All Forum Posts by: Mike Wood

@Drex Tanner  You can read up on the local zoning regulations, this will tell you what you what your able to do.  Determine what you can not meet.  While generally not required, the more information on what your going to do, like building plans, will help the variance board to understand the need (and even allow them to limit the variance approval to a specific set of building plans).  Also, if you can find any other properties that match or are close to what you want to do that would be helpful as it shows precedence.

I find my local staff do not like to approve blanket requests, but will more seriously consider things if you shown the exactly what you are planning on doing.  I guess it keeps the scope of the approval limited and avoids others from trying to use your approval as justification for future approvals.

@Drex Tanner You local city should have a variance process that you can apply for.  You would need to apply for any all variance to the code that you need to gain approval to sub-divide the land.  You may need to hire an architect or other planning type to research what local zoning regulations you will need a variance approval for.  Once you have determined what variances you need, apply for them with what ever supporting data you can gather.  The local city staff will only tell you what the current zoning regulations are, as they typically are not allowed to tell you otherwise. In my area, I have received variances for lot size being too small, insufficient off-street parking and insufficient structure elevation (all different projects), so they can been done.

If you are unable to subdivide, I would not proceed with the project.  There are would be issues with multiple dwellings on the the same lot and you may not even be able to get permits to build two separate dwellings, especially if the lot is not zoned for multifamily.  You would be building something that may not be marketable or sellable in the future.

@Dave Meyers I think you have some of the items out of order (at least they are for me).

1) Research and determine lot constraints (setbacks, house size, parking requirements, etc).  This might be your Architects problem.

2) Finalize house plans

3) Get builder/GC bids

4) Estimate soft and other cost not included in builder/GC bids

5) Select bank for construction loan

6) As part of the construction loan approval, they bank will require a pre-construction appraisal (the estimated value at completion based on plans) and plot plan.

7) Once the construction loan is finalized/approved, execute construction contract with builder/GC.

8) Apply and receive building permits (hopefully your work on step 1 make this process smooth)

9) Build house (This is a huge task, but since you did not break it down, I wont either).

10) Finalize construction, receive certificate of occupancy

11) Get final utilities installed/connected.

12) Market for rent

13) Select mortgage broker/bank for permanent financing

14) Apply for permanent financing, which will include the final appraisal

15) Close permanent financing.

16) Done.

You mentioned cash out refinance, but this may not be what you meant. You will obviously need to pay off the construction loan with the permanent financing. If you do a cash out for excess money over what the construction loan balance is, your LTV will be lower (typically 5%) than a straight refinance (which is how paying off the construction loan will be treated) and your rate will be higher (likely ~1% higher) assuming you use a typical 30 year residential mortgage.

I would not wait until all the permanent financing is done to rent it out, as you have stated.  That is likely 2+ months of lost revenue that the house is just sitting there doing nothing.

@Wynn Williams You will most likely need builder risk or vacant property insurance.  Given it will be a rental, I doubt you will find a dwelling policy that will cover it during the renovation with it being vacant.

 I disagree with most of this statement.  Sure there are areas where new construction does not work, but that does not mean the value of the land decreases when you improve it (build on the land).  

If considering building, you need to find areas that have existing home valuations that support the cost of new construction. In alot of areas, you can easily build equity in with new construction.  Home builders don't build houses for the builder/GC markup, they build for the equity plus their builder/GC markup.  But the reason most don't/can't build is access to capital to do the build.  You would need to get a construction loan, and with little to no experience, that will be difficult without a lot of capital.  Additionally, most banks that do construction loans will require at least 25% cash of total costs for their down payment/equity requirements.  Add that to the time it takes to build 4-8months and the cost of capital during the build, it can be difficult for the average investor to pull off.

@Marnica Jeanpierre  You will need a construction loan from a bank, likely only local banks will do it, as you dont plan on living in the property.  Since you own house, you can use that as your required equity on the construction loan.  But you will need a GC to run the job and since you likely have no or limited construction experience, the bank will want a firm estimate from the GC to do the loan.  While the construction loan will be need to be in a business name, they will all want a personal guarantee, but it will not show up a debt on your personal credit.  

While I understand the concept mentioned by another post on using a personal loan, I am not sure its that easy to get a $50k or more personal loan to do an entire house rehab.  Maybe if you had tons of money or income, but if that was the case, you likely wouldnt need a loan.

@Damon Aniton I see it differently. In order to you to STR or MTR the unit you dont live in, you would have to furnish it. Given you're talking about a large 3 bed, I would guess that would cost $5,000-10,000 in upfront cost. Say you make $1000 more per month after all expenses over a LTR, that means for 5-10 months, your making zero to pay off that furniture. In our market, I can rent a unit priced right in less than 2 weeks, typically in 1 week. So vacancy for a LTR is very low (one month or less = 1/12 or 8.33%), but for a MTR I would estimate it would be way higher. Additionally, your trying to find renters for a 3 bedroom, when traveling professionals are likely to one or two person, not needing a 3 bedroom.

@Damon Aniton Prior to everyone using the MTR buzzword, I knew this concept as corporate housing. They were furnished apartments for traveling professionals. I tried it early in my investing career, but found finding a tenant to take way, way too long and vacancy was killing me. I only had one tenant that didnt even stay for the entire lease term, and after trying again to find another tenant, ended up renting it to a long term tenant as a non-furnished unit. As an investor from you city, I can say that I doubt you will need tons of interest in the MTR concept. Add that to the high cost of furnishings that would be required (since the tenants a being charged a premium, they expect nice furnishings), I doubt your break even point is very near term. NOLA has a very strong rental market for long term rentals and I would stick to that. I also dont think the city council will be STR friendly anytime soon, and I suspect they will get more stringent on STR permits in the future, not less (they definitely are not in my backyard types).

@Lin Ding  If the seller agreed to repairs, don't delay closing just for them to be completed (unless they affect your financing).  If they are not done at closing, have the closing company hold back money in escrow until the agreed upon repairs are complete.

Dont worry about exact prices and interest rates.  If you like the house and the area, stick with it.  No one can time the market perfectly.

@Alec Fenner I would recommend first find a lender that will even do a VA construction loan. That will be your biggest problem, as my connections have always told me that its near impossible to find a lender that does them. After you find a lender, then try and find a builder/GC that will do the build, which you will need plans for them to bid it. But dont waste builders/GC's time, if you dont have a lender.