Spec Build

[Matt Devincenzo]

I've been looking at the spec build threads recently and have started some research into doing one though not just yet. I did however have a goal in mind for something I did want to do when the time was right and it appears the time may be now or closer to now than I thought. Some background on the situation.

My parents live in Orlando in a house they bought back in 1993 in one of the older original areas of Orlando that is on 1 1/2 lot which is very large for downtown. The original house was a 2/1 and the plan was to build a garage with an apartment above and move into it and then remodel or tear down and rebuild the main house. The garage apartment was built in '01-'02 and the main house was torn down in 2006 after some major hurricane damage, however the main house was never built though my parents still live there in the garage apartment.

My Dad lost his job in 2010 and was out of work for 2 years, fortunately they had savings and he received a decent severance and were able to weather that time, though it has obviously set them back financially quite a bit. They never missed a mortgage payment or a bill though it was tough at times. He is now working again though for about 60% less than his prior job, and they are working on paying down all the debts that have accrued during that time.

The best option is to get rid of the property and the associated debt and downsize now that it is just the 2 of them with no children at home, but it appears that it will probably be difficult to sell a property that isn't quite what a family needs but also not quite an investment either though it has the benefit of the additional lot but it looks like it would be barely break even to sell as is. There is a large disparity between what 3/1-3/1.5 smaller homes are selling for at about 220K and what larger newer 4/2-4/3 homes are selling for at about 340K, and homes with additional apartments touching the 600K range.

The best use of the property would be to complete the main home and sell as a home with an income/mother in law suite, and is what they would prefer to do but are not in the financial position to do so at this point.

Mixing investment as a family is not a problem as we've already done that before, and my Mom just posed the question of if I would want to do that. The goal for them is just be able to move into a better position to financially recover, and for me to be able to realize the profit of doing the necessary improvement.

My question is if structuring this deal would even be possible in a way for me to obtain the necessary construction financing. My idea for a way to potentially make it work is to purchase the house sub2 the financing in place on the property currently, I would now be able to apply for a construction loan since I would now own the property, and could have the main house built and the garage apartment painted and freshened up to a like new condition and sell.

I'm looking at what the potential sale price would look like (600K I believe so far from recent sales) minus the construction costs and current loan payoff (275K and 200K respectively) these are just initial numbers and my goal for next week is to begin to call and research if they are realistic or not.

Would this sort of a structure work to obtain the property and the necessary financing or is there a better way to structure it to accomplish this. Would a construction loan allow me to just purchase the property outright and then finance the construction also? Again just beginning to look at options, and the numbers may not work just yet with the current market, but it may be the time as the market continues to improve in the area.

Any advice, ideas or critiques are welcome as this would definitely be a new venture for me and I would only consider it if the numbers truly would make sense.