Demo & Rebuild in Cupertino, CA Area

[Siva Singh]

My wife is an interior designer in Silicon Valley. She comes across a bunch of investors who buy old homes, rebuild it and sell. So we are wondering if we can take up that as a business. Here are some initial numbers that I am trying to workout. Let me know if I am missing anything.

Purchase cost of an old house on a 7,000 sq ft lot - $ 1,800,000

Architect Fees - $ 30,000

Other Soft Fees (like Permits) - $ 45,000

Construction (3,000 Sq Ft) - $ 700,000

Finance Costs(Borrowing around $1.4 m for 2 years - $ 110,000

as primary residence mortgage)

Selling Costs (5% of $3.3 mil) - $ 165,000

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Total Costs - $ 2,850,000

Selling Price - $ 3,300,000

Profit - $ 450,000

Are these realistic? These will not be realistic if you are from any other part of USA ;)

Anything that I am missing? Any costs that I can reduce?

[Jason Hsiao]

Not realistic at all. Your mileage may vary depending on experience and relationships.

Construction hard cost - You're using about $233/sf. I'd use at least $275/sf or prob $350 just to be safe.

Your soft costs including the architectural is prob half of what it should be. You have fees galore to pay in Cupertino.

Selling costs I usually use 7%

Financing costs not sure what rate you're using. Obviously they've dropped quite a bit. It all depends too if you're doing recourse or non-recourse. Banks are not going to use primary residence rates for this. Construction loan is going to be something like Prime/LIBOR + 1.5 or 2, again depending on your experience and relationship with the bank. There's also points for origination etc likely.

You didn't include land carrying costs and insurance.

Depending on what part of Cupertino, your ARV is prob closer to $3m give or take. I have doubts about $3.3m but good part of Cupertino and nice finishes sure prob reasonable.