All Forum Posts by: John Blackman

I came across my first project via meeting another investor as a real estate club that needed money to get it done.  So I partnered up with him to bring cash and debt.

Books are great, but most of your learning will be done in working with others.

@David Battle

 The main thing you need to know is what it really costs to build the whole project, not just the house, and what is selling in your market.  You should be able to make at least a 20% gross margin between the cost of the dirt/plans/house and the sales price after commissions.  The better you understand those numbers, the more likely you will be successful.

@David Battle Over $100,000 in mistakes across about 20 projects.  There is no substitute for experience.  I have been fortunate enough to make mistakes small enough or have margins large enough that I still made money on all of my deals.  Actually doing the deal is going to teach you the most.  Everyone starting out is going to pay some dumb tax.  I have paid my share and probably still have more to go.

For your first one, I would highly suggest hiring a builder and paying them to build your project.  Watch the checkbook and the project.  Drive the schedule, and the feedback will be a learning experience.  Learn from someone who has already done it and knows how.  New construction is very capital intensive, so mistakes can be costly.  It can also be very lucrative.

This project got started in August which was after we wanted it to and that pushed our schedule back.  Construction times have also been elongating as well, longer than they were last year.  We're at 30 weeks now, and I think it's going to take another 10 weeks to really be done.

Our other projects are also suffering delays.  Our schedules are getting stretched which is indicative of a heating market.  We take full responsibility for the schedule and do the best we can, but delays do occur.  We do our best to document and communicate them for full transparency.

1122 Linden Project Status - 03/27/2015

Budget Status: GREEN

Schedule Status: YELLOW

Capital Provider: iFunding

Construction Week:30

Estimated CO Date:May, 2015

Estimated Market Ready Date:June, 2015

Overview:

We have a short exterior and interior video walkthrough today. The builder met with the engineer about the drainage issue near the front door. The issue being that the driveway is higher than the entrance so we can't slope the concrete from the driveway to the door without creating a flood hazard. He's reviewing and providing us a set of plans to add drainage and take liability. We will be starting tile next week, and we can't get the painter in until the tile is in place.

Tile supply company does not have our selected tile, so we will need to make new selections to keep up with our schedule. The designer is on top of it and will find an alternative.

Given where we are, the estimated CO date has slipped to May and I am changing the schedule status to yellow.

Work Items

Complete this week

• Pour driveway approach
• Molding /door casing is complete

To Complete next week

• Cabinets are to arrive and install
• Finish fence
• Start tile
• Measure granite tops - ordered
• Form driveway approach
• Blocking Issues
• Purchasing tile - tile company doesn’t have selected tile in inventory.

Schedule

6/30 - Permit approved - COMPLETE

8/8 - Gas lines removed, slab demolished, start foundation - ON TRACK

8/11 - Tree removed - COMPLETE

8/29 - Foundation complete - COMPLETE

10/10 - Framing complete - COMPLETE

12/19 - Mechanicals complete - COMPLETE

5/15 - Complete construction

7/15 - Units sold

Video

http://youtu.be/X-TEzNBNqIo

http://youtu.be/FD5Xm0bQOXY

Land pricing is not just as simple as $/sqft unless the land is truly flat, uniform, not trees, has all of the necessary utilities, road access, consistent soils, and no slope.  Oh and it is all zoned for what you want to build.

Land is usually pockmarked with all sorts of these problems which make only a certain amount of it viable for building.  So to truly determine how many houses you can build on it, make sure you look at your pre-development checklist.

1) How big is the land?

2) What is it zoned?

3) Does it have any historical significance?

4) What do you have to tear down?

5) Do you have road access for all of the units?  Are the roads large enough for fire engine access and turn around?

6) What are the water and waste water requirements?  Will you need a detention pond?  What will it cost to developer the water infrastructure?

7) Can you get electric service to all of the units?

8) Is there any slope to the lot?

9) What type of soils are there?  What kind of foundations will be needed?

10) What are the setback rules for your zoning?  How much space to you have to keep between units?  In the front, in the back?

11) Are there any green space requirements? What is your building Floor to Area Ratio for that zoning?

12) Are there any CC&Rs that would restrict what you want to build?  Don't forget to check the Plat.

After you answer all of the above, you should have a pretty good idea of what you can realistically build.  Cost is an entirely different matter.

You can build for anywhere from about $100/sqft an up.  It also depends on what you include in that amount.  The pre-start costs that are often *sometimes* included in a build and used to sway that number to the negotiators advantage are the following:

• Plan Sets - $1.25 - $4/sqft
• Engineering - Framing, Foundation, Water Tap plans
• Soil testing - $1,500
• Inspection Fees - $500
• Energy Audits - $500
• Water Meter Fee - Depends, $500 - $15,000
• Tap hook up - Depends, City may do it, or up to $5,000
• Gas Line hook up - $1,000
• Utility costs - $600
• Legal work - surveys -$1,500
• Builder's Risk insurance - DONT FORGET THIS! - $400
• Porta Cans - $70/mo
• Interest Carry Costs - Depends on your note and size
• Lot Grading, Drainage mitigation - Completely variable

The above list can often be as much as 15% of the entire project cost especially if you need utilities or have sloped lot issues.  So make sure you understand all of those well.

You can get very basic builder grade finishes done for about $90/ft after all of that and the builder fee is usually going to be Cost + some percentage (15%+ in Travis County)

I know of some good fee builders you may want to consider for your first one.  Hit me up privately.

Designers come in a wide variety of prices.  It really depends on the market you are going after.  Interview several and you will find out what they cost in your area.  You are buying both a package of selections as well as a short term manager that can facilitate getting all of the materials to the job on time.  Services may vary depending on your market.  Although you may want to consider doing it yourself a few times so you get to know the market for what is selling.  Once you know it well, hire it out in order to scale.

I would say hire a designer that is also a realtor or works closely with realtors.  This will add some extra cost to your business and may not be worth it at first.  However once you get a pipeline having someone to defer those selections to is very valuable.  Keeping on top of trends and shopping for finishes that meet your budget takes a decent amount of time. 

I would start by looking at all of the comps within 1.0 miles of where your listing will be. Go visit each open property, look at MLS, categorize everything that you are competing with. Aim to match or beat that level of finish out, or just do something to stand out so viewers will remember your home over all of the others they viewed. You don't have to spend more to stand out either.

Above all, make a template that lists everything you need to buy, how much you want to spend and where to buy it.  Refine that template and use it over and over on each successive project.