All Forum Posts by: Mike Wood

@Christopher Sarmiento In my experience, its best to be 100% done.  Otherwise the appraiser will find reasons to give you a less than stellar valuation.  I would recommend waiting until your done.

@Jacob Claxton I have done this once, but it was on a full gut SFH. First and foremost issue is if the zoning of the property allow for two units. If not, you will not be able to get separate meters (electric, gas, water, etc) for the second unit. If the current property is not zoned for two family housing, locals can tell you if rezoning is possible, but I would bet it would be very difficult to get approval.

Next, you will need to separate the units, which will mean separate entrance, complete separate spaces, and most likely the city/county will make you separate the units with the current code fire partition, which generally is a 1hr rated wall/ceiling (which can be done with 5/8" fire rated drywall on each side of solid 2x framing).

If you are not rewiring, replumbing, etc, then you would most likely be stuck paying for the utilities, which sucks.  Tenant rarely appreciate the costs of utilities, and when they are not paying for it, they use the crap out of it.

@Shane Gordon Yes, I have built five ground up new construction duplexes, done two full gut duplexes and have another new construction duplex under construction right now.   I have looked into a new construction triplex (completed design and full construction pricing), but in the end, it made more sense to build a duplex on that lot (the lot would not allow for a fourplex).  In my area, finding infill lots that are zoned for 3+ units is incredible difficult, as well as some zoning regulations that make 3+ unit construction difficult.

@Michael Weis I just took my first section 8 tenant earlier this year, and like you, experienced delays. What I did was confirmed that the tenant had a current voucher (without a current voucher, forget about going any further in my opinion). Then I worked with the tenant and explained that they must pay the rent until her package is approved by the local HUD office and I start getting rent. The tenant agreed to pay weekly rent until the section 8 payments started, with any duplicate payments being returned to the tenant. Once they agreed, I collected the entire deposit from them. I did allow the tenant to move in before everything was finalized with section 8, based on the above.

In my case, it took 45 days for process to be completed with the local HUD office. It took just over 3 weeks for the landlord package and inspection to be completed, and 45 days to get the HUD contract finalized and section 8 rent to start (they did pay back rent from the inspection date).

If your local HUD office is similar to mine, they should pay you from the inspection date, so you will get back rent. But the risk is when that will happen. That also assumes you will allow them to move in with rent due and no contract with section 8.

If you have alot of market rate renters, I would personally pursue that over section 8.

@Mike Morrell If you dive into the numbers, I think you will find that new construction SFR almost never make sense. Unless your land had really high value, they will never cash flow, given todays construction costs. I focus on duplex's as they are easier to build than 3+ units, are more home like to renters than 3+ unit, and in my area are more valuable $/ft2 than 3-4 units. But with one acre per lot, you could likely build a nice fourplex that feels more like townhomes than crappy fourplex. For me, it would be all about what the numbers say, but given your lot size, I would focus on either the duplex or fourplex options.

@Vanessa Hammonds I think trying to start spec building right now is at the worst times in history.  Labor shortages have caused crazy increases in subcontractor costs.  Materials cost have increase 15+% in the last year.  

Based on your post, it sounds like your "mentor" is not doing a good job.  If your mentor/consultant has been telling you the things that you noted in your post, please run away from them.  They are telling you very, very bad information.

To put things into perspective, I doubt there is anywhere you can sell new construction at $190/ft2 ($400k @ 2100ft) and the land would only be $50k (infill lot). More likely your looking at +$100k for the lot.  I also agree with others that there is no way to build new construction anywhere near where your costs are.  More likely in the $125-150/ft2.  That will reduce your potential profit to almost nothing (if not negative).

While I current have a new build in process right now, I am only building now because I have to.  I have another piece of vacant land that I will not be starting construction anytime soon.

@Kyle Smith While you have asked a big question with very limited information, assuming your house is in Orlando, and there are not big local impact or tap fees, I would say that for a small ADU (900ft2), your looking at $150-175/ft2, so $135-157k in todays market, and it could be higher. The property would have to be zoned for either ADU's or two family dwellings and be large enough (land size) to allow for the ADU based on the zoning.

@Lawrence Joshua Flanagan  Its very unclear what your role in this project is.  I also agree with other that getting a construction loan is not easy to do, especially if you don't have experience and its clear to the bank its an investment.

In your scenario, are you the one getting the construction loan?  Most banks will require at least 25% of total costs as down payment (if including the land in the loan) or equity (if using the land value as your 25%) for a construction loan.  If the land is owned by someone else, and your not putting any money up for the construction loan, I think your dead in the water.  The bank would see that that you have little to no skin in the game and not be interested.  Construction loans are very risky for the banks, as they almost always loose if the loan/project goes sideways.

If your investor gets the construction loan, what are you bringing to the project?   Without more details, its impossible to say how to structure the deal.

@Steven Sestir Unless the unit is in a very crappy area (C or D area), your likely overpriced.  I find that if I overprice a unit, the quality of my applicants goes down.  Also, the fact its been advertised for almost 30 days is another red flag.  In most areas, rentals are in high demand, and vacancy is low.  Without more information, I would say your units overpriced or in need of work to justify the price.

For me, any time I accepted someone with less than a 600 credit score, it ended up be a difficult tenant.  Either constant late rent, bounced rent payments or other issues.  I also find the closer they are to the 3x income, the more problems I have.  If you can't find a market rate tenant, have you considered section 8, which would require different income requirements and might minimize the dependence on the credit score.

@William White Having 16 ac unit across my units, I know my AC guy very well. He used to do service for a home warranty company, and based on what he has told me, you are wasting your time thinking a home warranty is going to help. My AC guys calls would start out as home warranty calls, but the home warranty company would either delay endlessly or deny the claim, and the home owner will be stuck paying the bill. Plus every time they come out, its a flat rate service fee (~$65-75) each time they show up, regardless if they are returning to install the part they identified from the first visit. You should be saving Capex every month, and expect to see these failures.