Solo Townhouse Development
Has anyone ever looked into or built there own townhouse in a city? I was thinking about the idea of buying a site that could accommodate more than one unit, where you build two to three total, one for yourself and others would be sold.
I’m thinking about this less in the context of making a lot of money but more about being able to build a nice custom home for yourself that has costs spread over three buildings to offset the cost or make a small profit.
Anyone done anything like this or have any thoughts about doing something like this?
Bump. Super interested in this type of development
I have not, but I have two friends who do.
Both took the time-tested route of finding an older, more established partner (more of a construction partner for one and more of a financial partner for the other). One lived in one of his own units, the other treated it just like an investment. Both were lucky enough to start this in 2018-2019 when interest rates were at like 2%, both for their own loans and for the purchasing power of their clients.
I have not caught up with them lately. I should.
I guess it depends on the specific deal, but remember that you're still bidding for land and materials against people who are trying to make a profit. What I mean to say is that you're going to run up against professional development shops that are going to value engineer the hell out of those townhomes in order to extract every last dollar of value out of them, and they may still not make much money because they have to do almost anything they can find just to keep their team fed.
All of which is a really roundabout way of saying that I wouldn't be so sure that you'll have a ton of margin to build a really nice home for yourself and spread those costs to the other units. After all, you probably can't afford to put nice things in there anyway, and there comes a point where there simply isn't any more budget to cut out of those to reroute to your personal residence.
Do you really want to build 1 really nice townhome and sell and be adjacent to 2-3 cheaper townhomes too? I imagine that would somewhat hurt resell value.
I got the impression they would all look the same from the exterior view, he would just put nicer finishes in his.
Also, sometimes I think we put too much emphasis on a home as an investment. Who cares if the entire thing isn't geared to maximum resale value. If you want to live there for 10 or 15 years then spend what you want to spend so you enjoy living there, because who the hell knows what the world looks like a decade from now
I build townhouses, so happy to answer any questions. I would say the toughest part (other than finding a deal) is finding a construction guy to build it for you. You can hire a GC, but not sure how much margin is really left. You are still technically building to make a profit, it’s just that I assume all your profit will go into paying off the mortgage so that you can live mortgage free
Yeah a few questions if you don’t mind:
How did you get your start?
How have you been finding land? Broker cold call land owners etc.
What kind of financing is typically available for these types of projects. Can you get land loans?
If not hiring a GC do you hire a superintendent directly on your payroll then third party subs for the rest?
Generally, do you think there is money to do this as a one off or are margins so thin that you really need to do them at scale?
It's a family business that my dad started. He started with small condo renovations and slowly moved from condos renos to ground up construction
Mostly on market deals. "Off market" deals are not a myth, but they are not common and especially less common if you are not a developer/builder that is known by many brokers and constantly on the market for new deals
Our typical financing structure is 25% down (used to be 20% before rate hikes) on the acquisition and 100% of the construction loan financed by the bank. The standard is that the bank will lend us up to 75% of the completed value which typically amounts to over 100% of the construction cost. If, for whatever, reason the development cannot begin immediately and I need 1-2 years before I develop, the bank will finance me 75% of the acquisition and hold back the construction piece. However, I cannot say that this financing is normal and that others can get these terms. I have very strong financials and have very strong relationships with my banks. For someone with no relationship with the bank and with no experience in ground up development, I would think the bank would require 50% down.
You could do it this way or you could just hire a project manager/superintendant as a 3rd party contractor instead of having them on payroll. We build in-house (my dad and brother in law are GC's), but we are bringing on a 3rd party project manager for our larger developments and we are paying him on a per project basis, so he is no on our payroll
Really depends on your market. Idk where you live, but in my market most deals are one off as there isn't enough land to do them at scale. Generally, new townhouses, 3000 SF-4000 SF, in the markets I operate in sell for $2mm-$4mm each side.
Idk what your background is, but unless you have experience in home building, I would advise against ground up construction without some prior experience in smaller scopes of work such as renovations. In the home building business, you are much more involved in the construction side. You should at least do a couple renovation projects first so you understand the process and how detail oriented it is.
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