New Development Deal Analysis Englewood, CO

[Sam Cain]

What's up BP?!

My fiance and I are writing to you from Denver, CO. We are researching potential strategies to GROW our portfolio. Right now we have 2 SFH, primary residence, each in our own names. Both have equity/appreciation through 1 years worth mortgages along with forced appreciation through renovations and additions.

Here's the details of her deal...It's a short-term rental strategy. 

Home purchased in City Park area for $350k. 3bd 1bth 4% DP. 30 year 4.125% rate. Primary Residence

$2,000/month PITI.

We have $336k remaining

We did a 'rate and term' refinance at month 10.

No longer paying PMI ($250 savings)

Home valued at $410,000.

$74k equity

We are renovating the house, interior and exterior doing most of the work ourselves. All-in is $40k. We've added a bathroom and kitchen downstairs and created a basement apartment.

Basement just passed rough-in inspections and has 1 month until completion.

We will get it reappraised at the year 2 mark. Conservative ARV and local comps has it at $450k.

Plan is to rent out the basement on Airbnb. Property will cash flow $200-$300.

We do not want to live here for more than a couple years. We want to use the equity to get into another deal.

Here are the details of my deal. Englewood, CO 2 bed 1 bath, 1300 sqft. $300k, 5% DP. 30 year 4.125% rate.

We added a second bedroom and updated the interior. All-in $15k. ARV $380k- $400k.

$288k remaining on loan. $1,860 PITI.

$92k equity. 

We fully furnished the house with extra furniture we had and are renting to traveling nurses as its close to a couple hospitals. The property cash flows $200/month. 

Its located within walking distance of a Starbucks.

Both properties are our primary residence. 

The property in Englewood was purchased because of its potential to densify. It sits on a large lot and is zoned for medium density multifamily. This means we can have 1 unit for every 3000 SF. The lot is currently 9200sf. 

We can increase the property square footage to 12,000sf, AND gain access to the alley, if we purchase the parcel to the west. I have had a casual conversation with the owner (older retiree) and they would sell it for $100k. It is a small single store front that rents out to a small business. 

We plan on scraping the existing home (and hopefully the adjacent store front) and building 4 side by side townhomes.

My agent sent several comps for in-fill new construction within a mile of my property. They are all 2,500 sf - 3,500 sf duplex and triplex. The all have 3 bedrooms 3 baths or more. The lowest sold duplex comp is one side of a 4 bed 4 bath for $571k and the same for the other side totaling $1.142 mil. The highest sold duplex is a 4 bed 4 bath each side both sold each for $662k, totaling $1.324 mil. There are several others on the market listed at $720k+. If we sold our 4 units at $600k each that's $2,400,000. They would be 2,000-2,500 sf. 

We have met with an architect to discuss $/sf. He recommends purchasing the adjacent property so we have access to the alley for our garages. We believe we can build anywhere from $135/sf to $165/sf. I have an advantage in that I own and operate a concrete contracting company and we specialize in residential foundations and flatwork. My business will build the foundation, reducing the cost/sf. There is the possibility that we act as the GC. My family has experience with new builds back in the early 2000's and we think its possible to manage the project ourselves. I also have a degree from Colorado State in Construction Management. Realistically there are inefficiencies with being the GC as we don't have an established business and it may cost us more money and time to fix problems that do arise compared to hiring an experienced GC. 

We stand to make $50-$100k per unit but I really want to nail these numbers down. This accounts for acquisition costs, demo, construction costs, taps, permits, fees and contingency. 

These are very rough numbers and they seem too good to be true. 

We currently have very little cash as its tied up in the renovations of both properties (in order to get them cash flowing).  With the two cash flowing properties we will be able to save ~$200k in 2 years, potentially more. Plus, we will have considerable equity in both properties $150k-200k. 

We think we have a great deal here and eventually could have the capital to do it ourselves. Do we wait and fund the deal ourselves and hire a GC or manage it ourselves? Do we act now and partner with someone who has cash?  How does the purchase of the adjacent property fit into the deal? We are not sure what to do next. What do you think? I can answer any questions you may have about the deal. I'm sure I have left something out. Thanks in advance.