All Forum Posts by: Mike Wood

@Maurice Stewart In Orleans Parish, it will cost more then $1600 to install a second water meter.  The cost is two (2) fold, a) the cost to have the second water meter installed and tapped into the system (the city water group used to do this, but no longer, you'll need a licensed commercial plumbing company for it now) and b) the cost to run new piping from the house to the second meter (must be a licensed plumber).  This assumes that your house has two (2) completely different water services inside the house, which is not likely.  Based on my new construction projects, this is likely in the $2500 range.

If you dont already have two seperate services inside the house, forget about a second meter.  Figure out what the average water bill is for the entire property and include this expense in when you calculate the rent.  In New Orleans, one water meter for a duplex is very, very common and in these duplexes, the landlord includes water in the price of the rent.

@Leilah Davis  I have built duplexes in Gentilly (near UNO/lake), upper bywater and midcity.  My current build is in the upper bywater.  Currently we only build in Orleans parish. The key for me is finding lots where the purchase price is reasonable (sub $75k, and preferred $35-50k), zoned duplex and is desirable for renters.  While I am open to all areas of New Orleans except the east, central city and west bank, its more about availability for me. While I have built in Gentilly, its not something I would do again.  Its just hard to get renters to live in Gentilly, and the cost of housing is too cheap for rentals to appeal to great tenants (you can buy a house there for about what it costs to rent).

I think the area your talking about "New Marginy" and the 7th ward/St. Roch is a hard area to pin down.  Go too far from the river, and the area is really rough, go to far east (toward bywater) and it gets rough.  

I dont think of myself as risk adverserse, but I just cant get onboard with the New Marginy area myself.  Sure, the area just north of St. Claude is nice, but its always been very pricey for what you get.  

But I look at all properties from a perspective from a renter and if the area is safe enough and upkeep enough for them to feel like coming home every night and inviting their friends over.  If its not, I pass on the area.

@Lonnie Ellerbee  If your property is even remotely possible to be in a flood, coastal or not, I would recommend flood insurance.  Flooding is a catastrophic event and the cost of coverage is generally very reasonable. Most insurance agents can quote the coverage, and since its all federal government back insurance, its doubtful that the cost will vary at all (the agents all get the same fees for selling the policy).  So only need to get one quote.  You can also get a quote without an elevation certificate, but its generally higher, as they assume the lowest level is at the elevation of the surrounding area, but if your in a non-flood zone (B, C or X) may not justify an elevation certificate 

@Leilah Davis  I think you will have a very hard time finding a lot that is $50k or less that can support $150/ft sale price.  Most of the 7th ward can't support that, some of the New Marigny are can, but only the section right on St. Claude, much north of St. Claude and comps are lucky to be $100/ft2.  Also, lots in the "good" section of the New Marigny are not cheap, nothing in the $50k range (I have been a buyer of vacant lots in NOLA for 5 years now, having completed 5 new construction duplex and working on #6)

I also think you are forgetting about selling cost.  If your total cost to finish are $170k, and you sell for $200k, you would only net $16-18k, after sales cost (6% realtor fee, 2% closing cost).

@Leilah Davis I think the reason you dont see alot of small mom and pop new home developers is two fold, 1) amount of capital required and 2) its alot of work to GC your own new build. I will elaborate.

On the capital side, unlike your scenario, most people done have $150-300k sitting around for new construction funds.  This means that you need to borrow the money, typically in the form of a new construction loan.  But those that offer new construction loans, typically require alot of capital (~25% of total costs) and experience. They banks or lenders find that type of loans crazy risky and if you have zero experience, they will be very unlikely to give you a loan.  The duration of a new construction build is also much longer than a rehab.  My builds take anywhere from 5-8 months after ground breaking. Thats a long time to have your capital tied up in one project.

On the work side, to do new construction requires tons of pre-work needed just to get to the point that you can start construction.  This included finding the build lot, developing a rough idea of the what to build (size, beds/bath count, finishes, etc), running comps to determine the area can support new construction, checking zoning and city requirements, etc.  Once you have found the right lot, you then need to secure it (purchase or put it under contract) and start the house design process.  The design process could be purchasing house plans online or working with an architect or house designer.  Just that process can be a ton of work.  This is all before you can even start construction.

Once you have the building lot and building plans set, you can start planning on construction. This includes getting bids from general contractors/builder (if you live in an area where none licenced people can not act as GC for there own new construction bids) or get bids from subcontractors.  On a rehab, the contractors/subcontractors can walk thru the house and take measurements and see what they are bidding, on new construction, they only have a set of building plans.  Alot of good contractors just can't understand how of bid new construction (I think they struggle to understand building plans).  I have had a vinyl siding contractor tell me that he would not bid a new construction job until after the house was framed and sheathed after providing the building plans to him.  

Additionally, just because there is not surprises with the build, there is still plenty of ways to go over budget on a new construction project.  Allowances in build contracts is one that can really drive the costs up.  If you dont do a good job in the planning/bidding phase, you can easily miss or under estimate allowance items.  For example, lets say that you originally plan for some basic flooring and put in a material allowance of $3/ft2 for flooring and the house has 1,500ft2 of flooring required.  After you start construction, you decide that the market requires hardwood flooring for your build to stay competitive and now the costs are in the $10/ft2 range, which means that you just added $10,500 to your build (over the allowance).  There is also the potential for change orders, once the build starts and you realize that the build plans aren't what you wanted or something just needs to change.

Now for some specific's of your proposed build.  In New Orleans, you would will be able to act as your own GC of this build.  All new construction must have a General Contractor pull the building permit.  This will mean that your going to have to include the GC costs in your build (assuming that your husband is not a licensed GC able to pull permits in the city).  Also, there are lots of areas in the city that can NOT support new construction pricing.  Prices have been increasing quite fast and alot of contractors are very busy right now.  In our city, its hard to keep costs (land + build) under $100/ft2, so in order for the deal to work, comps need to be north of $125/ft2, which is not everywhere.  In the area's where the comps are high, the land costs are also high, which often makes the deal not work.  

You did not mention what your budget was, but I assume its in the $150-200k range for a smaller 3/2 house.  Assuming that you have included all of your costs (land+build+holding+sale) in your numbers, $30-40K is not a screaming deal, but may be do able.  

@Tristan Colborg  My $0.02 is that you lost this contractor for two (2) reasons, 1) the mention of direct competition and 2) the level that you expected the contractor to itemize the costs.  I don't think alot of contractors want to go to that level of detail with quotes, opens them up to too much arguing over individual line items. Think like a contractor, and image negotiating each line item, ie contractor A qouted $XXX for the doors and windows, you (contractor B) were $YYY.  

I have subs that will not itemize the job, just give me one (1) number, and I have subs that will itemize costs. It just depends on the contractor.  One of my subs actually works better with a list format so he can just put the price he wants in, but I think that is very rare.

I think the scope of work is good to have, but the way you expected materials and labor to be separately itemized was a big red flag.

Best of luck and it would be interesting to hear how it all turns out.

@Arnab Sinha I would suggest talking with actual long term rental owners from Mobile. I just sold a condo in Mobile (Midtown area) that I owned for 12 years and rented out for the last 10 years.  I lost +$35k on the sale (I did purchase it at the height of the housing bubble, i.e. 2007) and rents were stagnate for almost the entire time I owned the property (I was only able to raise the rent by $50 over 10 years ($550 in 2009 to $600 in 2019).  I also had very long vacancies during unit turnover (2-3 months)

I think you will find that there is very little incentive to rent as there are plenty of nice apartment complexes that have amenities that a SFR or Duplex can't offer and the cheap house prices mean someone can buy a house instead of renting.

Even with cheap housing prices, I would be concerned that you can't even get 1% of the purchase price in monthly rent.

I personally like the town of Mobile, but would not invest in it. 

@Brady Beshear  I purchase my cabinets and countertops from a local cabinet shop that imports them from China.  His shop is a no frills kinda place, and the prices are the best in town (there are others that are similar in cost, but I have used him on almost all of my builds). 

The prefab slabs come in 110in x 26in or 36in widths (36in width is used for islands and peninsulas). They do the complete installation onsite, they just shown up with the slabs and sink.  I have done my own installation one (1) time using prefab granite slabs (purchased from Floor & Decor) and did save alot of money, but it took two full days for me and my wife to do the installation (the undermount sink took forever to cut and polish).  After that, I decided it was not worth my time to do that. 

I pay per piece of prefab slab, per piece of back splash and the sink.  They charge for labor. On one of my current builds, the quartz countertop for one kitchen was $980 for materials (slab, 4" back splash & sink) and $660 for labor, for 30.83ft2 of countertop (35.24ft2 w/ back splash).

@Joshua Stewart  Thanks for the write up, I am sure it will be very helpful for a lot of people.  I agree that the $/ft2 goes up as the total size of the project goes down.

Based your numbers, it is clear to me that this is not a basic rental, but more a bit on the higher end. 

For example;

Appliances - a four piece SS Frigidaire kitchen package should be $2k or less, add another $1.2k for the washer/dryer and your at $3,200.  Your project as $5,500.  That's a nice appliance package.

Cabinets/Countertop - Your units cost $6800 for both.  On a recent project I have under construction, using Chinese white shaker plywood cabinets with prefab quartz countertop, total cost was $4235 (installed).  I would definetly not say what I use is basic or super budget minded, but nice quality.  Mine is a decent size kitchen with eat in peninsula for a 600ft apartment.

I am glad that I am not in your market, otherwise I could not build using your costs.  Heck, in my area, some of my costs are half of yours (1588ft house, drywall =  $5827, roof = $4170).

I assume that this is not fully built, just bid? What does your client expect the ADU to rent for once they move out?

@L R Wadsworth Like others, I would not build a 2/1 house, just too small.  

As for financing, I would keep calling local banks to see if anyone will do an investor new construction loan.  My guess is without experience, you will be hard pressed to find a bank that will let you self manage/GC the build.  Just too much risk.  But maybe you can get your boss onboard and that will make the banks happy.  

I also think your cost are way too low. On my recent 2/1 duplex build (1790ft total), my material costs were $53/ft2 (not including Electrical/Plumbing/HVAC subs).  My Electrical/Plumbing/HVAC subs cost $16.25/ft2 (material and labor).  While this was a duplex, I can not see how your material costs will be much less than mine on a $/ft2 basis.  I believe that you would be hard pressed to get your total costs below $75/ft2 for such a small build (that's with you providing most of the labor).

Have you check that the comps are for sales in this size range.  It would be foolish the build an investment property that costs more than it was worth it.  I would definitely check that, and if the comps are not north of $125/ft2, then its not likely worth it. Make sure to include your land costs in your calcs.

Lastly, if the max rent that you can get is $600-650/month, I would not build this project.  Just not enough money in it to justify the work.