Banks, and Designers, and Bears....

[Account Closed]

Actually, just banks and designers.

I found a good lot and I'm building a duplex.  I had a great conversation with a builder who was willing to give me a ballpark estimate of construction costs that sounded fairly reasonable.  He was also full of helpful suggestions to save costs and such.  He even recommended a designer that he said works with investors.

Problem with this designer--he refuses to give me any idea, not even a ballpark, of what he's going to charge me.  First he said he didn't have enough information, like number of stories, the lot, etc.  So I sent him a detailed e-mail with everything I could think of--sq ft, stories, style, address of lot, etc, etc... answered every question he had asked--even included my rudimentary sketch of the site, and he still hemmed and hawed and refused to give me any idea of what I'd be paying him if we worked together.  Is this normal for that profession?  Because I don't think the idea of committing to buying something that could run upwards of $10,000 without knowing the cost is very good business.

I've also run into a surprising problem with my lender.  They have no problem with giving me a loan for a purchased duplex, but their construction loan division will flat out not do a construction loan on an investment property.  They did refer to someone who would though.

I thought my problem was solved, but it wasn't.  When I asked the new guy about the terms of rolling my construction loan into a mortgage, he quoted me basically commercial loan terms: 20 year, balloon payment at 9 years....  When I said "huh, it's 2 units--residential" he said those are the terms because it's an investment property.

My current plan is to do the construction loan with bank #2 and mortgage with bank #1.  Hopefully there isn't some hidden issue with that next.

Anyone else have these problems?

[Eric Teran]

I found it very strange that you cannot get a quote from an architect/designer with the information that you have given him. I'm an architect and provide prices all the time with only knowing the basics. Then again I've been at this for 15 years so I'm comfortable charging a fair price as I know what needs to be completed. For residential project I give my clients a choice of either a fixed fee or hourly. I live in the DC area and I calculate my fees based on $100 an hour. The biggest variable is always getting the plans approved by the zoning department. Especially if there is some type of design review board or planning commission hearing. This is due to the fact that neighbors have a voice and can address their concerns to the city. They can even complain that the paint is the wrong color. Once you get zoning approval the construction documents and building department approval are simple. All standard stuff. What you want to be sure is that the house is properly detailed for waterproofing. 

Without knowing everything I would say you should expect to pay an architect for a duplex between $10k - $20k. Of course you could find cheaper and a lot more expensive. We don't really base our prices on a construction percentage. It just doesn't work out and we don't want to give clients the feeling that we try to design more expensive projects just to drive up our cost. You can always asked for a fixed price and only pay per service. For example, an Architect provides 5 services: Design, Design Development, Construction Documents, Bidding/negotiation and Construction Administration. You can opt out of the contract whenever you want for whatever reason. You just have to pay their fee up to the point they have worked. 

Josh is right that you don't need an architect. Almost in every state anyone can design a duplex or single family detached home of less than 2 stories over a basement. I think it might even go up to a fourplex. Just be careful because a designer or contractor or structural engineer might  not know all the requirements for the zoning approvals. Also, a contractor will be more focused on price than design and they might take shortcuts during construction. A structural engineer is more focused on the structure but doesn't think of your views. A good architect takes into account many factors and also protects you during the construction process (if you hire them to do construction administration). 

I am actually building my own house out here in Northern Virginia using modular construction methods. Our home should be completed in 80 days from start to finish in construction. We are in day 42. If designed properly you will save lots of time and money! You an easily do a duplex.

For your loan you need a construction loan which usually falls under the commercial division. Most construction loans can be rolled into a permanent loan. However, the rates are never as good when it rolls into a permanent loan and it might be a 5/1 Arm. I have a construction loan that will roll into a permanent loan. However, I will be refinancing a few months after we finish building because I will get a better rate and appraisal. A few things to look out for in your construction loan:

1. LTV amount. A few banks offer 90%!

2. Watch out for what the banks requires to obtain that 90% LTV. I was burned by a bank when they told me that my credit score was too low.

3. How much cash on hand do you need? Some require 10% of the loan.

4. What are there requirements for the general contractors?

Call around. I called 25 banks and tried to work with two of them before I finally settled on the one I'm using. Local/regional banks are your best bet. 

Lots of info.