All Forum Posts by: Mike Wood

@Kevin Pinkard  Its highly doubtful that your contractor can do a full gut renovation for $70k and 3 weeks.  Timeline is likely 10x that, and costs are likely double that.  If the property is a teardown, you would need to factor in the costs of demolishing the existing structure (likely $5-10k in our area).

As for renovating a mobile home, they are not popular in our area, so I dont think it would be worth anything like you think it would be.  

New construction in New Orleans is costing $110-125 for fairly basic finishes right now.  So that will drive the new construction discussion.

If you provide more details on where the lot is located, I can help with valuation of the lot.

@Daniel Alfandre No way, no how.  While your plumber gets pricing based on his account, the "retail" price at plumbing supply companies are crazy inflated.  Most plumbers will use the "retail" price for invoices.  I have an account at my local plumbing supply house, on most of the items, the "trade" or price that people with accounts have, is slightly less than the big box stores (Lowes, HD, etc), but the "retail" price that they show on the invoice is 50-100% more than the big box stores.  

In addition to that, your plumber will not work for free.  He likely charges $100/hr or more, for his time.  So if you think that is worth it, go ahead.  I don't because I want my plumber to focus on his work and installing plumbing, not shopping.

@Briyana Hawkins  First off, I would not listen to the builder on that completed houses will be valued at (its also stupid so base valuation from one single data point).  If you want that information, talk to experienced local realtors.

With that being said, there are lots of areas that will NOT support new construction.  The costs to build new will simply exceed the value of the nearby housing, making the appraisal of such a project nearly impossible to justify the costs.

Unless your rolling in cash, you would need a construction loan for the build.  Every bank that I have every talked to about my construction loans will not fund the project if the total costs exceed the estimated finished appraised value.  To much risk on them if you default, then they got a construction project that is upside down.  

If the area does not support new construction, then your land value will be very limited.  Maybe one of the neighbors want it, otherwise it just a tax liability.

@Clayton Smith No way is undeveloped raw land worth 20-25% of ARV. Maybe infill lots with existing roads, sidewalks, drainage, utilities, etc. in the best of area would be that high.

In my area (which has similar construction costs, but high value per ft2 than you), infill lots in the best areas (A+) would be 25% of finished value, which rental areas (B areas) being 15% of finished value.  That is infill lots where there is zero land development costs.

I would venture to guess that each lot (19 lots, assuming a townhouse style duplex is built on each) would value in the at $25k or less (5% or less) per lot, given the costs and risks associated with developing the raw land. 

As another stated, the only way to find out is the get an appraiser that has experience with raw land development, or talk to big developers and see what they will offer.

@Paris Naberschnig In two unit residential construction, the separation between the units (either a wall or ceiling/floor) must be constructed to a UL 1hr fire rating. For a interior wall, that requires both sides of the wall to use 5/8" fire rated drywall (type X) with solid wood stud on 16" centers.  For ceiling/floors, that requires 1" nominal wood subfloor and finished floor, 2x10 on 16in center floor joists and 5/8" fire rated drywall (using I-joist complicates things).  There  are other UL approved 1hr rated assemblies.  The fire rated wall must extend to the underside of the roof sheathing.

I dont think there is a rated wall that only has fire rated drywall on one side, but there may be some novel assembly that was approved.

In my area, to refit the firewall, I had to removal all drywall and replace with 5/8" fire rated drywall, which had to be inspected once it was installed, but not finished (no taping or mudding).

@Paris Naberschnig  First, call your city zoning department and ask if the zoning allows for duplex.  Second, ask if each unit will be required to be provided with off street parking  (I believe that your zoning will require 2 off street parking spots per unit, which generally will be required to be behind the front yard).  If the zoning allows for duplex houses and parking is not an issue, then will be required to legal separate the units. That will require a permit (you will never get separate utilities without them).  You will need to separate the units, add the required fire rated separation wall/ceiling, ensure each unit has bathroom and kitchen, ensure sleeping rooms have egress windows, separate the electrical/gas at a minimum, separate water if possible, get different addresses, ensure proper entry doors for each unit.  While it is possible, it is not super simple.  I finished doing this to a house that was built as a 1500ft2 duplex but not legally (it had existing separate bathrooms and kitchens), and it cost me $24,700 (self managed).  To add a kitchen would add at least $10k

@Konstantin Ginzburg I think your biggest issue is the photos make it look like there is zero common area space. You have a photo of a what might be the only seating area has maybe room for 3 adults with a small TV. Anyone looking for a 3-4 bedroom STR will want space to hang out, and you done appear to have that. Even your back yard pick shows a tiny table with two chairs. If this were my place, I would address that first and foremost.

@Dan Bowersock Based on your numbers, I dont think anyone would make any money on this.  Here's why.

$5.5M sale price = Net $5.17M net after 6% listing fee.

Total Cost of $4.7M ($2M + 1.9M)

Likely Interest/holding cost for 1 year duration = $470k.

Net profit = $0 (=$5.17M - $4.7M - $0.47M)

This ignores any possibility for cost overruns with construction, or additionally closing costs.  Even if your holding costs was 50% of what I have listed, your tying up $4.7M for 5% return on capital.  You would be way better to put that money in a US Treasury and get the same return, risk free.

@Nick Causa  If you demolish the existing structure, you will need a construction loan, not a renovation loan.  Typically, construction loans require 25% of total costs (max LTC of 75%) in equity of the land or down payment cash, for bank financing.  For my construction loans, if I pay cash for the land, my bank will use that costs (the land purchase price) as part of my 25% equity requirement for the construction loan.  Remember, almost any bank that is doing construction loans on investment properties will base the equity/down payment on the total costs for the project, not the anticipated value at completion.

It is not clear what you think your total costs are for this project.  I will assume that the $200k is the cost to purchase the existing lot with existing structure.  You will have demolition costs, design and soft cost and construction costs in addition to the existing lot purchase.  If we assume that you think your total costs $667k (costs other than existing lot = $467k), than your cash purchase of the existing lot would exceed your equity requirement of 25%.  Bank would loan you the $467k on a draw type loan (disbursements based on work completed).  You would pay interest only on the amounts of draws based on the monthly loan balance.  Personally, I would bring the bank into the mix at initial purchase, but it could be done after the land is cleared and your have your planning completed (assuming you can self finance the project till then).

If you have limited construction experience, getting the construction loan my be difficult.  The banks see construction loans as crazy risky.  Also, in todays market, the rates on those loans is not cheap. I have one and the floating rate is like 9.5% right now.

@Bradley Scruggs If you provide more information about what you are trying to do, you will get better responses.  It is not clear to me what you are trying to do or what you asked the city to do.

1) Is the land one (1) single parcel?

2) What is the current zoning for the property?

3) What is the minimum lot size based on the zoning?

4) Is there direct road access to the land you want to develop?

In general, you can not build multiple buildings on property zoned as residential (1-4 units), which is why you may have been told hard no.  If you can figure out a way to subdivide the land (which if you have a mortgage, your lender may not allow), than you can build house on each subdivided parcel.