Advice for a new investor on new construction

[Brian Chase]

I have been listening to the podcast for months and just recently bought a new house for myself. My house sits on .2 acres (fairly large for the area), and the back half of the lot is empty. I am considering starting my real estate investing journey by building a duplex on the empty lot. I'm hoping the community can share with me some advice, guidance, tips, etc. Any information is useful. 

I'm meeting with a local investor soon to get some help, but I'm hoping to go that meeting armed with knowledge to answer his questions. 

Here is the situation:

My house sits on the border of one of the most expensive parts of the town and one of the worst. I'm two to three blocks south of homes with that are selling for $270-$300/sqft. I'm one block north of homes that are selling for under $100/sqft. This is the downtown area, which has been rapidly expanding for the last 3-4 years. There is a major street just to south of my house that is really a divider line between the two areas. We are betting that downtown prices will expand to that major street.
My home was purchased this year at $118/sqft for $240,000. I put 5% down, so I have virtually no equity in the home right now.

Contractors have quoted me about $100,000 to build a duplex. I do not yet have official quotes, just informally talked to get a rough idea. 

We feel confident we could rent each unit out for $600-$700/month. We also think we could AirBnB the units and average $750-$800/month over the course of the year. I've based these numbers on looking at what other properties are going to within the surrounding mile of our property. This gives us a conservative annual revenue of $14,400 -$19,000. Other nearby properties are renting for far more, I'm just trying to stay on the low end to keep the estimates conservative.

My thought is get a loan for the new build, putting 20% down. 

I'm not sure what the property value will be after we add the duplex. We feel confident that within 5 years the property value will drastically increase, but I don't know what will happen in the next 1-2 years.

My lot is already zoned to have a duplex and there are other lots in the area with duplexes on the back, so I don't think we will see any trouble from a zoning or permitting standpoint.


At this point, I'm wondering what should I be looking at to determine if I should move forward? What other information do I need? What questions should I be asking?