OfflineHello DG readers,
I am interested in purchasing a single family home and tearing it down to build a 4plex on the lot. In the area that the house is in it, it is pretty much the last home on the block, as everyone else over the last 5 years has been tearing the houses down and building 4plexs.
The home is in terrible shape and is 700 sq ft, built in 1920, but it is on a lot that is 7300sq ft. The property directly next door has built a nice 4plex, and I have considering trying to contact the owner to get his blue prints, as the lot is the same size.
My question is about financing this endeavor... Obviously I would need to finance the purchase of the house, as well as the construction of the 4plex. I am hoping someone here has done something similar and can offer some steps toward the right direction. The house would run around $275k, and the building of the 4plex I would guesstimate at around $300k. I have not had the house appraised, and the tax assessment is $140k, so it is possible that I could bring it down below $275k. Typical rents in the area are $1600/mo for 2 bedroom units, and there is a college 4 blocks away, so plenty of students available as tenants.
This property is in Southern California, and would be my first purchase... I know it is a lot to tackle as my first investment, however I would be able to get a great deal on the property as it belongs to a family friend who really just wants to get rid of it.
Thanks in advance!
Travis
When you ask about financing there are a lot of methods you can consider.
However, there are questions that need to be answered before a real answer could be given.
1) How much money do you have to put down?
2) What is your credit like?
3) What is the current asking price of the house with the land?
4) What is the value of just the land?
5) Is the seller help you purchase? What do you know about the sellers?
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Don't forget to confirm the proper zoning.
Then there is the matter of getting the architectural design approved and the proper permits issued by the city. Around here getting through the bureaucracy takes from 90 to 120 days, before you can even break ground.
Find a couple of the developers that did the scrapes you mentioned and have them give you an estimate on the true costs. It should be easy for them since they have done a couple in the area.
Chances are your costs for the 4 plex will be more in the $500,000 range plus the purchase of the property.
I suggest your first step is to determine your actual costs along with the time frame from start to finish.
You will need to know all of this before you look for financing any way right?
Good luck and keep us posted on what you find out!
1. Confirm zoning
2. Call developers. look for their signs outside of their projects. Or call the owners of the properties and ask them for the developers contact info.
Michael Mangham
Mentoring/Team Building Nationwide
MD Home Acquisitions LLC
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http://www.mdhomeacquisitions.com Seller site
http://www.mdhomeacquisitionsbargainhouses.com Buyer site
http://www.mdhomeacquisitionshousehunter.com Bird Dog Site
http://www.mdlodeals.com Tenant/Buyer site
You sound like a guy that enjoys a challenge. Have you considered buying the property and flipping it to the developer or another investor? Less profit for you but a much quicker process. Whatever you do, best of luck.
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Can any one of you tell me how or where to get a financing for a invesment property solely on the house value after fixing up? I do not want traditional financing. Bank or private investor who will lend 50% even.
Thanks,
Grisilda
You have a lot of work to do before you can try and finalize a purchase decision. It's nice that your friend owns the property. Try and get the seller to take the property off of the market while you do a little research so that you don't go through the process only to find out that the land is no longer available.
It would be a great idea to go to the owner next door and get a copy of the plans and information on the cost to build it. They will probably give you the general contractor's name as well. If you can't get this information from the neighbor, go to the city building department and ask to see the file. It is public record, so they should allow you to see the file. You can get the name of the architect and the general contractor from the approved plans which should be in the file.
Meet with the general contractor and get exact costs to build. Remember, you will need to pay for the demolition of the existing house which isn't cheap. While at the city, check on building permit fees as they are a big percentage of the cost to build.
Then get some good comparable sales for 4-plexes in your area. You can then compare the total cost of the 4-plex to the value based on said comparable sales.
A lender will probably want you to make a substantial down payment. Stop by and meet with the lender to see how much cash you will need to have invested in it. You can then get a quote for the loan costs and compare it to your rent and calculate your return on investment.
Good luck!