My 22 duplex lot deal - $1MM in debt - purchased with no money down.

[Chris Adams]

***WHY I AM DOCUMENTING THIS ***

Before you read this post I want to explain why I am documenting this deal. 

I am where I am today because of the selflessness of a few people that had taken time out of their lives to help teach me a lot about real estate, business and life. And they did not expect to gain anything for themselves in return.

in 2009 the economic crash hit my home building company hard. I stopped building and had to liquidate 3 spec homes and 20 acres of land I was about to develop. I found whatever work I could to survive. I got a job delivering RV's across the country, and I was literally sleeping in my truck, driving 12,000 miles a month to survive financially. 

Finally my wife and I started to buy and rehab properties, turning them into rentals. And thru the help of the people I mentioned above I slowly got my life back, and now I am back doing what I love.

My goal is to do this for others. Everyday I wake up, I bounce out of bed and run to a job I love. If I never gain another dollar, but get to keep my career that I love so much I will live a blessed life. If this post helps 1 person reach a dream of their own I will have succeeded in paying it forward.

In June 2014 I just purchased all of the remaining vacant lots (22) inside of a completed duplex subdivision. By completed I mean roads, and infrastructure are all installed and taken over by the city.

2 different companies have gone belly up to the bank since 2006 trying to complete this project. I blame most of the failure on the economic crash, and the rest on mismanagement.

Having built around 100 new construction homes in 20ish mile radius of this location in the past 15 years I knew the area well. Most of my due diligence was spent on getting a grip on the construction prices ( I stopped building new construction in 2010) . Researching sales comps, and looking hard at my competition.

After that I spent hours upon hours creating spreadsheets, construction budgets, and a cash flow analysis of a best and worst case sales scenario. Then I started talking to some of my mentors/peers who's opinion I trust. 

The negotiation with the bank was quite interesting and if interested I will post info on that when I have more time. But here is the result of the negotiations and the final deal I signed.

Amount owed to bank $690k  

Price I paid $468.7k

Terms - Prime floating - currently 3.25%, 2 year deal with 2-1 year renewals of the same

The loan is I/O and debt reduction is straight-line taken down at the commencement of a construction loan.

The bank is to finance 1 spec home at a time during the duration of the loan. Terms of construction loan are prime +1 I/O. Construction loan value to be 100% (yes i said 100% ) of cost, or 80% of value, which ever is less. The CL will be in the $300k range.

I have secured another CL thru my main bank for the 80% of cost, interest only at 5%.

And for all of this I put $0 money down.

$468.7k for the land

$300k for Construction loan A

$300K for Construction loan B

$1,068.7k in loans all secured by my signature, my wifes signature, and tons of loan docs.

From here forward I am going to try to document this project as much as I can while working 70 hours a week. Ask as much as you want and I will do my best to answer.

I will try to get some pictures up soon of the 2 building I have going up right now. 

[Chris Adams]

Saving $66,000 in cost

One of the most noticeable changes on the construction scene is the lack of skilled labor in my area. Many subcontractors shut down or laid off during the crash. Now that new construction is starting to build some momentum the lack of workers is showing up. When I started the first building it was damn near impossible to find a framer. I met with a few different companies, but slab/truss construction wasn't their forte.

I ended up using a company that was actually subcontracting to other framers. The price was in my budget, but I always felt the budget price was high. I had to get this down.

After a week or so on the job I talked with the framers on the job site and asked them why they subcontracted themselves. His explanation is probably very common right now. He said he struggled thru the crash, and the cost of insurance and workers comp was to much to cover. So he worked under someone else's license and insurance to keep his overhead down.

After a few minutes I explained my situation, I just bought the remaining 22 lots in the subdivision and I am going to build every building. All of my plans are similar with a few variations, and I need a framer that can commit to me. But I also have to get my cost down. Im paying $5/SF for framing, I need to get this down to $4/sf. And I will pay the crane charge as I am now.

I explained that he was framing for me, and getting paid less by working thru a middleman that was taking a cut, and as a result I am paying more. I asked what it would take for him to leave this guys shadow, work straight for me, and In turn I would give him all of my work as long as he can handle it. 

He had to speak to his partner, which he did, and he came back to me with his situation. He would need to start his own insurance and workers comp which he could do. But he was going to have problems making his payroll if he had to wait to get paid until he finished the job. I said OK what do you need? He asked for a draw of $5k halfway thru the job and the balance after he's finished. And for that he would make me a priority on his schedule, and agree to the $4/SF price.

This translates to a saving for me of $3,000 per building. With 22 buildings that a savings of $66,000, and this guy is now making more than he was, and he's back running his company again rather than working thru someone else.

# WIN/WIN