BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
Back in March 2013, BiggerPockets and J Scott collaborated to release two books -- The Book on Flipping Houses and The Book on Estimating Rehab Costs (check them out here if you haven't already). As part of the book package, J was planning to do a detailed case study of one of his renovations (even more detailed than he does for most of his projects on his blog). We decided that instead of doing a case study only for those who purchased the books, he'd instead do one publicly here on BiggerPockets.
In this thread, J is going to provide a practically day-by-day diary of his first new construction project, from acquisition through sale -- including pictures, spreadsheets, invoices, bids, etc.
We hope you find this valuable! I know that I'm planning on following it closely so I can pick up a thing or two.
1/5/14 Update: The project is complete . . . read on!
2/19/14 Update: We've taken all the content of this thread and converted it into a free ebook for everyone who may be interested. Get your copy here: Diary of a New Construction Project Ebook
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
13y
INTRODUCTION
I'm currently working on my first new construction project in downtown Atlanta (with a partner). While we both have a lot of residential rehab experience under our belts (over 100 projects between us), we have absolutely no new construction experience. The purpose of this thread is to chronicle in as much detail as I can, the process of acquiring an existing house, tearing it down, designing a new house, getting permits, construction of the new residence and finally the staging/listing/sale of the house.
My hope is that this thread will end up being part case study, part diary and (if I don't screw up too badly), part textbook. I plan to provide links to everything that might be useful throughout the process -- pictures, videos, budgets, schedules, plans/drawings, contractor bids, invoices, etc. And if there's anything I don't provide that you want to see, just let me know.
As of this writing, I'm currently about 4 months into this project, but we haven't even started to build yet (you'll see why as we move through the thread). I'm planning to start at the beginning (I've been keeping copious notes), and over the next couple months, I'll try to post updates at least several days per week, and hopefully catch up to real time by the end of the project.
Lastly, I hope this thread will be interactive. There are a lot of BP contributors with new construction experience (Rich Weese, @Karen Margrave, Aaron McGinnis and many others). I hope they'll jump in and provide insight, and I hope others with less experience will ask questions and help us all learn from one another. And again, if there's anything you want me to provide in this thread that I'm not already providing, feel free to ask!
Yes, definitely defer it. J, you might want to consider paying one annual salary in December. You can assess how the year went and pay accordingly. It will also give you more time to churn the money on deals.
That's exactly what we did the first several years with the business...this year, we're building our new personal residence and it's likely we're going to want to refinance our cash out later in the year. I have a feeling it will be easier to qualify for the loan if they see semi-regular salary draws (so I at least have paystubs), rather than waiting until the end of the year and making them audit the business to verify that we're actually making money.
That's the one reason we may start paying monthly salary until after the refi...
Yes, definitely defer it. J, you might want to consider paying one annual salary in December. You can assess how the year went and pay accordingly. It will also give you more time to churn the money on deals.
That's exactly what we did the first several years with the business...this year, we're building our new personal residence and it's likely we're going to want to refinance our cash out later in the year. I have a feeling it will be easier to qualify for the loan if they see semi-regular salary draws (so I at least have paystubs), rather than waiting until the end of the year and making them audit the business to verify that we're actually making money.
That's the one reason we may start paying monthly salary until after the refi...
We closed on the sale of this one today, a year and three days after starting work on the project. The numbers turned out pretty good -- I'll post the final HUD, the final analysis and the final budget numbers in a follow-up post...
Well, well, well. Finally it's over. It's celebration time. I'm flying out to Maryland tomorrow morning.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
12y
FINAL ANALYSIS
My partner and I tallied the final expenses and I finished the final reconciliation of the data this weekend. I imagine there are a couple more utility bills coming and maybe a few miscellaneous dollars here or there, but the final accounting below should be within a hundred bucks or so of the ultimate numbers.
First, here are the main pages from the settlement statement of the sale, which some personal stuff erased (CLICK TO ENLARGE):
Next, here is the final budget breakdown -- we were about $5300 over our original estimate, but given that we added nearly 700 square feet to the design after that budget was created, I'm thrilled about our final budget numbers. Ultimately, our costs for demo and construction were right about $60/square foot (CLICK TO ENLARGE):
Finally, here is our final overall analysis, with our total profit, split between my partner and myself -- this represents about 32% ROI, and given that it took almost exactly a year to complete, that would be an annualized 32% ROI as well:
Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
12y
Oh right on. I like to see your going for a spec house with cash. I'm afraid I just now stumbled on this thread. It was neat to be able to fast-forward to the end though!
As you may recall from a posting I did a month or two ago, I'm pretty much all-in (poker metaphor) on a local major rehab/addition bring a total dump from 950' to 1,600'. We are at the point where we just put in windows, shingles are going on this week, siding is delivered, etc. I've only put up 30% of the total rehab costs of $155,000 so far, but the next two months is going to see $100,000 leave my account. So it's a bit nerve-wracking. Glad to see a cash investment of this caliber worked swimmingly for you. Obviously you and your partner are ahead of my partner and me in sophistication, but still, it's better than hearing a "oops, the spec house thing didn't turn out so well" kind of epilogue from this project! I'd like to do a retrospective thread showing all of my decisions, successes, and pitfalls come March when we see our final numbers and have final pictures. It would be great to rinse and repeat; but part of me thinks it would be wiser to use less money on one particular project, or even get into stocks/bonds in 2014. But this is a resume-builder for me for sure! Heck, I even saw Bill Murray eating one time in the local restaurant ;) So if you feel like looking into Charleston, do let me know.
I've only put up 30% of the total rehab costs of $155,000 so far, but the next two months is going to see $100,000 leave my account. So it's a bit nerve-wracking.
That was definitely one of the most interesting parts of the process. We purchased the property last December, and as of June had barely spent a penny on the project. Two months later, we had spent nearly $150K. During the few weeks you're dealing with site clearing, foundation and framing, you've spent 50% of your budget, even though that may just be 10% of the total project.
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
12y
CONGRATULATIONS!!! Great job. It's been fun viewing your job from afar. I bet your wife is excited about your personal residence, and should someone come by and want to buy it while you're under construction, you are saying NO ... right? LOL
CONGRATULATIONS!!! Great job. It's been fun viewing your job from afar. I bet your wife is excited about your personal residence, and should someone come by and want to buy it while you're under construction, you are saying NO ... right? LOL
Thanks Karen! And thanks for all your great advice and encouragement along the way...
As for the personal residence, we've already determined what our selling number would have to be, and given that the number is about 20% above market value, I'm fairly confident it won't be an issue... ;-)
Dallas, TX · Member since 2011 · 308 posts · 59 votes
12y
Congratulations! This was a very fun and educational read. Thanks for doing this. I have a couple of questions:
1. Since your wife is the listing agent, shouldn't the $6720.88 be added back into your profit/ROI?
2. How did you arrive at the $5000 in seller paid closing costs? Do you include it as part of your marketing that you will pay some/all of the buyer's closing costs, or do you wait and use it as leverage when negotiating?
Congratulations! This was a very fun and educational read. Thanks for doing this. I have a couple of questions:
1. Since your wife is the listing agent, shouldn't the $6720.88 be added back into your profit/ROI?
2. How did you arrive at the $5000 in seller paid closing costs? Do you include it as part of your marketing that you will pay some/all of the buyer's closing costs, or do you wait and use it as leverage when negotiating?
Hey Bryce,
Answers to your questions:
1. We paid 3% to the buyer's agent ($8097). The other few hundred dollars is the exact amount that our broker gets, plus the fees we pay to the MLS. Other than that, we didn't include a commission on our side -- the extra savings goes right to our profit.
2. Buyers originally offered $262K + $5000 in seller paid closing costs. We negotiated up to the full price ($269,900) and agreed to pay the $5000 they requested. So, that was just part of the negotiation.
Wholesaler · Easley, SC · Member since 2010 · 340 posts · 249 votes
12y
Thanks for this great thread @J Scott . I followed your blog for about a year then read your 2 books and that gave me the confidence to flip my first house last year. Thanks to following your advice I made a nice profit. It is hard for people to appreciate the time and effort you put into educating people for free. Thanks
Thanks for this great thread @J Scott . I followed your blog for about a year then read your 2 books and that gave me the confidence to flip my first house last year. Thanks to following your advice I made a nice profit. It is hard for people to appreciate the time and effort you put into educating people for free. Thanks
Chris,
I'm sure J will find a way to make money out of this thread. My guess is that he will write another book on new construction after he's done building his own residence.
J,
You got it right. I always find an excuse to celebrate. With respect to Karen's comment about selling your new house, there's a sucker born every minute. You might be able to get someone paying all cash for it at your wishing price. After all, the money is likely coming from oversea, and your house is a custom built so it deserves a premium. Living in the Silly Con Valley, I've realized that anything is possible. For that reason, we have quite a few multi-millionaires and multi-billionaires in their 20's running around here. Kids and a lot of money, what can go wrong?
Contractor · washington, Washington D.C. · Member since 2011 · 204 posts · 64 votes
12y
Thank you so much on the info and the detail read all the question and your family at BP did not give you any soft question on this project and you did answer all of them. I did learn a lot from this and its nice to see it was something new to me as well as alot of people on BP keep up the good work! keep us posted with the next one.
Real Estate Agent · Charleston, SC · Member since 2013 · 424 posts · 99 votes
12y
Just spent every down minute of my past three days reading through this post. I cannot believe how much I've learned in such a short amount of time. @J Scott, I cannot thank you enough for being so dedicated, open, and sharing with your project with a level of transparency that makes this so educational and understanding for even the amateurs!
Investor · Canton-Akron, OH · Member since 2012 · 917 posts · 477 votes
12y
Congratulations on a job well done!
I am also curious of your thought and views of rehab vs new construction at this point.
Your considerations of the advantages and disadvantages, considering this recent venture, and how this has possibly changed your real estate investing plans for the future.
Thanks again for being transparent and allowing us in on the journey.
Houston, TX · Member since 2013 · 3 posts · 2 votes
12y
Hi Scott,
I have been reading your thread for a few months now. Just can't thank you enough for taking the time to share and educate us. The posts were engaging and I personally felt that I was part of the journey. Hands down the most informative thread I have ever read on building a new home. It does take a special person to not hoard the information. Also commend your ability to tell the story with just right amount of detail and clarity. Lastly, it's nice to see someone that has expertise, answer just about every single question without making others feel that they have to earn it (especially in real estate). A big congrats for closing on the house!! Just wanted to let you know I was cheering for you all the way.
I have a full time job that I enjoy immensely but have been dabbling in the real estate as a secondary business for the last ten years. I have slowly built up a small portfolio of commercial and rental properties. Real estate has been good to me over the years.
What have I learned from this experience? First, we are all busy but it's important to take the time to organize and share with others. Second, I have been thinking about building a new personal residence. This post has inspired me to diligently work on finding the right opportunity to make this a reality. This is my new year’s resolution for 2014. I can tell you my wife is going to be ecstatic about my resolution.
Thanks again and wish you the best of luck on your future projects.
Atlanta, GA · Member since 2013 · 11 posts · 2 votes
12y
J,
Thanks for taking the time to document everything, it's been EXTREMELY educational. It looks like your first spec build was a huge success. That home is in my neck of the woods (Reynoldstown resident) and is most definitely a welcome addition! Congrats!
A couple questions:
Had you not had a GC on your team and personally managed the subs, how do you feel that would have affected the outcome from a cost standpoint? i.e. hiring a GC or builder w/o aligned interests in the project.
Did your partner have new construction experience? or just rehabbing?
Again, congrats. Looks like you guys did a hell of a job.
Had you not had a GC on your team and personally managed the subs, how do you feel that would have affected the outcome from a cost standpoint? i.e. hiring a GC or builder w/o aligned interests in the project.
Did your partner have new construction experience? or just rehabbing?
Hey Ian,
I really can't answer the question about what it would have cost had we had a builder. I'm guessing (just a guess) that a builder would have charged 15-20% premium to be the GC, but there's also a great chance that his subs would have been more expensive as well -- we got great sub prices because we give these guys lots of work.
My partner on this project was in the middle of his first few new construction projects, so he didn't have much experience prior to this. That said, he comes from a family of developers, so it's pretty much in his blood... :-)