Building a 4-plex in Portland, OR

[Nathan James]

Hi all,

I'm in the early stages of planning a development of a lot I own in SE Portland. There is a small (<600 sf) house on the lot currently, which is in pretty rough shape. I've owned the house for few years and have spent a lot of time trying to design an addition to add value to the property, but the current floor plan is really not conducive to realizing a return on that investment (tiny living room, low ceiling basement, poorly placed basement stairs, etc.). I have considered adding an ADU in the back, but since I am limited to 75% of the main house square footage, this is also probably not worth it.

     In the last couple months, the zoning has changed for my home, and the lot is now classified as RM1 (low-density multifamily), and I have learned that I can build 3+ units, and don't need to include any off street parking.  The minimum density is 3 units and there is no maximum number of units.  Instead, the code is now written that I can build as many units as I choose as long as they meet building code and the total floor area to lot area ratio is 1 to 1 (the lot is just over 6000 sf).  I'm leaning toward 2 duplexes to avoid needing sprinklers/commercial building code.

 I am a general contractor that specializes in kitchen remodels and high end custom cabinetry, but I'd like to use this project to pivot into more general contracting and property development.  I've worked in most phases of residential construction, but have not yet managed  a project this large.  

I guess this is an introduction of sorts, and a request for any help with the following questions.:

1)  I've spent some time lurking here on BP and using the calculators to analyze potential options.  Are there any resources available and recommended that would be better suited for creating a pro forma for new (spec) construction?

2) Does anyone have a general idea of what soft costs I could plan for if I sell the units as condos?

3) The lot is mid-block with only 50' of street-frontage.  Does anyone have thoughts on the value of adding parking?  I'm within a couple blocks of a max stop, and a block from a bus stop, so I am not required to include it (I don't think).  The new code requires a 30' x 30' courtyard or rear setback that is 25% the depth of the lot.  This makes including parking somewhat onerous.  I'm trying to weigh the value of including parking for all units vs. just parking for some (potentially larger) units, and perhaps even fitting an additional unit.  The property is in the Jade District if anyone has particular insight on the area.

4) I have some contacts for real estate agents, but I feel like they're better suited to assisting buying and selling SFR. I'd like to find an agent that has experience in selling smaller multifamily properties. How might I find someone to help with this?

I could go on and on, but basically I would love to get any insight into how I should approach this opportunity.  I'm not sure at this point if I'd like to sell the entire property as a whole when I'm finished, or sell each unit as a condo,or even keep the most or all units to rent. 

I have been blown away by the openness and general mutual helpfulness of this forum.  I appreciate any advice or insight on any of these questions, or any general advice you'd like to impart.

Thanks for your time,

Nathan James

[Mathew Wray]

Morning Nathan,

Congrats on exploring a big jump-it takes courage to buck the news cycle and confidently reach for a bigger future!

I have answers to a few of your questions while I’m sure spec builders here can chime in on their end for you. 

While Portland may not require parking, I would strongly consider it if you’re thinking you’ll sell them individually as condos, especially in the Jade District. Yes, you’ll have good transit access along 82nd but I believe you aren’t as likely to attract the car-less owner there as you would closer in. 82nd is changing, but I don’t think it’s happening fast enough to justify leave out permanent parking if you’re reselling individually. You’d be more likely to get away without parking for tenants but even then, what kind of tenant are you going to attract? If your target tenant is looking for a car-less lifestyle then you’re going to be competing with units close-in so you’ll have to win on price or features to get them out to 82nd. All that being said, it might not be worth the cost of putting in parking, just be aware on the front end that you’re reducing your end buyer/rental pool by not having it. 

Have you comped our what four condos will sell for vs. two duplexes? While you don’t have to decide this instant (you could always convert later) it’s good to have an idea of the market differences between mf and condos. 

As for soft costs, you're looking at a fair amount for a condo conversion-there are legal docs to have drawn up, reviews, surveys, recordings, setting up the HOA, reserve studies etc. There are attorneys who will help navigate the process for you and act as an orchestra conductor to keep things moving along. I've got a lender who is a problem solver and loves geeking out on the minute details of these problems (it's what makes her a great lender) and she could be a great resource for you...she's put together condo conversion workshops with experts all talking about their components. I'm happy to make an e-intro.
 

The 80/20 rule applies to most things in life but in Portland real estate it’s more like the 90/10 rule...10% of the agents do 90% of the work. The best way to find an agent with the skill sets you’re looking for is to ask for referrals from people you trust or on places like BP. There are a handful of active agents here on BP in the Portland area (including my business partner and I) who would be good places to start. I suggest creating a list of questions that are important to you and start asking!

You said you’re not sure yet what route you’re going to take and I applaud you for doing the investigative work now, before you break ground! One last thought, have you considered just selling to (or trying to partner with) a developer? You’ll make less money but you may learn more along the way for future projects or reduce the headache factor (which can be significant). Not saying you shouldn’t move forward, just that all options should be on the table! 
 
Mathew

[George McCleary]

Hey Nathan, congrats on taking these steps. Acting as your own GC is a great way to control costs as you embark on this type of project. Even in the Covid era I've found that contractors are still asking top dollar for overhead and profit, making many projects unfeasible. 

Have you confirmed with BDS that parking will not be required? The requirements are often difficult, if not impossible to achieve in conjunction with other site requirements such as the setbacks and required outdoor area. If it's not required, then I would advise against it from a cost/benefit standpoint. Answers to the other questions depend on a lot of factors, and the temperature of the market as we head into presumably tough times. 

Selling plexes isn't quite single-family residential, and it isn't quite commercial. The metrics are different due to the financing benefits from being <5 units and corresponding down payment requirements. I've sold, owned and renovated plenty of plexes over the years and would be happy to chat if you'd like. 

Agreed on how great BP is. Abundance mindset!

George

[Nathan James]

Thanks for the thoughtful reply Mathew!   

  Your input on parking makes a lot of sense.  I was imagining responsible car-free tenants, as I was one myself for a long time.  I also never lived east of 33rd Ave at that time.  The Jade District has great public transit and biking access, but with the proximity to 205, the neighborhood can appeal car commuters, and I wouldn't want to lose them from the outset.  I'm in the process of comping duplexes vs condos, but was hoping for community input on any local factors I might be missing.  

The condo-conversion workshop you described sounds like exactly what I need, and I'd love to be introduced!  I have considered partnering with a developer, and have a few contacts I need to follow up on, but overall I feel fairly capable.  I'm not in a huge hurry as the cost of holding the property is low, so I'm taking my time to learn as much as I can and connect with the right people.  I doubt I would hand the whole thing over to a developer, as I'm inclined to use the experience as a stepping stone in my career.  Perhaps even through some painful lessons.  At this point I'd be more likely to hire someone as a consultant, if that sort of arrangement is a thing.  A partnership could be a great option to achieve both ends.

 I think starting to work with an agent sooner rather than later is a good idea, so I'll start putting together a list of questions and making some calls.  Thanks again for your response, and I'll keep everyone apprised!

[Nathan James]

Hey George, thanks for the reply! 

 I have spoken to BDS, but it was right after the new zoning had been introduced and the people working the desks had only had one day to become familiar with it.  I've been trying to follow up with them, but they seem to be still working out the kinks of working remotely.  I spoke with an architect and he said that parking isn't required if you're within 1500 ft of a bus stop, which I am.  This might only apply to RM1.  I agree that including parking for four units on a standard lot with no alley can be tricky with the new requirements for setbacks and outdoor area, but it's not impossible.  It just eats up a good portion of the lot area, which could potentially be used for another unit or a much nicer outdoor area.

  I may just add parking for the front two units.  But Mathew's comments above have given me pause, as most of my friends in the neighborhood that could afford the rent of a new condo have a car (or two).   

And thanks for your offer to chat!  I'll keep you in mind as I move forward with the project.