6 Bedroom 5 Bath Multi Generation Co-living New Construction Investment Project

[Ke Nan Wang]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $120,000
Cash invested: $370,000

Hi BP,

Just wanna share my recent co-living new construction project in St. Augustine, FL, or some of you might be more familiar with the term "Padsplit." Since we don't use Padsplit and manage everything ourselves, we simply call it co-living.

The capital invested in this project is not as simple as the template BP gave me so I'll explain a little bit more here:

This is a 1031 exchange build to suit. We sold a $330k rental property with almost no base so we need to do an 1031 exchange of roughly $300k to offset capital gain.

As we getting close to the 45 day identification deadline, we found a deal of a mobile home sitting on two 50'x200' lots in West Augustine, which by St. Augustine standard where most in fill lots are around 50' x 100' to 125', 200' deep dryland is a good lot. Typical retail lots sold on the market for $55-60k a piece, an off market lot from a wholesaler usually come in around $45k a piece. So when we had this property under contract for $92k ($95k purchase price with 3% buyer commission credit because I'm a licensed agent), it was an amazing deal.

Of course, things can't be that easy. While we were in escrow, the title company discovered that the owner didn't disclose a second mortgage on the house to neither her agent nor the title company, her plan was trying to dismiss the foreclosure in court and hope this would go away before anyone would find out about it. The owner had no money from the deal to cure the lien, and because we were already passed our 1031 exchange identification deadline, we asked what the payoff was and ended up paying out of the door $112k to close this deal. Plus the 1031 exchange agent's fee of $6500 for a build-to-suit exchange, the initial acquisition cost was close to $120k. This surprise turned this amazing deal into something like a okay deal because the lot was still good. The existing mobile also had utilities hooked up with a $17k impact fee credit that I didn't have to pay to the county. So in the end, it's still okay.

Then we ended up had to evict the ex-owner from this property after the purchase which was no fun but something we are experienced to do. The ex-owner had no legal grounds as an unlawful detainer so the eviction went through and they were out.

Meanwhile during the eviction period, we finalized our architectural plans and started the permitting process in the county so we didn't lose much time.

The design requirements are as follow:
1. 6 bedroom (maximum allowed by the septic requirement based on lot size)
2. 5 bathroom (Almost each bedroom has a ensuite bathroom)
3. Each bedroom shouldn't need to go through the common area to exit the building
4. Can function as either co-living or one large multi-generation single family house.

Permit were issued in 1/12/24. Certificate of Occupancy was issued on 8/20/24. So a little over 7 months construction period, a little longer than I liked it to be but it's our first time building a house like this so we took it slow and had to correct some issues along the way.

After we finished construction, we furnished the place as shown in the pictures. Furnished common area, furnished each bedroom with a queen bed, a dresser, a desk and a chair, then we listed on every platform that I can list and I paid every platform for their premium listing. (Zillow and its associates, Turbotenant and its associate, Roomies, Furnished Finder, Airbnb, etc.). My priced were listed at $795 for one of the two upstairs bedroom with a shared hall bathroom, $895 for the down stairs bedroom with its own hall bathroom, $995 for one of the two bedrooms upstairs with their own bathroom, and $1095 for the last master suite downstairs with a tiled shower and walk in closet. So the gross revenue with all bedroom rented would be $795 + $795 + $895 + $995 + $995 + $1095 = $5570 a month.

Every bedroom with exception of the $1095 one got rented the first week. Then we ended up renting the $1095 bedroom in the third week of listing. Right now we are over 2 months into it being fully occupied and we have a pretty good understanding of the operating cost.

Utilities altogether is about $250 a month, internet is $90 a month for the 1T fiber (we want fast internet for 6 people), 5% vacancy, Lawn care $120 a month, Pest control $30 a month, and we do bi-weekly cleaning of the common area at $200 a month. So for a self-managed investment project, our gross profit is around $4690 a month. At this point I'm not factor in any vacancy because I have more leads on this property than I have rooms. If anyone would like to move out and give me 15 day notice I should be able to place one in with minimum gap.

Our acquisition cost was close to $120k for two lots, each lot would be around $60k. Our all in construction was $360k (If we had to do it again, we wouldn't spend the $10k to install the fence where we always do for our other investment properties. For a co-living space, tenants don't appreciate the fence as much as a tenant for a single family rental property. And we don't allow pets on this property where we always allow pets on our other properties.) As a self operator the total investment into this project was $420k. The 1031 exchange offset $300k of that cost so our out of pocket expense was $120k. The property before the 1031 exchange was collecting $1600 a month rent. We were gonna raise it to $2000 a month but the tenants decided to purchase that property from us and giving us the asking price. From that perspective, this is a pretty nice exchange.

For a new construction that the house will last at least 50 years before major repairs, we were pretty happy with the current result.

Concerns: Although the cashflow is good, we weren't sure it's valuation and potential for appreciation since there is no good comp like this property in the area. If we had to put this property for sell, it would had to be minimum $600k even for us to consider. We weren't quite sure if there is a buyer for a property like this at that price point if the medium price is $425k. For anyone who would want to do something like this, this should be the number 1 concern. Since our plan is to hold on to this property as long as we can, so we will just let it cashflow and not think about its valuation. If this property is near the beach or near downtown area, the appreciation potential could be extremely high and it can be easily over millions.

Please share if you have similar experience in this and let me know if you have any question about this type of investment project.

What made you interested in investing in this type of deal?

We wanted to test out the Padsplit model and have it in our portfolio.

How did you find this deal and how did you negotiate it?

It was listed on Zillow for $110k and we made a low ball offer at $90k, ended up getting under contract for $95k. However, a surprise occurred with title that drove up our acquisition cost to almost $120k. Since we were in it for the 1031 exchange and it was still a deal, we still followed through and close the deal.

How did you finance this deal?

1031 exchange from a sale of a rental property plus HELOC to fund the remaining.

How did you add value to the deal?

We sold the mobile home and had it removed. Split the lot into two lots and built a large 6 bedroom 5 bathroom house on one of the lots. We will continue to observe the performance of this property and eventually will build a second house next to it.

What was the outcome?

Gross net 13% return on investment.

Lessons learned? Challenges?

How to execute a 1031 exchange build to suit
How to operate and self manage a co-living property

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Nope. I'm the real estate agent for the purchase, the contractor for the build and now the property manager for the property.