All Forum Posts by: Mike Wood

@Robert Henley If they are on individual lots or can be separated as separate parcels, they are likely best suited for single family sales.  At those prices, they are not a good rental investment.  I would never consider buying a property that grosses $1000/month and costs $115k or more.  The number dont work for a good rental investment. 

@Robert Henley I think your numbers might not be accounting for enough costs.  If I assume the purchase price of $920,000 with 25% down (which is likely way to low), I calc a mortgage payment of $4550 (using 5% interest, 20 year amortization).  If I assume a very, very lean expense ratio of 25%, and a management cost of 6%, your monthly cash flow @ 100% occupancy ($1000/unit/month) would be $970/month.  Start to put vacancy and capex into this, and your cash flow disappears quickly.  

@Corey Gregg  A duplex should not cost $200/month.  I have several 2/1 duplexes with only one meter (so I have to pay water/sewage/trash) and I pay around $135-150/month for the property.  In New Orleans, most older duplexes have one (1) meter, so you will need to pay the bill as the owner. If your lucky enough to find a property with multiple meters, the bill should be around $80/month per unit.

You can add another meter, but it is not free. There is a water meter connection fee, which runs between $2200-2500.  Then your plumber will need to separate the water service, which may or may not be easy.  I added a second meter to a duplex that I did a complete repipe, and my costs were around $3k for adding the second meter (which included the water meter connection fee and a the plumbers cost to run the new pipe from the house to the meter whip.

@Robert Henley I doubt you will be able to find financing at 15-20% on a commercial loan (and if you could, the low cash flow would likely not give the banks a good feeling to allow a low down payment).  There is no way I would invest $1m for $1000/month in cash flow, to me those numbers suck. 

@Andrea E. Your closing documents should list the legal description of your lot, which will list the size of the lot (typically width and depth).  But only a survey will find the corners of the lot.  If your property has been previously surveyed, you may be able to find the corner markers, which in NOLA are often 1/2" rods in the rear of the property and crosses cut into the sidewalk or driveways in the front of the house (although these are often on the cities easement if on the sidewalk, i.e. further toward the street than your actual property line).

Personally, unless you think the fence is many, many feet from your property line, its likely not worth worrying about.

I also believe that you do not need a permit for a fence in New Orleans.

@Justin Haberman Once you get over 5 units, its a purely commercial loan (with higher down payments and interest rates, with shorter amortization). You have eliminated most residential buyers.  The issue is the size, its not a large complex at 10 units.  Could you find a buyer of a 10 unit complex, yes, but if you have 5 duplexes, or even two (2) quadplexes, anyone with 3% down could buy one of them.

I think that the individual properties (duplexes or tri's or quad's) would produce higher values (appraised or sale prices).  So from a sellers standpoint, I would want to develop something that produces the highest value.

The costs to run a 10 unit building vs 5 duplexes is likely not much different, so your value on a commercial pricing basis, would be very similar.  

But, as I have said, if dividing the property is not an option due to the lots dimension and/or orientation, I would go with a single building over multiple individual buildings.  

@Justin Haberman When you asked the city, they told you what the current zoning is.  You would need to subdivide the property and potential rezone it (but in alot of areas, if the property is zoned for commercial multi-family, you would be permitted to use it for less dense housing (i.e single and duplex) without the need for rezoning.  You would need to meet with an architect or engineer to determine how many plots of land it can be divided into, which is based on your cities/counties minimum lot size, access to each lot, road setback, ect.

I would not let the city's initial information drive the design.  Let the architect/engineer review and determine that feasibility of property.  There might be some size constraints that make it not easily dividable (like limited road frontage, say only 100ft and your city requires a minimum lot width of 50ft, which would result in only two (2) properties [but I would still interested in splitting the land and building 2x 4 plexes instead of the 10 plex due to higher valuation, residential financing and more liquid sales potential.

@Johnny L.  I disagree with other than you can not make money buy building new homes for sale on an individual basis.  I also agree with all that you will not get a discount, why would they, you can never give them to amount of volume needed for such a discount which would likely need to be 10+ houses a year.  

Your market is likely just not supportive of new construction.  Investors make money on new construction infill projects by being the capital needed for the project, and assembling the team.  If the numbers dont work, then the area is wrong.  Infill builders are not going to build to just make the money they would charge you, otherwise they would just do nothing but customer homes and not risk the capital, they make additional profit, as so you should.

Residential building is on fire right now and building costs are rising. Heck, lumber costs are up 3x over the last year. That is adding $10-15k to a typical SFH, with no ease in sight.

Since you need alot of capital for a new construction project (~25-30% of total costs), most buyers can not do it. Thus the role of an investor or a homebuilder that builds on spec. Then a typically home buyer with 3-20% down can come in a buy it. I know in my market, I can do a infill new construction and make 20% profit on a SFH in the right areas. There are some areas around me that simply can not support new construction pricing, and the numbers dont work. You just have to be willing to tie up your capital for 6+ months on the project.

It might be helpful if you provide some numbers/data on your project for some of us to help and let you know if the costs are reasonable for your area.  

@Justin Haberman Can you subdivide the lot so that each duplex has its own lot and thus is a separate property.  If not, you will have built a 10 plex, which will likely have cost you more than building an actual 10 plex.  Your financing will be way more difficult with building 5 duplexes on one property, unless your building them all at the same time.  I also wonder how financing would be on a property where you are not building all of the units at the same time.  I like to think my bank is pretty investor friendly, but I doubt they would be willing to touch a staged build like that, not without tons of equity or down payment capital put up by the developer.

With 10 units on the same property, you will be treated as a commercial building with regard to things like insurance, trash collection, taxes, finances, etc.  

While I agree that going with commercial building codes adds costs, since your plans are 10 units, I bet there would be saving of building one or two buildings, vs five, that would offset some or all of those costs.

Additionally, a duplex that is on its own lot will have a much higher value per unit than a 10plex which is five duplexes on the same lot. 

Town homes could also be a good option, but as you stated, you will have to rezone.

Personally, having built five ground up duplexes, I would not do what you are proposing.  I would either a) get the property rezoned for five lots, each zoned for 2 family homes, or b) build a single 10 unit building or two 5 unit buildings on the property.

@Austin Johnson I would avoid carpet, just too much reoccurring cost between cleanings and replacement.  I would recommend (and follow myself) tile in the baths, LVP everywhere else.