Author Topic: Does anyone live in a house like this one?  (Read 2087 times)

rothwem

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Does anyone live in a house like this one?
« on: February 29, 2024, 07:30:20 AM »
I've been mulling over what to do with my Duplex.  Its small and cute and in a crazy nice neighborhood close to downtown.  Most of the neighboring houses have been bulldozed to make way for (actually really nice) larger homes.  Its been cashflowing nicely for the last 10 years, but its getting to the point where the value of the home is not really a good fit for the rent that it brings in.  However, since its a duplex, its really hard to put a value on it and comps are all over the place, from 400k (basically land value) all the way up to 750k.  Its a very big lot for the area, but the lot is relatively narrow and deep, so I can't just sell off a portion of the lot to take some money out of the property. 

One idea I had was to bulldoze the duplex and build two of these style houses on the lot:

https://raleighrealtyhomes.com/raleigh/1615-ella-wiggins-2503669/

I don't hate the way it looks, the general style of the home would actually fit well in the neighborhood. The new houses being built are similar layouts, they go right to the mininum setbacks on the property lines except for a driveway on one side, so these skinny houses would kinda fit in, they're just thinner.  I'm hesitant to build attached units because of the issue of comps--I think it would be easier to build these and sell them

One thing my wife noticed was that there would be a lot of steps and she thought it would be annoying.  I don't repeatedly walk from my living room to my bedroom often though, so I'm thinking it would be fine.  Anyone actually lived in a place like this? Thoughts on construction costs?  More or less than a "normal" structure?

Metalcat

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Re: Does anyone live in a house like this one?
« Reply #1 on: February 29, 2024, 07:49:36 AM »
I'm unclear, do you want to occupy one of the units?

Or is the plan to bulldoze the existing duplex, build two talk detached homes on one lot, and then sell them separately as SFHs??

Can you do that? Can the lot be divided into two??

Also, with the cost of building, how would you come out ahead?

If you're worried about comps, couldn't you just try and sell the duplex and see what people are willing to pay for it, then if you get what you want you avoid the massive hassle of replacing it with 2 new buildings?

I'm very confused by what the end goal is here...maybe I'm just not getting something??

lhamo

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Re: Does anyone live in a house like this one?
« Reply #2 on: February 29, 2024, 08:01:46 AM »
A LOT of the infill housing here in Seattle are three story townhouses similar to these, some detached some with one or more shared walls.  We rented one a couple of years ago.  Some thoughts:

1)  Stairs are definitely an issue, and certain family types will avoid them for that reason.  I would not buy one at my current stage of life unless I had absolutely no alternative because they are not designed for age in place/mobility issues.  That actually comes up earlier in life for many people, too -- friend is stuck in a big house with a broken leg and it has been a real pain (both literally and figuratively) for her. 

2)  Think about how the layout affects who would consider buying such a house.  Are all the bedrooms on the same floor, or are the separated?  Parents with young kids may want all on same floor.  Parents with older kids may want some separation/privacy.  Here in Seattle a very common configuration is to have a mini-suite of a small bedroom and 3/4 bath on the lowest floor (either ground floor or basement) next to a garage, large open plan living/dining/kitchen area/powder room on the second floor (can be VERY narrow and cramped depending on how/where the staircase is put in, and 2-3 bedrooms/2 baths on the top floor.  There is often also a roof deck, which SEEMS nice if the place is newer, but if not designed and maintained meticulously it tends to become a leaky mess over time (construction quality of this type of house is often low end).

Anyway, my point is that with this kind of a layout and split of the bedrooms, the lowest floor bedroom can be more of a problem than an asset.  When we rented one, I decided to take the ground floor bedroom and give my kids the two upstairs suites because the neighborhood was kind of sketchy and if someone were to try to break in I wanted to be the one to deal with it. Also, my teens were pretty responsible, but if they were going out or coming in late at night I wanted to be able to hear it. 

3)  The other HUGE drawback for me with such a house is the lack of a yard.  Yes, I can and do use containers for a lot of my gardening.  But I still want a yard to poke around in.

Re: build costs, two separate structures are likely going to be much more expensive than a single house.  You probably can't do it as cheaply as a developer would.  Might be worth talking with a few to see if there is a way to partner up.  I would look up the history of houses this style in your neighborhood and see who built them.

Here's the info for the builder of the house you linked to -- looks like they do quality work, so maybe start a discussion with them:

https://oconnelldeveloping.com/about

ChpBstrd

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Re: Does anyone live in a house like this one?
« Reply #3 on: February 29, 2024, 09:40:02 AM »
List the duplex at $750k for a year. If someone comes along willing to pay close to that amount, take the money and run! If people throw offers at you, the highest offer is the existing value.

With the existing value in hand, you can calculate whether it makes sense to drop a LOT more money into redeveloping the real estate. Really you could do this with several potential values to see where the breakeven point is. If you are not already a construction company, I bet the answer is that it's most economical to sell the property as-is, but I could be wrong.

Bear in mind that yields of 5.5% to 6% are available all over the place from investment-grade bonds and the most solid preferred stocks. If the property is worth $500k, for example, and you own it outright, your opportunity cost in keeping it is $35k per year of completely hands-off income.

Metalcat

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Re: Does anyone live in a house like this one?
« Reply #4 on: March 01, 2024, 06:55:40 AM »
List the duplex at $750k for a year. If someone comes along willing to pay close to that amount, take the money and run! If people throw offers at you, the highest offer is the existing value.

With the existing value in hand, you can calculate whether it makes sense to drop a LOT more money into redeveloping the real estate. Really you could do this with several potential values to see where the breakeven point is. If you are not already a construction company, I bet the answer is that it's most economical to sell the property as-is, but I could be wrong.

Bear in mind that yields of 5.5% to 6% are available all over the place from investment-grade bonds and the most solid preferred stocks. If the property is worth $500k, for example, and you own it outright, your opportunity cost in keeping it is $35k per year of completely hands-off income.

This is exactly my thinking.

I'm having a really, really hard time seeing how this plan comes out ahead.

Also then there's the carrying costs for the duration of building two SFHs, which are typically longer and more expensive than expected, and the astronomical stress of that process.

Just the decision fatigue of building a house exhausts me to even think about, especially if it's a purely commercial endeavour because it's not a matter of preferring something, every single finish needs to be understood with respect to ROI.

It's just a lot...

rothwem

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Re: Does anyone live in a house like this one?
« Reply #5 on: March 01, 2024, 07:18:21 AM »
I'm unclear, do you want to occupy one of the units?

Or is the plan to bulldoze the existing duplex, build two talk detached homes on one lot, and then sell them separately as SFHs??

Can you do that? Can the lot be divided into two??

Also, with the cost of building, how would you come out ahead?

If you're worried about comps, couldn't you just try and sell the duplex and see what people are willing to pay for it, then if you get what you want you avoid the massive hassle of replacing it with 2 new buildings?

I'm very confused by what the end goal is here...maybe I'm just not getting something??

Haha well join the club! Iím confused tooÖfor clarification, Iím not planning on occupying in any situation. I live and work 4 hours away from this property. 

Iím basically trying to figure out the way to make the most money in this endeavor. I have a mortgage on the house, itís ~290k. I pull in $2800/month, with an $1850 PITI so it covers all expenses pretty nicely despite putting back $400/month for maintenance. Iíve got at least one (maybe both) tenant turns coming up in the summer and Iím going to need to do ~5-10k worth of work on the place.

With the tenant turns coming at the same time, it seems like it might be a good time to make a decision.

As far as sales go, it makes sense to keep it if itís worth the low end of the crazy wide range, and doesnít make sense at all to do it at the other end. No way to know other than putting it up for sale though.

I donít want to post it for sale and leave it for a year because thatís not a good way to attract good tenants. Would you sign a lease in a place for sale? I wouldnít.

As far as the houses go, construction is ~$300/square foot here, so each house would be ~$650k to build and sell for a million, so it seems like making $700k profit would be preferable to selling my house for even $750k and coming away with $450k.

It would be a hellish few months though for sure.

GilesMM

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Re: Does anyone live in a house like this one?
« Reply #6 on: March 01, 2024, 07:21:16 AM »
We lived in a fabulous three story townhouse on a split lot next to another one a few years ago in an urban area of Texas. It had a fourth floor attic and patio.  Most of these are built elevator ready in case an owner wants to install one.


I think it cost about $250/sq ft to build to a fairly high standard with 10 foot ceilings and luxury finishes.  Your location will determine your building costs. Do your math carefully. You may be better off selling it all now. Get estimates from local realtors.

Metalcat

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Re: Does anyone live in a house like this one?
« Reply #7 on: March 01, 2024, 07:37:13 AM »
I'm unclear, do you want to occupy one of the units?

Or is the plan to bulldoze the existing duplex, build two talk detached homes on one lot, and then sell them separately as SFHs??

Can you do that? Can the lot be divided into two??

Also, with the cost of building, how would you come out ahead?

If you're worried about comps, couldn't you just try and sell the duplex and see what people are willing to pay for it, then if you get what you want you avoid the massive hassle of replacing it with 2 new buildings?

I'm very confused by what the end goal is here...maybe I'm just not getting something??

Haha well join the club! Iím confused tooÖfor clarification, Iím not planning on occupying in any situation. I live and work 4 hours away from this property. 

Iím basically trying to figure out the way to make the most money in this endeavor. I have a mortgage on the house, itís ~290k. I pull in $2800/month, with an $1850 PITI so it covers all expenses pretty nicely despite putting back $400/month for maintenance. Iíve got at least one (maybe both) tenant turns coming up in the summer and Iím going to need to do ~5-10k worth of work on the place.

With the tenant turns coming at the same time, it seems like it might be a good time to make a decision.

As far as sales go, it makes sense to keep it if itís worth the low end of the crazy wide range, and doesnít make sense at all to do it at the other end. No way to know other than putting it up for sale though.

I donít want to post it for sale and leave it for a year because thatís not a good way to attract good tenants. Would you sign a lease in a place for sale? I wouldnít.

As far as the houses go, construction is ~$300/square foot here, so each house would be ~$650k to build and sell for a million, so it seems like making $700k profit would be preferable to selling my house for even $750k and coming away with $450k.

It would be a hellish few months though for sure.

My knee-jerk reaction is to ask: if it's so easy to make money with new builds, why doesn't everyone do that?

Also, different kind of builds have different per sqft costs, so you can't use an average to estimate a specific project. I was looking at building a small Bunkie on my property and it was more than double the cost of building an extension.

One sqft of build is not equal to all sqft of build.

And the stereotype of construction going twice as long and costing twice as much is unfortunately not as far off reality as anyone would like. My small extension started 4 months late and is in month 7 of construction.

My condo construction, which I negotiated as president and was projected to take 4 months took 3 years.

There's what a contractor projects *if everything goes well and they have the right team and supply chains work out perfectly* and then there's reality.

A single order being delayed can throw an entire construction timeline into pure chaos and you can lose your entire construction team for months to another scheduled job.

Maybe you know this, maybe you have extensive experience and find my comments pointless and condescending, in which case, ignore me and use your seasoned judgement.

But if you aren't experienced with larger construction projects...oof, this one sounds pretty intense to me. Just the zoning and city planning process sounds daunting to me with a hell of a lot more costs than just $300/sqft

One of my closest friends just built a clinic plus residence after bulldozing a small ice cream shop and the city planning process was an absolute gong show.

Again, I'm nowhere near an expert. Other than *very* small scale projects on units I own, and overseeing very large projects on my highrise, and being related to some contractors, my knowledge is just enough to look at this kind of project and feel notably ill when thinking about it.

rothwem

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Re: Does anyone live in a house like this one?
« Reply #8 on: March 02, 2024, 05:39:34 AM »
We lived in a fabulous three story townhouse on a split lot next to another one a few years ago in an urban area of Texas. It had a fourth floor attic and patio.  Most of these are built elevator ready in case an owner wants to install one.


I think it cost about $250/sq ft to build to a fairly high standard with 10 foot ceilings and luxury finishes.  Your location will determine your building costs. Do your math carefully. You may be better off selling it all now. Get estimates from local realtors.

Ahhh, elevator ready. Clever. And fwiw, $250/square foot is actually better than I was initially estimating.

As for realtor estimates, my numbers come from realtors. Nobody knows how to price this thing since <10 duplexes have sold in the area over the last couple years. Most of them have been in super shitty locations, so they drag down my comps.

A LOT of the infill housing here in Seattle are three story townhouses similar to these, some detached some with one or more shared walls.  We rented one a couple of years ago.  Some thoughts:

1)  Stairs are definitely an issue, and certain family types will avoid them for that reason.  I would not buy one at my current stage of life unless I had absolutely no alternative because they are not designed for age in place/mobility issues.  That actually comes up earlier in life for many people, too -- friend is stuck in a big house with a broken leg and it has been a real pain (both literally and figuratively) for her. 

2)  Think about how the layout affects who would consider buying such a house.  Are all the bedrooms on the same floor, or are the separated?  Parents with young kids may want all on same floor.  Parents with older kids may want some separation/privacy.  Here in Seattle a very common configuration is to have a mini-suite of a small bedroom and 3/4 bath on the lowest floor (either ground floor or basement) next to a garage, large open plan living/dining/kitchen area/powder room on the second floor (can be VERY narrow and cramped depending on how/where the staircase is put in, and 2-3 bedrooms/2 baths on the top floor.  There is often also a roof deck, which SEEMS nice if the place is newer, but if not designed and maintained meticulously it tends to become a leaky mess over time (construction quality of this type of house is often low end).

Anyway, my point is that with this kind of a layout and split of the bedrooms, the lowest floor bedroom can be more of a problem than an asset.  When we rented one, I decided to take the ground floor bedroom and give my kids the two upstairs suites because the neighborhood was kind of sketchy and if someone were to try to break in I wanted to be the one to deal with it. Also, my teens were pretty responsible, but if they were going out or coming in late at night I wanted to be able to hear it. 

3)  The other HUGE drawback for me with such a house is the lack of a yard.  Yes, I can and do use containers for a lot of my gardening.  But I still want a yard to poke around in.

Re: build costs, two separate structures are likely going to be much more expensive than a single house.  You probably can't do it as cheaply as a developer would.  Might be worth talking with a few to see if there is a way to partner up.  I would look up the history of houses this style in your neighborhood and see who built them.

Here's the info for the builder of the house you linked to -- looks like they do quality work, so maybe start a discussion with them:

https://oconnelldeveloping.com/about

Thanks for the input. Yard isnít a big deal, there will still be decent amount of yard left since my lot is so long and skinny. When subdivided, each lot will be .19 acres-199í deep and 42í wide. Also, yeah, roof deck. Thought that would be cool but I didnít think about the leaking potential.

As for 2 costing more than oneóthatís something I hadnít considered. I was thinking theyíd be building the same thing twice and Iíd be able to negotiate some kind of package, but Iíd guess 2x 2000 would be more than 1x4000.  I guess 2x kitchens is expensive and potentially 2x the bathrooms. Something to think about for sure, though I definitely think Iíd get more money selling 2x2000 than 1x4000.

rothwem

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Re: Does anyone live in a house like this one?
« Reply #9 on: March 02, 2024, 05:43:02 AM »

My knee-jerk reaction is to ask: if it's so easy to make money with new builds, why doesn't everyone do that?


Because land is expensive in places where people want to live and I got a killer deal on the land 10 years ago.

Metalcat

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Re: Does anyone live in a house like this one?
« Reply #10 on: March 02, 2024, 08:51:14 AM »

My knee-jerk reaction is to ask: if it's so easy to make money with new builds, why doesn't everyone do that?


Because land is expensive in places where people want to live and I got a killer deal on the land 10 years ago.

But would the land element not be constant regardless of what's built on it? I live where land is expensive and everyone is buying up lots with smaller houses on them and tearing them down.

I would think that expensive lots would make it *more* likely that people would be buying and bulldozing properties for new builds, not less likely. But people are *only* doing that here to build 3-5 unit buildings because that's the only way to make it profitable with the building costs.

So that's why I'm wondering, if the math is so simple, and land is expensive, wouldn't there be a ton of folks doing something like this?? Hence why I asked if you're seeing a lot of demo/rebuild projects in your area.

Or am I missing something?

Also, I asked earlier, but don't think you answered. Have you already subdivided the lot?  Where I live that's a pretty expensive and time consuming process.
« Last Edit: March 02, 2024, 08:54:51 AM by Metalcat »

rothwem

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Re: Does anyone live in a house like this one?
« Reply #11 on: March 02, 2024, 10:39:06 AM »

My knee-jerk reaction is to ask: if it's so easy to make money with new builds, why doesn't everyone do that?


Because land is expensive in places where people want to live and I got a killer deal on the land 10 years ago.

But would the land element not be constant regardless of what's built on it? I live where land is expensive and everyone is buying up lots with smaller houses on them and tearing them down.

I would think that expensive lots would make it *more* likely that people would be buying and bulldozing properties for new builds, not less likely. But people are *only* doing that here to build 3-5 unit buildings because that's the only way to make it profitable with the building costs.

So that's why I'm wondering, if the math is so simple, and land is expensive, wouldn't there be a ton of folks doing something like this?? Hence why I asked if you're seeing a lot of demo/rebuild projects in your area.

Or am I missing something?

Also, I asked earlier, but don't think you answered. Have you already subdivided the lot?  Where I live that's a pretty expensive and time consuming process.

Ah.  Yeah everything is a tear down in the neighborhood, thereís almost no original properties left. They tear down the house and put the biggest house they can on the lot and then sell for millions.

Subdividing is probably the easiest part of this whole thingóI actually considered subdividing the property several years ago and selling each side of the duplex separately so I called a lawyer to see what it would cost to do and he told me it would be about $1800.  Basically I have to get a survey and a lawyer has to do some papers and wala (intentionally misspelled), good to go. Is there more steps involved where you are?

Metalcat

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Re: Does anyone live in a house like this one?
« Reply #12 on: March 02, 2024, 11:05:18 AM »

My knee-jerk reaction is to ask: if it's so easy to make money with new builds, why doesn't everyone do that?


Because land is expensive in places where people want to live and I got a killer deal on the land 10 years ago.

But would the land element not be constant regardless of what's built on it? I live where land is expensive and everyone is buying up lots with smaller houses on them and tearing them down.

I would think that expensive lots would make it *more* likely that people would be buying and bulldozing properties for new builds, not less likely. But people are *only* doing that here to build 3-5 unit buildings because that's the only way to make it profitable with the building costs.

So that's why I'm wondering, if the math is so simple, and land is expensive, wouldn't there be a ton of folks doing something like this?? Hence why I asked if you're seeing a lot of demo/rebuild projects in your area.

Or am I missing something?

Also, I asked earlier, but don't think you answered. Have you already subdivided the lot?  Where I live that's a pretty expensive and time consuming process.

Ah.  Yeah everything is a tear down in the neighborhood, thereís almost no original properties left. They tear down the house and put the biggest house they can on the lot and then sell for millions.

Subdividing is probably the easiest part of this whole thingóI actually considered subdividing the property several years ago and selling each side of the duplex separately so I called a lawyer to see what it would cost to do and he told me it would be about $1800.  Basically I have to get a survey and a lawyer has to do some papers and wala (intentionally misspelled), good to go. Is there more steps involved where you are?

Yeah, zoning where I am is a little nutty, multiple levels of government are trying to reduce the red tape for developers because of our housing shortage, I'm in Canada.

Okay, so that answers my question, if bulldozing and building math works out, then why isn't everyone doing it??

Your answer is: they are.

Okay cool, that makes the math sound more desirable. I talk to tons of folks who *think* this kind of work is lucrative, but they're missing all of the elements that prevent others from doing it.

So then it's a matter of costing out everything and looking realistically at whether the gain, after taxes, is worth the hassle.

theoverlook

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Re: Does anyone live in a house like this one?
« Reply #13 on: March 04, 2024, 09:50:43 AM »
I think you could advertise it for sale without a sign out front; that would keep it from scaring away tenants. The sign out front is mostly for show, anyway; very few serious buyers find a place for sale by driving around randomly. It does happen, but mostly people find it in the MLS / Zillow.

I think advertising it for sale now at your target price is a good idea. Get "almost as much" profit as splitting and building, without the hassle of splitting and building. Price in your opportunity cost and cost of your pain. (Ie, reduce your target profit by that much.) Seems like a win/win if it works, with zero out of pocket cost if it doesn't. Meanwhile you can be working on your plans. I don't think a year is necessary; 30 days will get you a gauge of interest. 90 would seem like more than enough; if you don't have any interest after 90 days are additional listing days really going to help?

iris lily

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Re: Does anyone live in a house like this one?
« Reply #14 on: March 04, 2024, 10:05:07 AM »
Sure, I lived in a house like that, a skinny 4 stories (if you count the basement) 150 year old house. New builds of the same size and shape can be found in an adjacent neighborhood.

All of my neighbors lived in houses like this where running up and down stairways was a daily part of life. That is, until they became old. Then they adjusted their property or found other solutions to stay in our neighborhood of multi-story houses.

But that doesnít address your main question. I would not plan on building anything if you do not have experience with it, for many reasons. Like Malcat said, if building is such a good deal why isnt everyone doing it?

It is dastardly hard to make money on one-off infill properties.

Dicey

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Re: Does anyone live in a house like this one?
« Reply #15 on: March 04, 2024, 11:12:10 AM »
Whatever you think it will cost to build will probably come in much, much higher. Since Covid, materials costs and availability have skyrocketed. Availability is improving, but costs remain stubbornly high.

How are rents in the area? It might make perfect sense to spiff the places up and hang on a while longer, if you can get decent rent boosts. I'd be inclined to hang on until mortgage rates settle down. If you sell, are you going to do a 1031 exchange? There's not much inventory out there.

Metalcat

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Re: Does anyone live in a house like this one?
« Reply #16 on: March 04, 2024, 03:12:33 PM »
Whatever you think it will cost to build will probably come in much, much higher. Since Covid, materials costs and availability have skyrocketed. Availability is improving, but costs remain stubbornly high.

How are rents in the area? It might make perfect sense to spiff the places up and hang on a while longer, if you can get decent rent boosts. I'd be inclined to hang on until mortgage rates settle down. If you sell, are you going to do a 1031 exchange? There's not much inventory out there.

The other issue, which I mentioned above, is that supply chain issues can cause more than high prices. They are getting better, but even a single item being delayed can fuck up the timeline for a build and turn trades timelines, inspection timelines, and utility timelines into total chaos.

There's a building a few blocks from my house, a house that was demo'd and a 4 unit built in its place, and it's been delayed by over a year mostly due to a combo of supply chain and trades schedules, because a 2 week delay in a key material can mean a 3 month delay with trades people. It's complicated by the fact that we have severe winters here, so that can throw a 6+ month delay in very easily.

That's how my balcony repair went from 4 months to 3 years. Trying to get concrete supplies in at the same time as trades people's schedules made sense, at the same time as cooperative weather?? A small delay in delivery would snowball into a year delay.

My extension requires a total of about 4 weeks of work, but we're going on half a year to get it done, and there's no end in sight. Key work was delayed because they found rot and had to spend a few days on that, and then the whole dominoes of trades lined up fell apart with just a week delay in starting on the foundation.

Same thing happened with the deck/stair I had built on my duplex. It was only about 3 days worth of work, but thanks to unexpected delays, I had to delay travel by a month for it to get done, and it was down to the wire getting it inspected and signed off.

Renos are one thing, but builds depend on so many different elements coming together that what seems like it should be a minor convenience can cause absolute chaos. And if the delays are solvable, often the solution is batshit crazy expensive.

rothwem

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Re: Does anyone live in a house like this one?
« Reply #17 on: March 05, 2024, 06:21:17 AM »
I think you could advertise it for sale without a sign out front; that would keep it from scaring away tenants. The sign out front is mostly for show, anyway; very few serious buyers find a place for sale by driving around randomly. It does happen, but mostly people find it in the MLS / Zillow.

I think advertising it for sale now at your target price is a good idea. Get "almost as much" profit as splitting and building, without the hassle of splitting and building. Price in your opportunity cost and cost of your pain. (Ie, reduce your target profit by that much.) Seems like a win/win if it works, with zero out of pocket cost if it doesn't. Meanwhile you can be working on your plans. I don't think a year is necessary; 30 days will get you a gauge of interest. 90 would seem like more than enough; if you don't have any interest after 90 days are additional listing days really going to help?


I use Zillow to get my tenants, theyíd see the for sale post. Not gonna do that.


How are rents in the area? It might make perfect sense to spiff the places up and hang on a while longer, if you can get decent rent boosts. I'd be inclined to hang on until mortgage rates settle down. If you sell, are you going to do a 1031 exchange? There's not much inventory out there.

Rents are good, Iím cash flowing just fine. The impetus for doing this is to try to cash out the (maybe) shitload of equity Iíve got in the property.  It needs windows and the foundation might be sinking, so itís going to need some loving. Itís also really really small, which limits the amount of rent I can charge. Itís no big deal to put in 10-15k and just keep on keeping on, but with the double tenant turn coming up Iím wondering if I need to make a change.

As for a 1031, Iím not opposed to it but Iím worried that itíll be too tricky to pull off with the limited inventory in the area. Maybe I could 1031 into a new build? I donít know if Iíd make money doing that. Letís say I sell the place for 700k, what am I going to buy for >700k that will make more money than the stock market? Typical $700k properties arenít rentals and there arenít many quads in the area where this place is or where I live.

Sure, I lived in a house like that, a skinny 4 stories (if you count the basement) 150 year old house. New builds of the same size and shape can be found in an adjacent neighborhood.

All of my neighbors lived in houses like this where running up and down stairways was a daily part of life. That is, until they became old. Then they adjusted their property or found other solutions to stay in our neighborhood of multi-story houses.

But that doesnít address your main question. I would not plan on building anything if you do not have experience with it, for many reasons. Like Malcat said, if building is such a good deal why isnt everyone doing it?

It is dastardly hard to make money on one-off infill properties.

Thanks for your input on the house design.

On the bolded part though, no offense, but thatís loser thinking. How do you learn to do something new without trying it? Imagine a life without taking risks! Ugh.

Anyways.

Metalcat

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Re: Does anyone live in a house like this one?
« Reply #18 on: March 05, 2024, 08:11:31 AM »
I think you could advertise it for sale without a sign out front; that would keep it from scaring away tenants. The sign out front is mostly for show, anyway; very few serious buyers find a place for sale by driving around randomly. It does happen, but mostly people find it in the MLS / Zillow.

I think advertising it for sale now at your target price is a good idea. Get "almost as much" profit as splitting and building, without the hassle of splitting and building. Price in your opportunity cost and cost of your pain. (Ie, reduce your target profit by that much.) Seems like a win/win if it works, with zero out of pocket cost if it doesn't. Meanwhile you can be working on your plans. I don't think a year is necessary; 30 days will get you a gauge of interest. 90 would seem like more than enough; if you don't have any interest after 90 days are additional listing days really going to help?


I use Zillow to get my tenants, theyíd see the for sale post. Not gonna do that.


How are rents in the area? It might make perfect sense to spiff the places up and hang on a while longer, if you can get decent rent boosts. I'd be inclined to hang on until mortgage rates settle down. If you sell, are you going to do a 1031 exchange? There's not much inventory out there.

Rents are good, Iím cash flowing just fine. The impetus for doing this is to try to cash out the (maybe) shitload of equity Iíve got in the property.  It needs windows and the foundation might be sinking, so itís going to need some loving. Itís also really really small, which limits the amount of rent I can charge. Itís no big deal to put in 10-15k and just keep on keeping on, but with the double tenant turn coming up Iím wondering if I need to make a change.

As for a 1031, Iím not opposed to it but Iím worried that itíll be too tricky to pull off with the limited inventory in the area. Maybe I could 1031 into a new build? I donít know if Iíd make money doing that. Letís say I sell the place for 700k, what am I going to buy for >700k that will make more money than the stock market? Typical $700k properties arenít rentals and there arenít many quads in the area where this place is or where I live.

Sure, I lived in a house like that, a skinny 4 stories (if you count the basement) 150 year old house. New builds of the same size and shape can be found in an adjacent neighborhood.

All of my neighbors lived in houses like this where running up and down stairways was a daily part of life. That is, until they became old. Then they adjusted their property or found other solutions to stay in our neighborhood of multi-story houses.

But that doesnít address your main question. I would not plan on building anything if you do not have experience with it, for many reasons. Like Malcat said, if building is such a good deal why isnt everyone doing it?

It is dastardly hard to make money on one-off infill properties.

Thanks for your input on the house design.

On the bolded part though, no offense, but thatís loser thinking. How do you learn to do something new without trying it? Imagine a life without taking risks! Ugh.

Anyways.

The point isn't that you shouldn't take risks, the point is that without a certain amount of exposure to a process, it's very hard to do a reasonable risk analysis.

I'm huge on taking risks, but I do enough research to understand what the worst case scenario is, at least, and go from there.

There are a few types of risk analysis:

The upside is unlimited and the downside is limited

This is your classic stock investing paradigm, you can only lose what you set out to risk, and what you have to gain is limitless. You don't need to do much risk analysis here if you are okay with a total loss.

With a non-stock situation, what you have to know is what the downside is and how acceptable the worst case outcome is. How much probability analysis you need to do comes down to how painful the worst case is.

Limited upside and limited downside

In this scenario you again want to start with the worst case scenario and how acceptable it is. The worse the worst case scenario, the more you either need a higher limit to the best case, or a higher probability of the best case.

So a good example here is buying a primary residence. The downside of how much the value could drop has a limit, and the upside of how much it could go up in value also has a limit. But you don't need a massive market analysis to reasonably expect that the value will go up.

But if the limited downside exceeds the limited upside, you want to have a more sophisticated market analysis. Like investors who buy rentals in markets where they will lose money on the rentals, but are speculating that equity will increase beyond rental losses. These tend to be fairly sophisticated large scale pre-construction condo investors who have portfolios diversified across multiple markets.

unlimited upside and unlimited downside

This would probably be best exemplified by Oxycontin. The Sacklers took a massive risk by committing fraud for a near-infinite amount of gain and risking a near infinite amount of damages.

There aren't a lot of opportunities for individuals to engage in this kind of risk.

And lastly, your scenario

A limited upside with a near infinite downside

The reason this project has a near infinite downside is because of the risk of litigation if the project goes totally sideways and multiple entities lose substantial money.

There's only so much money that can be made above the value of selling the duplex as it is, and there are many scenarios where the downside exceeds that limited upside.

So in this case, probability analysis is *highly* critical, because you want to know as accurately as possible what the profit cutoff is for this project being worthwhile, exactly how well it needs to go to reach that cutoff, and what the probability is of failing to meet it.

You absolutely want to know what the worst case downside is and what the probability is of hitting that as well.

A fun stat is that research has shown that 1 in 4 property professional in the UK has contemplated suicide, with property developers having the worst mental health impacts from the inherent stresses of the industry.

"Taking a closer look at the property sector, EGís survey reveals roughly 80% of developers have experienced a mental illness and 32% have considered suicide."

And these are the experienced professionals who know best how to avoid the horrible outcomes.

Again, that's not to dissuade you, go ahead and do it if you read all of this and are like "yeah, I can handle that!" I've done plenty of shit like that myself. I've taken on challenges that everyone told me were stupid and dangerous and I've kicked ass at them, but that's because I did a realistic risk analysis and understood where others failed and why I was less likely to.

If there's something about you or your connections or your property that make your situation exceptional and you are solid on that knowledge that your risk is manageable, then GO NUTS!

Property development is an area where I personally have zero advantage, in fact I'm disadvantaged because I'm disabled and can't do a lot of labour myself. So I personally wouldn't touch this risk profile with a thousand foot pole.

But I've taken bold as fuck, terrifying risks in my time and I'm a BIG fan.

So you do you, but make sure your confidence is based in sound risk analysis.

Also, if I were you, I would be asking myself if there is a more creative opportunity with a higher upside that I could throw THAT MUCH time/money/energy at.

I mean, if you have hundreds of thousands in liquid assets to deploy, months to years of time to tie it up, and an enormous capacity for stress, you could roll that investment into a hugely successful business venture for a hell of a lot more upside than a few hundred thousand taxable dollars.

former player

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Re: Does anyone live in a house like this one?
« Reply #19 on: March 05, 2024, 08:59:46 AM »
That design looks pretty standard for an end Georgian terraced house in London, minus the driveway. Whether someone would build one in London now depends on the area.  In a really high cost area (that's high cost for London, right?): yes, and it would sell for several million.  In any other area the same footprint would probably be flats (apartments), with one on each floor. Depending on the area there might be a lift installed: more likely in more expensive areas.

FINate

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Re: Does anyone live in a house like this one?
« Reply #20 on: March 05, 2024, 09:21:01 AM »

Thanks for your input on the house design.

On the bolded part though, no offense, but thatís loser thinking. How do you learn to do something new without trying it? Imagine a life without taking risks! Ugh.

Anyways.

To add to Metalcat's excellent comment: One learns complex new things via a long deliberate process, not just jumping in the deep end. I think we can all understand a surgeon does't learn their field by randomly hacking people open - it's a long road. While property development isn't surgery, there is a lot that goes into the profession. So you start by working in the building industry, something like the back office for a builder/contractor, analyzing properties and builds, walking through the process of permitting and approval, dealing with insurers, suppliers, sub-contractors, and so on. After a few years of this you learn how to do builds w/o completely shooting yourself in the foot. Not saying you can't jump in and learn by doing, but from an investment POV this is highly riskly.
« Last Edit: March 05, 2024, 09:25:58 AM by FINate »

aloevera1

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Re: Does anyone live in a house like this one?
« Reply #21 on: March 05, 2024, 10:17:39 AM »
What is driving your desire to do a rebuild?

Are convinced that you can achieve better returns than all other alternatives? Are you looking for a challenging project? Are you looking for something risky?

Your motivation seems to come from some sort of emotions. You are attached to this idea despite very solid rational reasoning presented by many smart people in this thread.

So why is doing something so risky and potentially deeply unprofitable so appealing to you?

I would probably start by examining as to why you are attached to this thought.

If you want take on something challenging you could start with a much smaller investment and see how it goes. Or you could realistically look at the potential returns and compare them to the market. Even if the build goes swimmingly well your property has a ceiling above which it would not sell. So, your returns have a limited upside with this project.

And by the way, I don't really see an issue of selling the properties while it's tenanted. It's done all the time. Why hide it from the tenants? It could be an appealing feature for investors. You don't even have to be sneaky about it. If you do any showings the buyer will ask to enter the units. I'd opt for transparency with the tenants. You could also fixed term leases so they would not necessarily get kicked out when the new landlord takes over (this depends on specific laws in your location).

Also, you said that you are facing a turnover.. why not sell it then?

Metalcat

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Re: Does anyone live in a house like this one?
« Reply #22 on: March 05, 2024, 10:44:51 AM »

Thanks for your input on the house design.

On the bolded part though, no offense, but thatís loser thinking. How do you learn to do something new without trying it? Imagine a life without taking risks! Ugh.

Anyways.

To add to Metalcat's excellent comment: One learns complex new things via a long deliberate process, not just jumping in the deep end. I think we can all understand a surgeon does't learn their field by randomly hacking people open - it's a long road. While property development isn't surgery, there is a lot that goes into the profession. So you start by working in the building industry, something like the back office for a builder/contractor, analyzing properties and builds, walking through the process of permitting and approval, dealing with insurers, suppliers, sub-contractors, and so on. After a few years of this you learn how to do builds w/o completely shooting yourself in the foot. Not saying you can't jump in and learn by doing, but from an investment POV this is highly riskly.

LOL!

This is an excellent example.

I feel very confident in my ability to do the surgeries I'm trained to do, but I could spend just as much time and energy learning about real estate development, and I would not feel anywhere near as comfortable tearing down a duplex as I do hacking into a human.


Villanelle

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Re: Does anyone live in a house like this one?
« Reply #23 on: March 05, 2024, 11:15:50 AM »
I'm not entirely sure what you mean by a "house like this one", but where I live, 3-4 story townhouses are pretty common.  Our friends had one.  First floor was a front room and bath, and behind it was the rear-load garage.  Next floor was LDK and powder room, then 3 bedrooms on the thrid floor, then a roof top deck and a small living space.  That's super common. 

They are usually attached (rows of 4 or 6 seem to be most common), but there's no reason that the same floor plan couldn't be detached.  And there are different versions--front load garage***, not garage, etc. 

***We almost rented a front load garage narrow row house. First floor living are, 2nd LDK and powder, third had 2 beds and a bath, and 4th had primary bed and bath, and I think a small deck. And there was a small patio off the back.   

All that said, this seems like a weird idea.  You are going to be paying on construction site for probably a year plus, so you can sell?  Have you talked to local agents about pricing it as-is?  What do they say?  How do they justify the prices they give? 

rothwem

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Re: Does anyone live in a house like this one?
« Reply #24 on: March 05, 2024, 01:26:37 PM »
What is driving your desire to do a rebuild?

Are convinced that you can achieve better returns than all other alternatives?

All that said, this seems like a weird idea.  You are going to be paying on construction site for probably a year plus, so you can sell?  Have you talked to local agents about pricing it as-is?  What do they say?  How do they justify the prices they give?

I don't really understand what's so weird about this idea.  I have a house on there that comps out poorly, so the proposed plan is to take the double lot, split it down the middle and put two houses that are more easily sellable on there.  Perhaps you guys misunderstood--I'm not planning on GC'ing this house.  If I were, I'd be targeting much less than $300/square foot, which is the number I've been using for my calculations.  If I were to undertake this, I'd hire a local GC to coordinate with the subcontractors, deal with the permits and plans and be the face of the project.

I guess what I was seeking input on was if the style of home would be a turn-off for a lot of buyers, being vertically stacked like it is. 

And as I mentioned in the original post that nobody seemed to have read, I've talked to realtors that have given me values for the current duplex that are all over the map.  The issue I'm having is that if its only worth $400k, then it makes sense to keep renting it out.  If its worth $750k, then it doesn't make sense to rent out.  The only real way to know what its ACTUALLY worth is by putting it up for sale, but I'm concerned that it will create a stigma about the house if it doesn't sell. 

An alternative idea I had was to convert the duplex to a SFH and sell it that way--the construction cost would be cheaper and the bank value would be more established, but I'm worried that it would just be a house with a weird floorplan that wouldn't sell in the fancy part of town that its in. 

And by the way, I don't really see an issue of selling the properties while it's tenanted. It's done all the time. Why hide it from the tenants? It could be an appealing feature for investors. You don't even have to be sneaky about it. If you do any showings the buyer will ask to enter the units. I'd opt for transparency with the tenants. You could also fixed term leases so they would not necessarily get kicked out when the new landlord takes over (this depends on specific laws in your location).

Also, you said that you are facing a turnover.. why not sell it then?

I'm not trying to hide selling it from my tenants.  The scenario that I'm concerned about about putting it up for sale, having it sit on the market for a couple months not getting what I want for it, then trying to attract tenants.

Also, its very inconvenient for the tenants to live in a place that's being sold--they've got to rearrange their lives for tours, board their animals, etc.  Its a pain in the dick for the chance that I *might* get a payoff.  I could potentially put it up for sale after they move out, but what if it takes 6 months to sell?  Am I going to pay a mortgage and utilities on a house that I'm not getting rental income on for 6 months?  At least if it were under construction I would have an interest only period for building the structures. 

theoverlook

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Re: Does anyone live in a house like this one?
« Reply #25 on: March 05, 2024, 01:46:57 PM »
I'm willing to bet 90% of tenants wouldn't even notice or care that it's for sale. They're looking at for rent listings. You don't see both at once. I just don't think it's as big of an issue as you claim.

Also, you're gonna have a lot more time with it not producing income, and in fact producing eye watering bills, while it's torn down and rebuilt, than it would take to try to sell it. If it being a little harder to attract tenants scares you off of trying to sell it why doesn't having no tenants for a year plus while you're tearing down and rebuilding?

rothwem

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Re: Does anyone live in a house like this one?
« Reply #26 on: March 05, 2024, 02:08:44 PM »
Also, you're gonna have a lot more time with it not producing income, and in fact producing eye watering bills, while it's torn down and rebuilt, than it would take to try to sell it. If it being a little harder to attract tenants scares you off of trying to sell it why doesn't having no tenants for a year plus while you're tearing down and rebuilding?

Er, because I'll have a couple million dollars worth of houses at the end of it?  In the first scenario, I'd be throwing away $2000/month and potentially have a a $400k house at the end. 

You're not wrong though, even the interest-only period of the construction loan would put a big strain on my monthly cashflow. 

Metalcat

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Re: Does anyone live in a house like this one?
« Reply #27 on: March 05, 2024, 02:24:10 PM »
Also, you're gonna have a lot more time with it not producing income, and in fact producing eye watering bills, while it's torn down and rebuilt, than it would take to try to sell it. If it being a little harder to attract tenants scares you off of trying to sell it why doesn't having no tenants for a year plus while you're tearing down and rebuilding?

Er, because I'll have a couple million dollars worth of houses at the end of it?  In the first scenario, I'd be throwing away $2000/month and potentially have a a $400k house at the end. 

You're not wrong though, even the interest-only period of the construction loan would put a big strain on my monthly cashflow.

That's not really the math though.

Your top end profit for selling the duplex was 450K and your top end for selling the two SFHs was 700K, but that was assuming *only* the cost of $300/sqft, no additional costs like bulldozing the duplex, or any other additional costs.

So you are looking at a difference of only hundreds of thousands of dollars, which while significant, isn't a huge amount of money for the time, stress, and risk.

For that kind of outlay, I would *almost* rather go into business with a general contractor to start a property flip business. Because if this  epic flip went well, there would be so much learned in terms of best practices, that I would want to expand the potential upside.

It would also lower some risk by having the general contractor's skin in the game, but increase other risk by making the business structure more complicated.

But still, if people are doing this kind of work in that area, I wouldn't be willing to take on the steep mutherfucking learning curve without the potential payoff of scaling the operation.


rothwem

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Re: Does anyone live in a house like this one?
« Reply #28 on: March 05, 2024, 02:50:50 PM »
Also, you're gonna have a lot more time with it not producing income, and in fact producing eye watering bills, while it's torn down and rebuilt, than it would take to try to sell it. If it being a little harder to attract tenants scares you off of trying to sell it why doesn't having no tenants for a year plus while you're tearing down and rebuilding?

Er, because I'll have a couple million dollars worth of houses at the end of it?  In the first scenario, I'd be throwing away $2000/month and potentially have a a $400k house at the end. 

You're not wrong though, even the interest-only period of the construction loan would put a big strain on my monthly cashflow.

That's not really the math though.

Your top end profit for selling the duplex was 450K and your top end for selling the two SFHs was 700K, but that was assuming *only* the cost of $300/sqft, no additional costs like bulldozing the duplex, or any other additional costs.

So you are looking at a difference of only hundreds of thousands of dollars, which while significant, isn't a huge amount of money for the time, stress, and risk.

For that kind of outlay, I would *almost* rather go into business with a general contractor to start a property flip business. Because if this  epic flip went well, there would be so much learned in terms of best practices, that I would want to expand the potential upside.

It would also lower some risk by having the general contractor's skin in the game, but increase other risk by making the business structure more complicated.

But still, if people are doing this kind of work in that area, I wouldn't be willing to take on the steep mutherfucking learning curve without the potential payoff of scaling the operation.

Hmm, so I'm still not clear @Metalcat, do you think this is a good idea?  I can't really tell from your posts. 







:-D

nedwin

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Re: Does anyone live in a house like this one?
« Reply #29 on: March 05, 2024, 03:34:51 PM »
It's really hard for anyone on this forum to answer whether a 3+ story home would be a turn off for buyers in your area, as we have no idea where your duplex is located.  Personally, I have seen similar homes in many dense, urban areas.  Is your neighborhood relatively dense?  Does it have similar homes?  Would buyers expect stairs and more than one level?  Do they sell easily/quickly?  Are there comps you can evaluate?  these are all questions this forum cannot easily answer.  I would start with my own research on these questions, then move onto the advice of good real estate agents.

For what its worth, my home is 2500 sf composed of three levels of about 800 sf each (basement, ground floor, and 2nd floor).  Three bedrooms are on the 2nd floor and living areas are on the ground floor.  There's a fourth bedroom and a family room in the basement.  I like it, but the stairs can be annoying when I forget something in the bedroom.

. . .

Haha well join the club! Iím confused tooÖfor clarification, Iím not planning on occupying in any situation. I live and work 4 hours away from this property. 

Iím basically trying to figure out the way to make the most money in this endeavor. I have a mortgage on the house, itís ~290k. I pull in $2800/month, with an $1850 PITI so it covers all expenses pretty nicely despite putting back $400/month for maintenance. Iíve got at least one (maybe both) tenant turns coming up in the summer and Iím going to need to do ~5-10k worth of work on the place.

With the tenant turns coming at the same time, it seems like it might be a good time to make a decision.

As far as sales go, it makes sense to keep it if itís worth the low end of the crazy wide range, and doesnít make sense at all to do it at the other end. No way to know other than putting it up for sale though.

I donít want to post it for sale and leave it for a year because thatís not a good way to attract good tenants. Would you sign a lease in a place for sale? I wouldnít.

As far as the houses go, construction is ~$300/square foot here, so each house would be ~$650k to build and sell for a million, so it seems like making $700k profit would be preferable to selling my house for even $750k and coming away with $450k.

It would be a hellish few months though for sure.

Using your numbers stated here, your projected profit building two new houses would be about $400,000, not $700,000.  Here's my math: $2,000,000 (projected sale price) - $1,300,000 (construction) - $290,000 (current mortgage) = $410,000.  But it is not clear that your numbers account for a bunch of other costs.  This isn't to dump on your idea.  I think it's a great idea that needs to be fleshed out with solid research and cost estimates.  You will need a rock solid business plan with every nail and 2x4 accounted for before a bank will loan you $1.3MM to build a couple spec houses.  Does your estimate of $300/sf for construction include development fees, building permits, water/sewer taps, raw water dedications or money in-lieu, and other building costs imposed by the municipality?  Where I live (arid mountain west, water is the biggest portion) these costs can easily add up to $100,000 per door for detached single family homes.  You have a duplex so you may already have two water/sewer taps and your municipality may not charge development fees for re-development such as this.  It's worth talking with your municipality's building dept. to figure out these costs.  What about construction loan interest, taxes, insurance (builder's risk, liability, and some sort of tail policy for construction defects), architecture/engineering fees, utilities, or RE agent and other sale fees?  How much equity and cash are you willing to dedicate to this project?

Villanelle

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Re: Does anyone live in a house like this one?
« Reply #30 on: March 05, 2024, 03:52:43 PM »
It's really hard for anyone on this forum to answer whether a 3+ story home would be a turn off for buyers in your area, as we have no idea where your duplex is located.  Personally, I have seen similar homes in many dense, urban areas.  Is your neighborhood relatively dense?  Does it have similar homes?  Would buyers expect stairs and more than one level?  Do they sell easily/quickly?  Are there comps you can evaluate?  these are all questions this forum cannot easily answer.  I would start with my own research on these questions, then move onto the advice of good real estate agents.

For what its worth, my home is 2500 sf composed of three levels of about 800 sf each (basement, ground floor, and 2nd floor).  Three bedrooms are on the 2nd floor and living areas are on the ground floor.  There's a fourth bedroom and a family room in the basement.  I like it, but the stairs can be annoying when I forget something in the bedroom.

. . .

Haha well join the club! Iím confused tooÖfor clarification, Iím not planning on occupying in any situation. I live and work 4 hours away from this property. 

Iím basically trying to figure out the way to make the most money in this endeavor. I have a mortgage on the house, itís ~290k. I pull in $2800/month, with an $1850 PITI so it covers all expenses pretty nicely despite putting back $400/month for maintenance. Iíve got at least one (maybe both) tenant turns coming up in the summer and Iím going to need to do ~5-10k worth of work on the place.

With the tenant turns coming at the same time, it seems like it might be a good time to make a decision.

As far as sales go, it makes sense to keep it if itís worth the low end of the crazy wide range, and doesnít make sense at all to do it at the other end. No way to know other than putting it up for sale though.

I donít want to post it for sale and leave it for a year because thatís not a good way to attract good tenants. Would you sign a lease in a place for sale? I wouldnít.

As far as the houses go, construction is ~$300/square foot here, so each house would be ~$650k to build and sell for a million, so it seems like making $700k profit would be preferable to selling my house for even $750k and coming away with $450k.

It would be a hellish few months though for sure.

Using your numbers stated here, your projected profit building two new houses would be about $400,000, not $700,000.  Here's my math: $2,000,000 (projected sale price) - $1,300,000 (construction) - $290,000 (current mortgage) = $410,000.  But it is not clear that your numbers account for a bunch of other costs.  This isn't to dump on your idea.  I think it's a great idea that needs to be fleshed out with solid research and cost estimates.  You will need a rock solid business plan with every nail and 2x4 accounted for before a bank will loan you $1.3MM to build a couple spec houses.  Does your estimate of $300/sf for construction include development fees, building permits, water/sewer taps, raw water dedications or money in-lieu, and other building costs imposed by the municipality?  Where I live (arid mountain west, water is the biggest portion) these costs can easily add up to $100,000 per door for detached single family homes.  You have a duplex so you may already have two water/sewer taps and your municipality may not charge development fees for re-development such as this.  It's worth talking with your municipality's building dept. to figure out these costs.  What about construction loan interest, taxes, insurance (builder's risk, liability, and some sort of tail policy for construction defects), architecture/engineering fees, utilities, or RE agent and other sale fees?  How much equity and cash are you willing to dedicate to this project?

I think carrying costs would be another huge costs.  There may also be significant costs in splitting the lot into 2 separate parcels.  It sounds like they are currently zoned as one property.  Splitting can be costly and time consuming (and in some cases simply not possible due to zoning).

Metalcat

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Re: Does anyone live in a house like this one?
« Reply #31 on: March 05, 2024, 03:56:09 PM »
Also, you're gonna have a lot more time with it not producing income, and in fact producing eye watering bills, while it's torn down and rebuilt, than it would take to try to sell it. If it being a little harder to attract tenants scares you off of trying to sell it why doesn't having no tenants for a year plus while you're tearing down and rebuilding?

Er, because I'll have a couple million dollars worth of houses at the end of it?  In the first scenario, I'd be throwing away $2000/month and potentially have a a $400k house at the end. 

You're not wrong though, even the interest-only period of the construction loan would put a big strain on my monthly cashflow.

That's not really the math though.

Your top end profit for selling the duplex was 450K and your top end for selling the two SFHs was 700K, but that was assuming *only* the cost of $300/sqft, no additional costs like bulldozing the duplex, or any other additional costs.

So you are looking at a difference of only hundreds of thousands of dollars, which while significant, isn't a huge amount of money for the time, stress, and risk.

For that kind of outlay, I would *almost* rather go into business with a general contractor to start a property flip business. Because if this  epic flip went well, there would be so much learned in terms of best practices, that I would want to expand the potential upside.

It would also lower some risk by having the general contractor's skin in the game, but increase other risk by making the business structure more complicated.

But still, if people are doing this kind of work in that area, I wouldn't be willing to take on the steep mutherfucking learning curve without the potential payoff of scaling the operation.

Hmm, so I'm still not clear @Metalcat, do you think this is a good idea?  I can't really tell from your posts. 







:-D

Just sharing thoughts I would want shared with me if I posted something like you have.

I've said repeatedly that I have no idea if it's a good idea, because you haven't actually shared much info.

I can only say that *I* would not do this based on *my* comfort level with property development relative to other avenues *I* would be far more comfortable investing in with less risk and higher upside.

But that's me, and I err far on the side of my risks having massive upside. I'm also generally hassle avoidant. I've walked away from A LOT of money in the past to avoid certain types of hassle.

But again, that's me. I'm not you.

You aren't sharing enough info for me to have an opinion about what *you* should do.

rothwem

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Re: Does anyone live in a house like this one?
« Reply #32 on: March 05, 2024, 05:48:29 PM »
It's really hard for anyone on this forum to answer whether a 3+ story home would be a turn off for buyers in your area, as we have no idea where your duplex is located.  Personally, I have seen similar homes in many dense, urban areas.  Is your neighborhood relatively dense?  Does it have similar homes?  Would buyers expect stairs and more than one level?  Do they sell easily/quickly?  Are there comps you can evaluate?  these are all questions this forum cannot easily answer.  I would start with my own research on these questions, then move onto the advice of good real estate agents.

For what its worth, my home is 2500 sf composed of three levels of about 800 sf each (basement, ground floor, and 2nd floor).  Three bedrooms are on the 2nd floor and living areas are on the ground floor.  There's a fourth bedroom and a family room in the basement.  I like it, but the stairs can be annoying when I forget something in the bedroom.

. . .

Haha well join the club! Iím confused tooÖfor clarification, Iím not planning on occupying in any situation. I live and work 4 hours away from this property. 

Iím basically trying to figure out the way to make the most money in this endeavor. I have a mortgage on the house, itís ~290k. I pull in $2800/month, with an $1850 PITI so it covers all expenses pretty nicely despite putting back $400/month for maintenance. Iíve got at least one (maybe both) tenant turns coming up in the summer and Iím going to need to do ~5-10k worth of work on the place.

With the tenant turns coming at the same time, it seems like it might be a good time to make a decision.

As far as sales go, it makes sense to keep it if itís worth the low end of the crazy wide range, and doesnít make sense at all to do it at the other end. No way to know other than putting it up for sale though.

I donít want to post it for sale and leave it for a year because thatís not a good way to attract good tenants. Would you sign a lease in a place for sale? I wouldnít.

As far as the houses go, construction is ~$300/square foot here, so each house would be ~$650k to build and sell for a million, so it seems like making $700k profit would be preferable to selling my house for even $750k and coming away with $450k.

It would be a hellish few months though for sure.

Using your numbers stated here, your projected profit building two new houses would be about $400,000, not $700,000.  Here's my math: $2,000,000 (projected sale price) - $1,300,000 (construction) - $290,000 (current mortgage) = $410,000.  But it is not clear that your numbers account for a bunch of other costs.  This isn't to dump on your idea.  I think it's a great idea that needs to be fleshed out with solid research and cost estimates.  You will need a rock solid business plan with every nail and 2x4 accounted for before a bank will loan you $1.3MM to build a couple spec houses.  Does your estimate of $300/sf for construction include development fees, building permits, water/sewer taps, raw water dedications or money in-lieu, and other building costs imposed by the municipality?  Where I live (arid mountain west, water is the biggest portion) these costs can easily add up to $100,000 per door for detached single family homes.  You have a duplex so you may already have two water/sewer taps and your municipality may not charge development fees for re-development such as this.  It's worth talking with your municipality's building dept. to figure out these costs.  What about construction loan interest, taxes, insurance (builder's risk, liability, and some sort of tail policy for construction defects), architecture/engineering fees, utilities, or RE agent and other sale fees?  How much equity and cash are you willing to dedicate to this project?

Hahaha wow. Cripes Iím a dummy. Good catch on the mortgage balance, seems I forgot to include that in my expenses. It was in there at one point, not sure how it dropped out. Thatís going to be the killer of this project for sure.

I appreciate you checking the math instead of saying, ďdonít do it cause itís hardĒ though!

Metalcat

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Re: Does anyone live in a house like this one?
« Reply #33 on: March 06, 2024, 07:25:01 AM »
No one is saying "don't do it because it's hard" though.

Some of us are saying that we're struggling to see the upside as being sufficient enough to be worth the investment of capital, time, energy, risk, and stress.

Just because you *can* make money off of doing something difficult doesn't mean it's a good investment. It has to be a better/more likely payoff than whatever else you could do with that time/energy/money capital.

Could this be a very good investment? Absolutely, it could be, but I think some of us are concerned that we're mentioning very real risks that should be accounted for, and you seem to want to dismiss them as if they don't apply to you because we're just stuck in "loser thinking."

Meanwhile, you've had questions and concerns from posters who have made A LOT more than you're projected to make from their own construction projects.

If it were me, I would be keenly interested in the thoughts and questions of folks who've figured out how to get rich off of this kind of work.

lhamo

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Re: Does anyone live in a house like this one?
« Reply #34 on: March 06, 2024, 07:34:51 AM »
Why don't you just call the developer of the houses you linked to?  I even found their contact info for you.  Worst case, you waste some beer or coffee money on somebody who turns out to be an asshole you would never work with.  But I'm betting you would learn a LOT about the ins and outs of property development in that city.  If they don't do one-off properties (the ones you linked to are in a bigger development, so they probably started with a large parcel to begin with) they might be able to put you in touch with someone who does.


Metalcat

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Re: Does anyone live in a house like this one?
« Reply #35 on: March 06, 2024, 01:00:46 PM »
Why don't you just call the developer of the houses you linked to?  I even found their contact info for you.  Worst case, you waste some beer or coffee money on somebody who turns out to be an asshole you would never work with.  But I'm betting you would learn a LOT about the ins and outs of property development in that city.  If they don't do one-off properties (the ones you linked to are in a bigger development, so they probably started with a large parcel to begin with) they might be able to put you in touch with someone who does.

Yeah, just start with data gathering. Run the plan by someone who successfully makes money at exactly this kind of build.

partgypsy

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Re: Does anyone live in a house like this one?
« Reply #36 on: March 11, 2024, 01:33:32 PM »
Yes.as others are saying, 300/ square feet is the tip of the iceberg. At the very least will need to get more numbers. You should, to satisfy your curiosity, and get a real idea of Cost vs benefit. Eta- what Nedwin said (all those costs prior to actual build). Then go from there. All the while paying: the mortgage every month. Paying off a very large loan. For 300/sq feet for 4k, we are talking 1.2 million. Asit is a business mortgage loan or mortgage, what is the interest rate?  it means having some pretty deep pockets, patience of Ghandhi, and nerves of steel.
« Last Edit: March 11, 2024, 01:51:55 PM by partgypsy »

partgypsy

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Re: Does anyone live in a house like this one?
« Reply #37 on: March 11, 2024, 01:50:14 PM »
If you could sell the duplex for 690k, you can make the same 400k amount, without all the stress and headache. And any pre build costs,
, unforseen costs, and overruns, cut into that 400 K profit...
« Last Edit: March 11, 2024, 02:23:33 PM by partgypsy »

 

Wow, a phone plan for fifteen bucks!