of agent for the property so that I can start talking with the city.

During the coming year, I am going to go through the steps and get everything ready in order for me to build.

one of the first things I plan on doing is approaching a private lender to ask where I would need to be or order for them to feel comfortable loaning the construction costs, so that I have a realistic goal I can work toward during the net year. I am also considering taking a GC course in the spring at the local uni. I would love to build this myself, I know that I could and I really think if this goes well I would like to repeat the process.

 I have a few people in my life that I can ask for help or advise. the owner of the company I work for does development and I have made more then a few contacts through my work.

the research I have done has told me that I can expect the cost per foot to range between 95-130. I would like to narrow it down some, but I will get a more true number in time.

so that is where I currently stand. I can honestly say I have never been so excited. I am trying to keep in mind that things can still go south though. the ferry service could fail, and the development plan could fall by the wayside, but that is one of the reasons that I did a lease, if this deal goes in the pooper, I can walk away, slightly poorer in pocket but vastly richer in experience.

I will most likely post a lot of questions as thing start to progress for me, if not here, then in the forums. so stay tuned. im excited.

Joshua

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Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
11y

I like the the fundamental idea that the ferry is going to create unprecedented demand in Nanaimo.  However, I'd want the deal to work even if demand remains the same.  And I'd want outsized margin on the deal since there is a lot of risk, and you are risking other people's money. 

What is your plan for the quad when finished?  Rent it out, sell the units as condos, sell the whole thing, move into a unit?

How long will pre development take?  Construction?

What are the hurdles and timeframe in getting required permits?

How much will construction cost?

What will it be worth upon completion (today's market)?

Do you know of anyone doing (or have done) similar projects in the area?  Have you talked with them about your plans?

Thanks for sharing your journey with us. This is an interesting project in a beautiful area. 

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  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    11y

    @Joshua Berube 

    I will be interested in following.

    Now are you going to build a basic 4-unit box, {stacked} row house, etc?  Will you be building to basic code or leverage the growing enthusiasm in BC for energy efficient housing? {I think, BC may now have the most Passivhaus buildings in the country}.

  • Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    11y

    I like the the fundamental idea that the ferry is going to create unprecedented demand in Nanaimo.  However, I'd want the deal to work even if demand remains the same.  And I'd want outsized margin on the deal since there is a lot of risk, and you are risking other people's money. 

    What is your plan for the quad when finished?  Rent it out, sell the units as condos, sell the whole thing, move into a unit?

    How long will pre development take?  Construction?

    What are the hurdles and timeframe in getting required permits?

    How much will construction cost?

    What will it be worth upon completion (today's market)?

    Do you know of anyone doing (or have done) similar projects in the area?  Have you talked with them about your plans?

    Thanks for sharing your journey with us. This is an interesting project in a beautiful area. 

  • Real Estate Investor · Lincoln, NE · Member since 2013 · 584 posts · 353 votes
    11y

    I'm going to follow this one too.  We are considering doing something similar.  Buying a lot and building a duplex or triplex to then hold as rentals.  I've never GC'd a project before, but I've built a personal residence twice.  Not the same, I know, but better than nothing.

  • Contractor · victoria, bc · Member since 2014 · 74 posts · 21 votes
    11y

    @Roy N. 

    My first instinct is to build a box. my research says over all its cheaper, but I have heard nothing but bad things about flat roofs and leaks. the property would be best served with a box and it would match the area. Im not married to it though, and I will be open to other options when I have more information. there is a possibility that the top floor will have an ocean view.

    I would like to build as green as I can, so I will be as energy efficient as I can, money allowing.

    @Jon Klaus 

    My Plan for the plex is to rent it out when I am done. I have not yet decided if I will live in it after completing because I really love living downtown Victoria. That being said, Im not above living for free if the numbers work.

    I have no desire to sell the building unless there is a really good reason. the property is in a fantastic location to take advantage of the downtown growth.

    An elderly man has just completed construction on a 4plex (4-1bed/1bath) in the alley behind my property on a half lot, facing said alley. he built a stacked row house, what looks to be two townhouses, the two top suites are 650sq/ft. and the bottoms 700sq/ft. He told me that the final appraisal came in at around 675,000 for the building. he told me he spent close to 600,000 building it. I have reason to doubt his numbers, though he did have to extend the water and sewer service half way up the back alley so that he could service his property. and I guess the city made him widen the alley and pave it as well, so maybe his costs would be that high.  my property is a double lot, already zoned for a 4plex facing a secondary street, with a water main and sewer main right out front. he built all one bedrooms and I plan on building all two bedrooms. I would like it if they were approx. 1000sq/ft. but it will depend on the costs.

    rents in the area are between 700-850, depending on which side of the highway you're on. I am confident that I will be get a least 750, but believe it will be higher.

    My bosses family does development. I asked what they typically come in at and he told me at about 130. they build higher end houses in Victoria, so I am guessing that that would be on the higher end of my costs. I am estimating the build to be at around $100sq/ft. to $120sq/ft. I am going to go to a few private lenders once I have the assignment of gent to see what they would be willing to lend and where I need to be in order to get approved. I will be listening, and re listening to the podcast with the underwriter for ideas.

    I have given my self one year to figure the pre development out. I have yet to talk to the city as I am waiting on the assignment of agent which I will get once the lease is signed this week ( I have already signed the purchase contract )

    I will have a better time frame for the construction ta little later down the road.

    @Wade Sikkink 

    I would imagine that building a private residence would be similar, I would very much like to hear your thoughts!

    Joshua 

  • Investor · Cincinnati, OH · Member since 2013 · 2k+ posts · 1k+ votes
    11y

    @joshua 

    @Joshua Berube sounds exciting. Another person you should speak to is @karen 

    @Karen Margrave - she is an experienced developer 

  • Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    11y

    All markets are different, but those wouldn't make sense here.  At 1,000 sf/unit, at $110/sf all in (not considering holding/financing costs) plus $45k per unit for the land---$155k per unit for $800/mo.---6% a year gross potential income, I could never make those numbers work.  But, if it appraises for close to the $250/sf as the other building, and could actually be sold for close to that, then that's a good exit.  But then, someone would be buying with a 4% yearly gross potential income....wow!

  • Karen MargraveBusiness Member
    Moderator
    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
    11y

    @Joshua Berube @Jon Klaus has already listed the questions I would ask, and the point about the deal being good as it stands right now is a good one. 

    However; it sounds as if your market is very similar to ours here in Orange County, though your prices are much more reasonable! 

    Though I understand your reasoning for wanting to take a long period to plan and get through the process, waiting can also have downsides, such as higher interest rates, etc.

    As to building a box and the roof, a good design with the correct slope, and a good roofer should stop any problems.. We are doing flat tops on our houses. The reason being, there are height limitations, and in order to have at least 9' walls, we lose roof pitch. In addition, one of the houses will have a rooftop deck, and a flat roof works better. Modern style works well with flat roofs, so that helps.

    My question: Are you taking that much time because it's necessary for permits, funding etc., or because you have a fear of starting and the time frame gives you a legitimate comfort zone? At some point on every project, you have to take the leap. There's never a 100% guarantee that the deal is going to go like you hope it will, or that nothing will go wrong. Mitigate as much risk as you can, but know, there are always risks. 

    @Joe Fairless thanks for the @mention! 

  • Contractor · victoria, bc · Member since 2014 · 74 posts · 21 votes
    11y

    @Joe Fairless 

    with out a doubt, whatever happens, its going to be exciting. thanks for commenting, I thoroughly enjoy your podcast, its one of several I listen to everyday at work. please keep up the good work.

    @Wayne Brooks 

    this is one of the reasons I chose to do a lease with an option. depending on the type of financing I get, those numbers, as they currently stand, might not work for me either. the ferry to downtown Vancouver is slated to start in march of next year. This will give me a chance to get a feel for how the service is going to be received, and maybe an idea on how it will affect the nearby neighborhoods.  I don't necessarily need to build right away, I can buy the property as a primary residence and hold until the numbers do work. i believe it is just a matter of time. i strongly believe this property in the path of progress.

     @Karen Margrave 

    there are two main reasons that I have given myself a year. As I stated above, I would like see how the new ferry does, and the progress of the downtown core.

    second and more pressing, is that I don't know what I don't with regards to permitting and dealing with city hall. it could be breeze or it could be very difficult. I am not worried about the potential risk, at least not so much as to stop me from moving forward, but I don't want to put unnecessary time constraints on myself, as this is a big step forward for me as it is.

    you're roof comment has made me reconsider my thoughts. I shouldn't automatically write it off. I hadn't thought of the wall height advantage before, though it makes sense.

    Thank you all for your comments.  I will keep posting as much as i can

  • Investor · Corrales, NM · Member since 2014 · 3 posts · 0 votes
    11y
    Hi Josh, I am from New Mexico where we have flat roofs everywhere. You might investigate PVC Membrane as a solution. Not all are created equal and the install is key so try to get some referrals. I had an IB brand PVC Membrane installed a few years ago on my home and have been very happy. Good luck!
  • Member since 2009 · 6 posts · 2 votes
    11y
    I think it's way cheaper to buy an existing four unit somewhere than to build. Cost of building materials is way up these days. Investigate what existing four units are going for on the market currently. Good luck. [email protected]
  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    11y

    @Joshua Berube 

    I know you are out on the left coast where it's near tropical compared to the rest of the country, but around here flat roofs on small buildings are a deterrent as the roofs are more expensive to operate (you need to shovel snow off them more frequently) and to replace.  It is very common here to find 4-8 unit buildings, originally built with flat roofs, that have been overbuilt with a hip roof.

  • Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    11y
    Originally posted by @John Wilson:

    I think it's way cheaper to buy an existing four unit somewhere than to build. Cost of building materials is way up these days. Investigate what existing four units are going for on the market currently. Good luck.

     It is cheaper to buy existing than to build new in many places.  However, in some cases you can make more money by building new.  I've made more on single-family new spec builds than by renting some houses out for several years. 

  • Contractor · victoria, bc · Member since 2014 · 74 posts · 21 votes
    11y

    I just ordered the book Real Estate: Principals and Process as recommended on BP. apparently its a tome of a book. at over a hundred dollars, it is expensive, but the knowledge will be well worth it, I believe.  

  • Contractor · victoria, bc · Member since 2014 · 74 posts · 21 votes
    11y

    @Roy N. 

    The winters here are a rainy breeze compared to Edmonton, Alta where I grew up. Believe me, I am well versed in the art of shoveling snow.... never again is what I say. I don't think I will have to worry about snow on the roof. It can happen though, so I will keep that in mind when I build.

    @John Wilson 

    there are few muilt-family buildings for sale in my target area, the few that are, for sale are cheaper to buy than to build, you are right. the properties, though, are old and most are large houses that have been suited out. a purpose built fourplex, however, is rare and a newer one, aside from one on the alley that I mentioned earlier, non existent. I also believe building new mitigates a lot of unknowns. I think I would like to pay slightly more in order to have less risk. Lastly, I really enjoy building. If this goes well, I see myself building again, so the experience is invaluable.

    @Matt Davidson 

    I am familiar with PVC Membrane. I helped build a Cabella's (sporting goods store) in northern part of Nanaimo, and that is what they used. you are right, it is impressive stuff. and the durability is controllable by the thickness of the membrane... thank you for reminding me.

    @Jon Klaus  

    some of the your comments make me think that you have been here before, is that true? what did your think?

  • Contractor · victoria, bc · Member since 2014 · 74 posts · 21 votes
    11y

    I just found out that there is a good possibility that my property is exempt the city's development cost charges. I will definitely have to confirm this...

  • Investor · Nanaimo, British Columbia · Member since 2012 · 60 posts · 5 votes
    11y

    Hi Joshua - the city has suspended DCCs in certain areas to encourage development :)

  • Contractor · victoria, bc · Member since 2014 · 74 posts · 21 votes
    11y

    hey Tom, thanks good know! do you know when this expires? Im assuming its part of the overall OCP for downtown..

  • Contractor · victoria, bc · Member since 2014 · 74 posts · 21 votes
    11y

    It has been a week since I have posted. In that time, I have meet with a lawyer and have put the deposit down.

     the first thing the lawyer said after looking over the lease/option papers, was 'can you get out of this?' which kind of made my heart sink. His worries:

    -if I build on the land during the lease, I could end up losing the property in foreclosure if the owner defaults

    -I put too much money down as a option fee, he feels I'm gambling

    -there isn't any wording in the contract on who will take care of structural problems i.e.: roof leaks/replacing

    he basically looked at me like I was an idiot, until I told me

    -I don't plan on building on the property before I own it, the seller is giving me the paper work to talk to the city and see if the building was viable.

    -He is probably right. The owner accepted it right away, I should have offered a smaller fee to start off with. but the fee is being taken off the sale price, so in my head it will help me out in the future because the price will lower in three years.

    - I am gambling a little. I think it is a educated gamble, but it is a gamble none the less. I am gambling that the city's downtown rejuvenates as per its plan, and the ferry is successful. I am fairly comfortable with this risk because, the lots is the largest on its street with the smallest house. it is close to a major road and walking distance to amenities and even though I am using someone else's money, its a small enough amount that I can pay it back fairly quickly with my wages. 

    - I'm not to worried about the structure. I'm not renting it out, Im going to live in it. I can put up with a lot. if and when I buy the place, I imagine the lender is going to want an inspection but my whole plan is tearing the building down and building new. if there is a problem I will cross that bridge when I get there.

    Once I explained my plan, he calmed down a bit and asked why I'm not doing a rent to own with the partial rent going to the final price. I told him it was over CRA concerns and he replied that it would be more of a seller issue than the buyers. I don't want issues on either end so I'm happy with the LO.

    He told me that the next step would be registering the option to purchase on title, but it cannot be registered as is and I need to fill out a form 'C'.  so Ill be looking at doing that on Monday ore Tuesday.

    I asked him about my future plans and whether or not he could do what I needed. he said that she could but since I will be up island I should find one there. I replied that I wanted a person who will look at me like he did as they give me hard truths and call me an idiot. he smiled slightly (he is a fairly elderly Chinese fellow)  I think I might have earned a little respect right there :)

    So the lease is signed and I am moving forward.

    I have been trying to think about how I can keep moving forward from here. My fear is that once I get into the house I will get comfortable and not feel the urgency to keep pushing. I understand that I am moving into a phase where there will be a fair amount of waiting, but there will be times I NEED to get something done, I am worried I wont know the difference. that might sound weird, but this is the stage where I don't know what I don't know.

    upon the execution of the lease, I get the assignment of agent.

    this is where I am not sure of next steps.

    I would like to talk to a couple private lenders to see where I need to be in order to get financing. 

    do I need to get plans for the building first? to figure out how much it is going to cost? that doesn't make too much sense to me because I wont be building until I own.. but If I don't get the plans/cost I cant really start to go through my circle of influence to pitch.. 

    any ideas or suggestions at this point would be greatly appreciated.

    So my plan for this week is to:

    -get the option to purchase registered

    -talk to the seller to get keys and the A.A form

    -?

    There are many things I would have done differently already. 

     -I should have offered a lower option fee. I like the fact that the future price is lower, but I could have used that money in the short term to invest else where. There is a possibility that I will try and do a flip in the time I am leasing to increase my capital, the extra money would have been useful

    -everything seems... too easy. I have a feeling that the sellers agent wasn't being honest with me about a few things. I think that the owner owes less than the agent told me, when I made my original offer I said my offer is what he owes on the property, the agent told me it was 180,000 so I just assumed he was telling me the truth. how would I check that? I need to have a stiffer back bone when it comes to the negotiation..

    -I would have got a lawyer far earlier in the process. he brought up some really good points which would have cost me dearly if I was buying the property out right.

    so this is where I am. Sorry about the novel but as they say in Quebec "C'est la vie"

    I will update again next Saturday, but will reply to any posts.

    Have a great day and Happy investing

    Joshua

  • Contractor · victoria, bc · Member since 2014 · 74 posts · 21 votes
    11y

    going to pick up the real estate development book tonight. Some beavy reading ahead

  • Contractor · victoria, bc · Member since 2014 · 74 posts · 21 votes
    11y

    this is going to be a dry read... Im still excited!

  • Contractor · victoria, bc · Member since 2014 · 74 posts · 21 votes
    11y

    okay, its been a little over a week since I last updated. was supposed to on Saturday, but I got distracted. so here I am.

    Since I last updated, I have received the appointment of agent, I have confirmed with the lawyer that he will register the option on title, and I have met with the seller.

    I had a bad feeling when I first received the A.O.A. form, because the Ed ( the sellers agent ) had put my name as Jason. He knows well that my name is Joshua, so I made him aware of the mistake and his reply was that 'its not important, the city wont even check.' I told him that doesn't make sense, at all, and I would like it fixed. he has since fixed the mistake and I have received a corrected form, but that bothered me a little.

    The seller wasn't what I had pictured. I don't know why, but when I heard that he owned his own business, I imagined a proper business stereotype  really nice guy, but not at all what I had pictured.

    he told me that his plan for the property was to build two 3/2 houses on the front portion and a duplex on the back half, facing the alley.

  • Contractor · victoria, bc · Member since 2014 · 74 posts · 21 votes
    11y

    iooking at thjs property, i automatically decided that i wanted to build a multi family, thinking that would the highest and best use. I didnt consider subdividing. 

    Owing houses really doesnt excite me.  Multis do. That being said, it would be far easier for me to build one house at a time. It would give me a far faster return so i could pay my loan back. 

  • Contractor · victoria, bc · Member since 2014 · 74 posts · 21 votes
    11y

    I know that I have a lot of time to figure this out, however it is on my mind now.

     I really like the long term prospects for this property and the surrounding neighborhood, so I really like holding the property as a plex. the long term value of holding one of the few multis in the area would be immense. Also having a solid property would allow me to get a line of credit against it.

    but it would be harder to finance and the payout further down the line.

    anyway its something for me to think about.

  • Engineer · Surrey, BC · Member since 2015 · 50 posts · 22 votes
    11y

    I just joined this group because Google picked up this thread. I'm interested to see what happens. My wife and I live in Surrey, BC and I've eyed Nanaimo and Victoria. Not much makes sense in the Lower Mainland for real estate investment unless you have deep pockets and are into speculation. I like Nanaimo for the same basic reasons - close to Vancouver and a good retirement community. I am skeptical that the walk-on ferry would make any difference in property values if it even goes, but the downtown has a lot of potential. I definitely want to swap notes.

    I agree with the comment that the numbers barely make sense given the current rental market, and really this is about a long-term buy and hold or build/flip for someone who wants to hold. One thing I've thought of is to import SIPs or steel-frame buildings from China to save money. I have a couple of contacts - one is in Victoria (SIPS) and the other is in Toronto (steel frame buildings). It's too risky for me even if they do the importing, but it might cut the construction costs. If anyone has had experience going this route I'd like to know how this worked out. For me, I'd be happy eventually finding a fixer-upper duplex to fourplex that can be fixed up over time with rental income but I see slim pickings so far.

  • Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
    11y

    @Joshua Berube Very interesting deal, what's the latest?

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