Seeking Advice on a Unique BRRRR Strategy for Multi-Home Development

[Emmanuel Ola]

Hello BigPocketers,

I’m seeking advice on the best way to approach this situation. I recently purchased a 0.42-acre piece of land for $90K. Directly across from it is a vacant 8,000 sqft lot listed for $75K. Considering the high prices of other lots in the area, many have said I got a great deal.

The land I bought has a 2-bedroom, 1-bath house that was listed as 550 sqft but is actually 750 sqft; the records just weren't updated with the city. Fortunately, the city has given me permission to rehabilitate the house, which I plan to use as an Airbnb. My wife and I already have two new constructions we rent out on Airbnb, netting us over $4K monthly after expenses. We believe rehabbing this house could be a great addition to our portfolio.

I’ve consulted several architects who’ve indicated that I could potentially build up to seven 1,250 sqft homes on the lot. My plan is to use all seven buildings as short-term rentals (Airbnb). However, if short-term rentals are no longer allowed or become less viable, I’m prepared to switch to long-term rentals.

Funding the entire construction at once is a challenge, so I'm exploring the best strategy. I've found a reputable builder who quoted $110K to rehab the burnt house, including expanding it to 1,200 sqft. The comps for a 1,200 sqft house in this area range from $250K to $300K, which would give me a minimum of 25% ARV after rehabbing the house. I've also been pre-approved for a $125K HELOC against my current residence, which I plan to use for the rehab and landscaping. My idea is to refinance after the rehab, use the proceeds to build the second house, and repeat the process until all seven homes are completed. Essentially, this follows the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) method, but with the twist of continually developing more homes on the same piece of land.

Do you think this strategy makes sense? I’ve considered a construction loan to build everything at once, but the stringent conditions and potential delays make me hesitant, especially since this would be my first time seeking such a loan.

I would appreciate any advice on the best way to make this work. Should I proceed with the HELOC and refinancing strategy, or is there a better approach?

Thanks!

[Jared W Smith]

Quote from @Bryan Montross:

I think you need to be very careful with your plan. Just because an architect says you can put 7 1200 sqft homes on a piece of land doesn't mean the county approves that. They county may have approved you to rehab the one property, but make sure they would approve you for what you want to do. Also, I can imagine 7 x 1200 sqft homes sitting on one lot that is less than 1/2 acre. Even if that is the case, you start getting diminishing value. Each one you add will actually make add less value each time. So instead of having $250K times 7 houses it's going to go down. I don't know how far, but that is something to consider that you may not be getting all your value out as you refinance after completing the later properties. Good luck with the strategy you choose and hopefully you make some good money.

Couple things to point out. Consulting with several Architects sound like you just asked some questions and you did not actually hire any of them. That's why it's "potentially". Therefore @Bryan Montross has a point. Hence you needing to retain an Architect and have them do due diligence into the feasibility at which part of their services would be checking what is able to be built in compliance with the applicable jurisdictions. 

I talk to at least 10 ppl/month whom are trying to get very specific information on a specific piece of land without hiring me to do the due diligence. Doesn't work that way. Therefore I speak in generalities. Nothing that is remotely concrete. Better to pay an expert and get solid info on your lot.