Hey guys I am taking the leap and doing my first multifamily project. Just a little background I started my firm to raise capital and to learn about the intricate parts of design and building construction. I am a licensed
Hey guys, I am excited to share that I am taking the leap and doing my first multifamily project! Some background on me - I started my firm to raise capital and learn about the intricate parts of design and building construction. As a licensed Architect with over 10 years of experience working on various project types, we finally started to see some capital from our projects. And what's the first thing we want to do? Invest in real estate development!
Our long-term goal is to develop a business model that will help tackle affordable housing crises in cities. We want to use the knowledge we have gained in architecture and construction to provide a product from a technical aspect that will meet the changing needs of the city.
Having positive cash flow from an architecture firm allows us to focus on making a good product even if in the beginning we are slightly above break even. We are also licensed contractors, which means we have room to adjust not only the engineering fees, the contractor fee, along with the developer fee to make an unfeasible project feasible. Though it is my intention to pay ourselves at what we would pay another firm to perform the task we do.
We are attempting to do our first seed project. I contacted an agent about a property and it didn't work out. He informed me of another property that another agent was listing in an attempt to offload some of her portfolio. The property is (2) lots originally listed at 90K each zoned for commercial. They are in the metro New Orleans area within 5 minutes to the redeveloping airport area. I proposed 50K a lot with $10K at closing financing the other 90K. They agreed and sent me an offer with 24 hours to accept.
We haven't had much experience with the financing side, so I reached out to friends who have done similar projects and they have suggested a hard money lender. The construction method for this property drastically cuts our construction time on this project by about half. Although as first-time developers, we will experience some delays and should have contingencies in place.
The agent estimates rent in this area for the 3BDR/2BA will be from $1850-$2000. Although this is a new build for the area and comps don't necessarily depict this, the homes will be high energy efficient (solar panels) and built to withstand the seasonal damage to the roofs and walls caused by hurricanes as similar homes do. Our estimated development cost is between $580K-$1.1M per duplex at this stage. The variation is due to the difference in cost of building it with traditional construction methods which would cost more and take longer and the option to go with our faster installed energy-efficient method. Our goal, however, is to get it at $480K for funding purposes.
I have attached a proforma and a set of schematic plans we have worked on. Again this is a seed project. We want to work out the kinks before scaling to a community size development. If you have any comment on the proforma that would be much appreciated. If you would like to know more about what we are doing to make the homes energy efficient and resistant to storm damage, I am more than happy to share information.
| Attachment | Size |
|---|---|
| 0207-Illinois-BLD1-Proforma-Conventional_Redacted.pdf 281.39 KB | 281.39 KB |
| 0207-Illinois-BLD1-Proforma-Energy Efficient_Redacted.pdf 166.52 KB | 166.52 KB |
| 230619-DRAFT SET_Redacted.pdf 427.71 KB | 427.71 KB |
Hi Oscott, just because I'm a bot doesn't mean I don't have feelings...I'm hoping these links are helpful. If not, feel free to throw monkey shit at me...
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I hope those threads give you a bit more insight.
No attachments, and you have two intro paragraphs so assuming spam, but my concern is that huge range of construction costs.
I hope this is a real post because I would love to see what this looks like, a new construction 4-unit deal that I could buy with an FHA mortgage would be awesome, and I bet there are people in the right jobs and access to VA loans that would be super stoked for a new construction 4plex.
Apparently there's a fair number of new three- and four-families being built in LA these days. Here's a real estate agency there that specializes in them:
https://www.twotofour.com/sell
Nice!! LA is moving up in my estimation of the world if I can owner-occupy one of those while Prop 13 is still around.
Im not sure why you can't access the attachments; they are visible and attached.
The current plan is to rent out the units. We are commercial-zoned and could lay out the floor plans to get an additional unit to improve the rent generated. We have considered that at some point in the future, we may want to sell. Knowing that we have a bigger market of potential buyers with a 4-Plex is the reason we chose 4 -Units. Though if we can't get the numbers to work for the immediate exit strategy, we may consider increasing the number of units.
where you getting 3.5% financing these days? SOFR+500 (10%) is more accurate
Right. That was the number we had when we first started building this template in 2019... I've been speaking to lenders, and they say 7% is about the lowest. Interest and insurance were both out of wack. Insurance in that is $1500, and after discussing with some other developers in the area, I can expect closer to +$12,000 a year. Both of these adjustments put us into the red.
Increasing rent is hard to justify at this point from the real estate agent's outlook.
I can work to reduce the construction budget, but it would need a 20% reduction to just break even.
I'll do some research on state housing programs. It takes a while to go through that whole process, but reducing the interest burden seems to be our best route to putting out a quality project that can support itself.
Any thoughts?
Unless you can raise cheap capital to do all equity - if reducing the interest burden is the only way to make the deal work - you’re ‘dead in the water.’ Rates have climbed so high. Your other option is value engineer and bring costs down. Can you do that ?
The numbers don’t work if you’re taking away your own fees to make a deal “pencil”. What’s pencil in your eyes even? Also, my goodness, why are you relying on brokers for any such information on a market like rents? You need to do all of this yourself and handle all of the assumptions you are underwriting here. Happy to chat further but you need a business partner from the real estate finance/underwriting side to help you here
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