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My next step in real estate


Boner
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Congrats! I like the door with the rollers up top. The interior has a serial killer vibe, COOL!

 

My friend asked if the texas chain saw massacre was going to live there. Its brighter in person. My dad said it looks like a Chipotle. Everyone that looked at it was a hipster wanting out of the city ;-)

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Im just hoping I can get 2.5-3 times the cost when it sells for development.

 

In the mean time, after the loan, taxes, and insurance, I am cash flowing about $200 per month and someone is paying off my principle until then.

 

I hope I can do bigger things in the near future. Tossing some ideas around. Most things are pretty plain around here so it is fun to think outside of the box.

 

The balancing act of growing is getting paid rent while writing off deprecation to reduce tax liability. Its a double edge sword and I dont know anyone who has a good solution to expansion. Its nice to be able to pay off a property, income tax free. But, at the same time, this gets you in a situation where you dont really show income to banks (or at least messes with debt/income ratios). Any advice from anyone?

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Congrats!

 

I hear you on the building inspectors, they always find something and 90% of the time i'm fairly certain they are just fcuking with you. It's just some poor bastard making $42k/yr with the power to make you dance, and there isn't a damn thing you can do about it. Forget about it and move on.

 

On the depreciation schedule, from everything I have seen they typically take this into account. They mostly want to see cash in vs debt and what is actually being reported. They all know depreciation will make the entire venture a net negative for the first 10 years so (in my experience) it's largely ignored on the sch E. It's a little more of a headache but talk to your credit union about setting up a line of credit. They will want an appraisal on the property and if you're over 30/70 it's an easy line to setup. I just went through this on two properties getting things lined up for some moves and it wasn't too painful.

 

btw don't be afraid to post some of the time lapse photos from the build. :icon_thumleft:

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My friend asked if the texas chain saw massacre was going to live there. Its brighter in person. My dad said it looks like a Chipotle. Everyone that looked at it was a hipster wanting out of the city ;-)

 

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Congrats!

 

I hear you on the building inspectors, they always find something and 90% of the time i'm fairly certain they are just fcuking with you. It's just some poor bastard making $42k/yr with the power to make you dance, and there isn't a damn thing you can do about it. Forget about it and move on.

 

On the depreciation schedule, from everything I have seen they typically take this into account. They mostly want to see cash in vs debt and what is actually being reported. They all know depreciation will make the entire venture a net negative for the first 10 years so (in my experience) it's largely ignored on the sch E. It's a little more of a headache but talk to your credit union about setting up a line of credit. They will want an appraisal on the property and if you're over 30/70 it's an easy line to setup. I just went through this on two properties getting things lined up for some moves and it wasn't too painful.

 

btw don't be afraid to post some of the time lapse photos from the build. :icon_thumleft:

 

Thanks for the input! I actually did this project with a line of credit. Im in the process of converting this to a mortgage and then the mortgage will pay the line off.

 

The main problem is getting people to move fast enough. I hate to waste a month or two waiting for the closing of the mortgage. I guess this gives me time to think. Im hoping that based on rent they can just do an in house appraisal.

 

Around here, I think they can say 11,400 rent received x 10 to get a value of $114,000. I hope its at least 120k. The lot is an acre, it comes with appliances, and the overall finish is awesome.

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  • 7 months later...

Well, I figured I would give an update since Ive enjoyed this thread. a few months ago I scored a 2 acre corner lot. It is currently zoned so the taxes are $5 per year. It will be commercial use, so I should be able to make good money on it.

 

I just signed a contract to purchase the land on the west side of this corner. The owner has agreed to sell it in stages so that I dont get hit with large utility fees. Sewer and water are based on sq ft. of the lot. Once I develop this, I think the commercial demand on the corner will bump up.

 

I could use some advice from those who have done this. Im concerned about the cost of the roads and sidewalks. I meet with the city manager soon to discuss this. It sounds like they are paid by the city and then placed as 20 year specials. But, the city has 5 years property tax abatement on the city portion of the taxes. Does anyone have advice on this? I guess what I mean, is there any approach youve heard that helps with the costs? Or, maybe something that looks good and contains costs? it seems the roads are where most developers go under in this area.

 

The plus side is that the price of land is almost nothing and I am VERY lucky. Our city is architecturally boring and I want to make people think outside of the box. What I think I will end up doing is a Shotgun style home. It will be narrow and tall. Steep roof line. Granite counter tops and custom showers. Around 1500 sq ft with a loft. I should be able to get $1200 a month here.

 

Im new, so I think I want to build one, occupy, build 2, then 4....sort of expand exponentially.

 

Any ideas or advice appreciated (Fortis). :-)

 

 

shotgunhouse.jpg

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That sounds exciting but I know nothing about where you are and I can’t advise unfortunately :(

 

How many houses can you put on the lots? Is there demand, Is there a market for them? What will the returns be?

 

The issue is that the infrastructure has to go in before anything else, if you only build one or two houses at the time your revenue will be low, will it be enough to cover your initial investment?

 

Wish you the best of luck, really looking forward to the progress.

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I think I should be able to do 3 per acre and they would cost $100k each. There are 4 usable acres. The demand is huge. It is the fastest growing area in our city of 500,000.

 

The wild card is the utilities. I figured there were some tricks to the trade on getting those done most cost effectively with the city. I will talk with the city manager soon and see what he says ;-)

 

Neighborhood specials are one thing, as the home owner pay them over 20 years. This is a little different because I would have to cover them in rent.

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Get all the costings done and run a feasibility, you can PM me the numbers if you want and I could look at them for you.

 

Why don’t you do them all at once? Sell half and keep the other half, maybe you can get close to having the ones you will want to keep unencumbered, you just have to look at the numbers.

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I would love to do them all at once, but I don't know if my bank will allow me :-)

 

I'm just starting out and only have a few hundred thousand in equity. I've heard you say a couple times that a person never has enough time to save and that banks are needed. I agree.

 

I just wonder how most people get that first big one through? Luck and timing? Equity with age?

 

I'll def PM you once I talk to the city manager and get a final number. I appreciate your help!

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I think I should be able to do 3 per acre and they would cost $100k each. There are 4 usable acres. The demand is huge. It is the fastest growing area in our city of 500,000.

 

The wild card is the utilities. I figured there were some tricks to the trade on getting those done most cost effectively with the city. I will talk with the city manager soon and see what he says ;-)

 

Neighborhood specials are one thing, as the home owner pay them over 20 years. This is a little different because I would have to cover them in rent.

 

Can you not do more than 3 units per acre? Is that just the expectation of your market?

 

The shotgun house you posted a picture of is quite common in the high-demand inner city areas here, but they're built on 33' lots and fetch 13-20X your values... Does your market really demand 1/3 acre parcels for $100,000?

 

Sounds like you've got a great property, but it would obviously be better to squeeze another unit or two per acre :icon_thumleft:

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Can you not do more than 3 units per acre? Is that just the expectation of your market?

 

The shotgun house you posted a picture of is quite common in the high-demand inner city areas here, but they're built on 33' lots and fetch 13-20X your values... Does your market really demand 1/3 acre parcels for $100,000?

 

Sounds like you've got a great property, but it would obviously be better to squeeze another unit or two per acre :icon_thumleft:

 

I was going to ask the same thing. 1/4 acre lot out here would have a house 3x that size. Those style buildings they stack 8' apart and orient the garages face to face so you get as much lot saturation as possible. 6 per acre wouldn't be a stretch at all. Obviously no need or desire to build that dense when you have the development space, but is there an expectation of a large yard?

 

Is there a desire for the tall and narrow profile vs a single story ranch style?

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I would do as many as possible per acre. Waiting to talk to the guys who do site plans. I can get a variance to put them 2' apart. Enough to mow between. The reason for this style is that every single rental is a ranch with no style. Flat roofs. Ugly siding and trim. I want to change the scenery and rent to people who think like me :-)

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FWIW, here is an example of an area in Houston where they tore down some single-family homes on acre+ lots and replaced them a big T drive and laid out townhomes of similar style to what you're thinking. If you drag the map East and South you can see different driveway and plat layouts that might give you ideas.

 

https://www.google.com/maps/@29.808743,-95....33;1e3?hl=en-US

 

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  • 3 months later...

I figured I would give everyone an update on my first real "development" project. The first huge problem is the insane amount of money the fire department puts on the project. First of all, they require a 32' wide road that is 6" thick. This makes a road that is 250' long cost $155k. They also require a hydrant every 500'. Just an 8' waterline extension and a hydrant ranges from $8-12k!

 

The city will finance specials for the road, sidewalk, hydrant, water, and sewer for 20 years at 2-4%. The problems are:

 

-their requirements are high

-they would own the roads

-and the kicker....there are 35% of various flat fees they charge that are bogus. For example, to inspect the street construction, they charge $15k for a 250' street!

 

In total, my special fees would be $266k and cost $270 per month for each rental home. I feel this is too high to justify the project. Most developers try to keep this from $100-150 per month. The area Im in is struggling with growing too fast and disregarding the importance of the costs of taxes. I assume this is why they have a 5 year tax abatement on new homes. We see that many homes are going on the market after 5 years. The owners see the reality of the specials.

 

I am changing the layout and doing this in phases now. I am going to redesign it so that I dont need water and sewer main extensions in the first phase. I will only be building half the number of homes per acre (t0 start), but that eliminates $110k of utility specials per acre. Also, I am going to do a private road. This will allow me to change my road widths and curb design. Furthermore, going private allows me eliminate the useless 35% city fees on the $266k.

 

I know I can get $1200 per month for each home. I think I may be able to get $1400. But I hate to get started on a project and make it too tight. Going in phases will hopefully make it more appealing for me. Also, I can test the rent market on this type of design.

 

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