Nashville new construction

[Devan Mcclish]

I have a lot of people asking me about new construction and what all is entailed in a new build deal, so I figured I would share my most recent deal with the wondering people of BP! This was a tear one down build up two. 

1. How I found the deal - I sent a yellow letter to the neighbor of the property I bought. She told me she wanted to sell and so did the neighbor. The person I sent the letter to wanted 200k for her lot. I thought that was extremely high but I asked if I found a buyer, would she give me a commission, she agreed. I found a buyer for both properties. Long story short, the buyer terminated in their last day of due diligence (I warned this was going to happen because I couldn't believe someone would pay that for their lot). She wasn't very happy about it even though I told her it wasn't likely to go through. The neighbor appreciated my honesty with them. They really needed to sell. She had already offered on a house in Ohio and sold off furniture, etc. She asked me what I personally wanted to buy the lot for. I told her 165k and we can close in the 15 day window that was left for her. She agreed!!! I knew I could build two here because of the zoning on the property (This is going to be local). If you don't know your zoning laws, you need to know! Be a student of land use policies!

2. How I funded it - I had 15 days to fund this thing. I had to raise 165k, which I didn't have! No worries. If you find a good deal, there is money to fund it. Notice how I didn't say the money will come find it if you have a good deal. FALSE, you have to go find it!!! I made one phone call to an investor I met on BP, he was tapped out and couldn't fund it, but he knew someone who had the money. I met with that person. I offered a 50 / 50 split. BOOM, got it funded!! We agreed to get the loan together, but he funded the entire purchase and soft costs. 

3. Numbers - These numbers are rounded but close to actual

• Purchase and purchase closing - 167,500
• soft costs 
  • architect - 800 (this is very low, not average at all, I just found someone who does it on the side)
  • surveyor - 1,800 (this was for a survey, site plan, HPR document [specific to nashville], height and width elevations of the build, topography documents)
  • tree removal - 2,500 
  • demo of existing house - 7,200 (brick is more expensive than frame. House was 900 sf, this is included in my build costs below)
  • attorney fee - 722 (file the HPR document referenced above)
  • total minus demo - 5,822
• Build Cost - the houses costed approximately 110 a ft to build - 210,000 per house 
  • house was 1905 sf each
  • 3 beds / 2.5 baths
• holding costs 
  • insurance - 900 (450 per unit)
  • utilities - 900
  • interest payments - approximately 7,000 (on 450,000 construction loan total) (5% interest only payments from the bank)
  • taxes - 1,800
  • total = 10,600
• Sale prices 
  • Total sale = 781,000 (401k for one, 380k for the other)
  • closing costs (commissions and closing) - 
    • 11,250 closing
    • 39,050 commissions (5%)
    • total = 50,300
• NET PROFIT = 126,778 

It took us 12 months total to get through this project. We ran into issues with the HPR we created and had to fix it. The second house also took 3 months to sell, which was 2 months more than we thought it would take. Our typical project is complete within 9 months. But this is why you buy it right!!!

The new construction process requires a lot of red tape cutting in the beginning. We had to provide all of the documents above and involve several different people.

Newbies, if you don't have a good architect, land use attorney, and a good surveyor, this process will be a lot more painful. You HAVE to have a good team around you in place because you are going to be using a lot of different people in this process

Rule of thumb - buy the lot for 20% of what your anticipated sales price is. I anticipated a combined sales price of 780,000 (390k per unit), which means we should've paid 156k. BUT you don't bank percentages, you bank profit. This was a deal that return over 20% ROI, can't say no to that

4. Lessons learned

• Pay builder's on a flat fee - I now pay my builder's on a flat fee. I didn't on this one. It didn't burn me, but it could have. 
• flat lots are a godsend - I have built on several lots, flat lots are the best. We didn't have any problems with the lot on this one. Please buy flat lots
• try to get a long contract close - We had to buy this thing so fast we had no time to get plans, surveys done, HPR docs, etc. Try to buy yourself enough time to get this stuff done on the front end to avoid carrying the bank note longer

5. Questions - I have probably left out some details, so feel free to leave questions!