First deal - BRRRR with tear down and new build. Realtor needed?

Question

I am considering doing my first deal via the BRRRR model, however instead of rehab I want to build new (Duplex). $500K asking price with $275K land value & $203K home value (will be torn down). It's a hot area with home and land values quickly on the rise and I want to get in while I can.

My main question is, for my first deal is a Realtor necessary if I plan to tear down the structure? Other than Market advice (which I could get for free via preliminary discussion) what would their potential use be other than negotiating the price down? I know the Seller "pays" the commission but coming to the table without a 3% commish from my end could achieve some savings on my purchase price if the seller is willing.

What other obstacles should I be concerned about going in without a Realtor if this is my first home purchase?

Thanks!!

Scott Pollard · Answer

@Kevin Kelliher, The existing house is worth $203K? I'll take it if this is true and feasible to move. If you're planning on tearing it down, to me the home is worth a negative value as you'll be paying to tear it down/ permitting and holding costs to get started building something new. FYI, depending on the age of the home and if there is any historic districts nearby, COA is going to be a beast to go through to obtain permitting to move or tear-down the home as it will likely sent to the historic review board which is notorious for postponing decisions for month on end for no apparent reason (this happened to me). Also, even if your zoning complies with city regulations you should check your schedule B docs/ deed restrictions on title commitment to see if the allow a duplex to be built.

This is a large undertaking for a #1 project but if the numbers work then go for it. Just make sure you're confident in the process.

Best of luck!

This is a large undertaking for a #1 project but if the numbers work then go for it. Just make sure you're confident in the process.

Best of luck!

Sebastian Marroquin · Answer

based on the questions you are asking: it seems fair to say that you do indeed need a realtor. They will help you see the full scope of options you may have, the scope of work and actual (real) figures you will pay, and will help you realize that the 3% you are trying to save is nothing compare to the investment you are making.

plus you are not paying for it.

Save in a smart way where you can. Saving saving $5k can costs you 100s of thousands of dollars. People on here are right.

If you have that type of money for new construction: maybe you should be looking for opportunities that will give you a much bigger ROI.

Why not buy an existing duplex - that needs renovations?

or

a home that you can add value to plus add a guest house.

or

land for dirt cheap: and then add the home onto it.

There are multiple ways you can go about this. Consult, research, and take action

Mindy Jensen · Answer

@Kevin Kelliher , if you have never purchased a home before, you need someone looking out for your best interests. If you don't use an agent, at least use an attorney to check the contracts.

Sebastian Marroquin · Answer

@Kevin Kelliher spend $1 million for a ARV of 1.15 million.... not the best....

I'm sure you can get something for about 500k to 600k in the same area: put in about 200k to 300k where ARV is about $1.2 to 1.3 million

or find a tear down in the area: or a small home : for under 500k and build an amazing home for all in of: $700k to 800k and sale for that amount.

Look for off market homes: do your own marketing : knock on some doors: get some expired listings : For sale by owners: put some effort in and you will get paid according to that effort.

Kevin Kelliher · Answer

Purchase price + Build + Architect Cost = Ballpark of just over $1Mill. Current Market value of the new build is somewhere in the range of $1.15 - $1.3. This lot is already zoned to build a Duplex. This gives instant return if I want to flip. Also could hold as rental with projected $27K in annual NOI. This piece of land is directly adjacent to downtown and has been appreciating rapidly and most everyone agrees that this land will certainly hold value and likely increase.

Bryan Petrinec · Answer

What am I missing here?  Existing property is $500k.  Seller doesn't care if you plan to raze the building, so assuming there is not a major issue, you will pay ~$500k.  Then you have the cost to tear down and rebuild a duplex, assuming you can get a permit.  Based on value of the land, I would guess you plan to spend ~$300k for the new duplex.  Now you are $800k invested with $35k NOI.  Assuming your NOI calc does not include your mortgage or property tax, your mortgage alone is over $35k/yr not to mention property taxes.  Now you have $600k in debt, you have invested over $200k in your cash (assuming a 20% down payment) for a property worth $575-$600k with negative cash flow.  I know there are some assumptions in this and it might not be as bad as it looks initially, but I don't think I am that far off for this to look good.

I wouldn't worry about commissions, be sure you check your numbers and the area comps.  The value of the duplex is determined no differently than a single family and will be based on the market comps.

I sure hope I am missing something and good luck.

Joseph M. · Answer

I dont want to seem overly negative, but tearing down a ~200k home on a 275k lot does not seem like a good idea at all. It seems like you're trying to force a duplex build when its just not an appropriate strategy. In my area, which is also becoming extremely hot, I can still find houses that actually sell for less than the price of the land because the cost of demolishing the house is more than the house is worth. This doesn't seem like a good idea for a first deal unless you have some very strong skillsets related to demolition and spec building

Neil Sinha · Answer

@Kevin Kelliher I know of Dodson Home Movers down here in San Antonio.  Going through their website, I found the following resources:

Texas Association of Structural Movers - Central Texas Registry:  http://www.texashousemovers.com/centraltexas.html

River City Structural Movers there in Austin:

http://www.rcsmllc.com/index.html

David Ivy · Answer

@Kevin Kelliher

@Eddie Egelston and @Tom Parris are right. When dealing with an unrepresented buyer, the listing agent will almost always to hold the seller to the full 6% commission spelled out in the listing agreement. When a buyer is a licensed agent and self-representing him/herself, you may then see the listing agent only take 3% if the buyer/agent doesn't wish to take a commission. In fact, I recently did this very thing last week when one of my listings closed. The buyer was a Realtor and represented herself in the transaction. She offered to forgo her 3% commission, and I passed that on to the seller. However, I was still under no obligation to do so per the listing agreement. It's just much more common in that scenario.

Kevin Kelliher · Answer

@David Ferrette

Existing building is a 1 level single family home. The lot size exceeds the minimum SF to build a Duplex and it's already zoned appropriately for my build.

Goal is to buy and hold - math works out to roughly $35K in annual NOI after the build.

I've been told that from time to time you can post a home for free online for someone to come pickup and re-locate. Is there any truth to that or how common is it? Would love to cut out demo costs if possible.

First deal - BRRRR with tear down and new build. Realtor needed?

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