Prioritizing projects as first-timer?

Question

Hi, all! I have 3 potential projects that I've been researching and planning to get underway within the next 6-12 months:

A) Renovation of historical single-family home. Current value ~$80k (still has mortgage of $40k). Remodel cost $75-125k. "Total" remodel has been quoted at $200k+ but I don't want to price it out of its neighborhood, where the nicest homes with 1-2 more beds and 2-3 more baths top out around $270k. Gentrifying neighborhood half-mile beyond CBD, attracting young families and seniors. Projected rental income at completion $2k/month.

B) New construction on vacant lot. Duplex, or potentially up to 4-plex. Or, option to split into 2 separate, adjacent duplex projects. Minimum ~$110k/per unit to build. Realistically $250k+ for duplex to $485k+ for 4-plex. Gentrifying neighborhood 2 blocks beyond CBD, attracting students, young professionals, singles and couples. Projected rent, $1250-1500/month per unit. Alternatively, build 1-2 new single-family homes and rent for $1250-1600/month.

C) New construction on vacant lot. Duplex, or potentially up to 4-plex. Same costs as B. Suburban neighborhood in transition, attracting families and seniors; excellent location for daily commuters (by private auto). Rent may be slightly less than B, $1100-1400/month per unit, but better potential for 3-4 bedroom units (at greater cost). Alternatively, build 1 new single-family home and rent for $1100-1500/month.

I already own all 3 of these properties and have been gathering ideas and costs from contractors, builders, and lenders (and investors here), and have discussed options with city planners. The goal for now is to keep all and rent them out upon completion. All 3 should be profitable in year one, but none are likely to be significant money-makers until they're paid off.

I'd like input and opinions from anyone about prioritizing the projects, as a first-time investor/landlord. Starting capital will be limited, but I can scale back the first project if needed, which would make borrowing for any of the 3 within reach to tackle first.

Any recommendations? Which would be the first you'd take on, either now or if you were just starting out? Thanks for any insight!

David Liu · Answer

Congrats on own all 3 properties!

I would recommend you start off with the single family home because it's already built and there will be less permitting involved (think sewer line is already connected to the city's pipes, assumption*). You'll learn a lot from the renovation that you can then apply to the new construction.

I used to be a construction engineer and there are a lot of things you won't think about as a 1st time builder. So start with something that's already built and learn the basics. It's a much bigger challenge to build something from the ground up in my opionion.

It's also less cash required vs your new builds.

Good luck

Glen Wiley · Answer

Is the remodel of the SFH truly necessary or does it cash flow already?

The reason I ask is that you may want to also consider purchasing another SFH in 2024 or at least be in a position to watch for deals. Do the math on how to get the most out of the dollars you would spend in each scenario.

Construction and renovation have a lot of potential variables and unforeseen expenses. One of my principles is "if it isn't broken, don't fix it" A key to sustained, maximal cash flow is remembering that we operate rentals and the standard should be "safe, clean and good enough". It is easy to over renovate or upgrade to the point of diminishing returns.

New construction is rarely less trouble to maintain than an existing home that is in average condition. It seems like it should be but there are always break in periods for the various systems and mistakes that subs made in each of their areas that need to be addressed.

Dom Nico · Answer

I also should mention alternative (D), which hasn't yet been thoroughly researched and currently has more considerations due to being a family property in multiple names. I'll throw this out there in case anyone thinks it should also be in the mix with the other projects.

I have a large-acreage rural tract in an area with moderate seasonal tourist population demand for outdoors activities (hiking, camping, hunting, etc.) that I'd like to explore developing in the following ways:

D1) Rebuild uninhabitable existing home as LTR, STR, and/or family vacation home and a place for someone in the family (maybe myself) to retire eventually. Back-of-napkin projections, $150-250k renovation, $1000-2000/month LTR, $150-250/day STR.

D2) New construction of 1-2 additional small cabins for the same purposes as D1. $90-250k to build, $850-2000/month LTR, $80-250/day STR.

D3) Establish 4-12 primitive camp sites (potential for future improved sites). $25-50/day per site STR.

Nothing is owed on property other than negligible taxes each year. It has a highly seasonal potential for STR occupancy and also potential for high vacancy rate with LTR.

Dom Nico · Answer

The scenarios I've run through, I haven't found any math that gets me profiting more than a couple of hundred per unit/home each month in the near term. Someone may have suggestions to consider. Further into the future, most scenarios show them being very lucrative for my intended purposes.The long-term goals are, in order of priority, 1) create another income source that will help through my retirement a few decades from now, even if short-term cash flow is minimal to moderate, 2) explore ways to generate more than that minimal amount, so I have enough extra cash on hand to boost savings, help out my family, and reinvest into these and potentially other properties, 3) help to fill the dire need for missing middle housing in this city and contribute to the improvement of these neighborhoods' conditions while positively impacting and preserving the neighborhoods' characters.At this time, there is no plan for this to become more than a side gig to my full-time career, but short-term I'm looking at testing the waters to see if this is a viable and tenable use of my efforts and money, and maybe if it's enjoyable and successful then a few projects down the line I'll reconsider it being only a side gig.

Dom Nico · Answer

The home is currently uninhabitable and costing the mortgage payment each month. It was a family property that was occupied until this year, but will take a lot of work to get it rentable.

Prioritizing projects as first-timer?

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