Building a new SFH as investment

5 Replies

Good Afternoon,

This is my first post.

I have some land in an area where there is no rental property but seems like there is a great demand for it. I want to split the land up and build 2bed/1bath homes on it. The land is free and clear so no extra cost. I will be contracting the house myself and doing a lot of work myself. My plan is to get one finished and rented out and then start on another. I have approval to start with a construction loan and then change over to a 5/1 ARM (20 years). There will be no money out of pocket because of the appraised value vs what I build it for. Here are my numbers:

$62,500 mortgage

$540/month for mortgage payment, taxes, and insurance ($6,480/yr)

$675/rent ($7,425/yr at 90% occupancy)

$80 cash flow

My overall goal is for retirement so I am happy with covering all expenses and not taking any money out for myself.  I've got access to cash for emergency repair fund.  I would use the cash flow for future capital or for paying down the principal. 

Any input or advice would be greatly appreciated on this opportunity. Thanks!

Travis

Sounds like a good concept, but not clear on some of your details. @hat is the zoning, will it allow for multiple units on the parcel? Would you be subdividing the land so that each home has its own legal parcel?  How many homes are you planning on building? If you aren't subdividing, where will the money for the additional homes come from if you have just one parcel and it is securing the loan for the 1st house? 

At ~$1,000 a year in cash flow, don't you have a more productive use for your money?

Yes, I will subdividing the land. No zoning concerns in this location. I have room for 5 houses and each one will have it’s own legal parcel. This is part of my exit strategy in case I ever need to sell for any reason. My plan is to have all 5 built within 2 years. I have approval from the bank for separate financing on each house.

I understand 1000/yr isn’t a lot of cash flow but it seems like a decent/safe start if I continue adding more units.

I will have at least $15,000 equity in each house up front. It is a good area and should have no problems finding good tenants. The houses will be new so minimal maintenance/repairs for several years.

Thanks for your responses!

I am confused. Is that $80/month/unit? If so, it isn’t a great return but with the built-in equity I can see the appeal. If it is only $80 aggregate per month, it seems like you would be a lot better off selling the properties and finding a better cash-flowing investment. Just my 2 cents.

Yes, Brian, it is $80/month/unit.  I was conservative on my numbers and a chance it could be closer to 100 but still not huge.  Thanks for your thoughts on it.  

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