Would this renovation make sense

Question

Have had this duplex for less then one year. Paid 220k with a current cash flow of around 10%. The surrounding properties are all 4-units (most of them are two separate du-plex on the same property if you notice the picture).  We have enough land to add another 2 units and parking spaces.  The land is zoned appropriately.  We would be using hard money or a construction loan and try to refi after 6 months.

I just spoke with an architect and found out the construction costs are going to be around $250 per sqft.  So these would be the numbers.

325k for construction

13k permits and misc

20k for architect (guessing on that  number)

So lets call it $360,000 in total to build the two extra units.

Monthly rents for those two units would be around $1,400 each ($2,800 in total)

Is this even worth looking into?  Thanks!

Stone Jin · Answer

@Ryan Cleary talk to some custom home builders and general contractors.  I think the $250 a sqft number is sky high esp since you own the land already.  I recently had a conversation with a custom home builder in Ohio their numbers for a 4plex was around $125 sqft without the land.

David Edwards · Answer

@Ryan Cleary

I am assuming this is the 1127 W 28th street in Florida.

If so, I am going to recommend you look at modular construction.

A quick google for  "west palm beach modular duplex" to find a modular builder that has Duplex plans leads to impresa modular.

The have both a single story and a two story design on their multifamily page. The single story will be cheaper as they shouldn't need a crane on site to install but requires a larger footprint to get the square footage, you should go with what works best. Heck.. if you have the room... put in two duplexes and make your place a 6 -plex assuming it's zoned, you will find the numbers become more favorable the more units you can get on the lot as the builders will discount and fixed costs get spread around.

A modular build is just a development process. Your duplex will appraise the same as any other stick built duplex, it'll insure the same, etc. it is NOT a mobile/manufactured home, but you're going to have your construction loan for a lot shorter period of time which means less interest you pay and the faster you get in a tenant and start that cash flow.

Importantly.. you should come in WAY below a $250 sqft price.. here in Houston I have a modular builder that starts at $88 sqft and with the improvements i am requesting just about hits $100.

@Eric Teran , @Kevin Wasserman

Bradley Kesselman · Answer

Ryan- I am a Palm Beach County resident for the past three years and own 3 units in West Palm Beach. I would not pour any more money into that property. Riveria Beach is historical a lower socioeconomic area of Palm Beach County. You might be able to get $1400 in rent but the tenant will have no credit little verifiable income and you will have to budget a ton of money on each turn over. There's a reason why Lennar, Pulte, GL homes etc do no build in these areas. You cannot get the sales price or rent prices to justify new construction.

Ryan Cleary · Answer

Hey David,

This was probably one of the most informative responses I have received on Bigger Pockets and I appreciate it very much!  I need to check out Impresa now!

Quick question though.  I don't know anything about modular construction.  Is it something that will last forever?  or does it not have the same lifespan as normal construction.  Thanks again!

Ryan Cleary · Answer

@Stone Jin

Thanks!  You’re right I probably should get better numbers for construction

Ben Stoodley · Answer

@Ryan Cleary I def agree with previous posts, construction costs seem high for a MultiFam and modulars are a fantastic option! That was a great suggestion.

Work with your lender to make sure they are ok financing a modular construction. It’s usually handled in lump sum payments. So depending on your current equity position in the land, you might have to come out of pocket a bit for the first down payment to the modular company. But if your lender is comfortable with the equity in your project than you maybe able to get it all financed.

So yes, sounds like it’s worth looking into!

David Edwards · Answer

@Ryan Cleary

There are reports that modular construction, which is hardened in order to be transported survive the hurricanes there is Florida better than stick built.

If you private message me I am certain I could dig up the study, it was completed by FEMA if I recall properly. Or just Google for "modular homes" and "FEMA" and "Hurricanes" or something similar.

Basically, while not indestructible you should be better off than stick built all else being equal.

Ryan Cleary · Answer

Thanks Bradley, This was the input I needed the most.  Glad I was able to speak to someone in the area.  That was my one major concern with investing in that particular neighborhood, its definitely the lowest class neighborhood I would ever invest in.  Thanks, now time to focus my energy elsewhere haha

Zeke Liston · Answer

What part of Ohio @Stone Jin?

Would this renovation make sense

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