All Forum Posts by: Katie Anderson

Thank you @Jay Hinrichs I appreciate your wisdom!

 Thanks so much Jay. These are infill projects. The neighborhood is rent-heavy already. This is an unique model and project. The purpose for diversifying and selling some to investors is to cut down on unnecessary third-party and financing fees and to allow us to build faster. We're trying to serve a historically underserved area and bring in well-designed, but affordably priced homes, for both primary homeowners and tenants who can not qualify for what is currently on the market (or what they can qualify for is grossly sub-standard). The delta between a homeowner sale price and an investor sale price that cash flows is pretty much exactly those third-party and financing fees. Both models bring us the same profit. Diversifying allows us to build half with traditional financing and half with zero interest.

Thank you in advance for any guidance or direction here!

For simplification purposes, my husband and I are new construction spec builders. Our original marketing model was "build to rent" selling to investors. We have found that we are able to get a higher sale price for our homes listing on MLS to primary home owners, however, we still have a waitlist of investors wanting to purchase our homes (albeit at a slightly lower price point than the MLS sale so it cash flows).

We own the land. We are the general contractors. We need more cash to build quicker.

I have been playing with the numbers and if we can cut out financing fees, relator commission, construction loan closing costs, etc... we can lower our sale price and the homes will easily cash flow.

QUESTION -- If we have an investor with enough cash to fund the construction (with no interest), how can we structure our contracts to avoid unnecessary title / closing fees until after construction is complete and the investor gets his own mortgage on the property.

We have purchased these lots this year, we have title insurance on the land. The investors we have in mind are close friends and there is mutual trust, but I'm trying to figure out the appropriate legal way to do this to protect both parties. Basically we have procured the land, will provide all pre-construction design and engineering and manage construction; but we wanting to "pre-sell" the property to the end investor at the beginning of the process without either party incurring closing cost fees until the project is completed.

I hope this make sense. Thanks again!

Katie

How do you account for closing settlement charges and expenses such as escrow fee, title insurance, wire/notary fees, recording fees, items payable in connection with a loan (on the seller side), appraisal fees, etc... Do you itemize these various items under insurance, legal/professional fees, bank fees on your COA or do you book these as direct costs of goods sold? Is there a reason to keep these off the individual project/investment proforma and put in overhead expenses; or should the opposite argument be made?

Thank you!

There’s no need to hire a general contractor for the sole purpose of permitting; although I don’t understand why your contractor wouldn’t be unwilling to obtain a home repair license. I think it’s $120/year. That is unless they don’t have general liability, which is something you’ll want to consider. You will need to make sure any plumbing and electrical work is done by a licensed trade. Not sure the whole scope but you might not even need to permit except for the structural changes you mentioned. Here some info from the city:

Does a contractor need to be licensed to do work on my home?
Any Plumbing or Mechanical contractor doing work on an individual’s home is required by the Texas Plumbing License Law or the Texas Mechanical License Law to have a license to work on that home. This license is required even if the scope of the work doesn't require a permit and inspection.

Electrical work must be performed by a licensed electrician.

A license is not required for general building work on your own property.

What kind of work can I do on my own home?
Electrical work must be performed by a licensed electrician unless the homeowner can prove to the Chief Electrical Inspector that they have the knowledge and expertise to perform the electrical work on their own home. Permits, unless exempted by Chapter 52 of the Dallas Building Code, are required for electrical work.

Under the Texas Homestead Act, Texas Plumbing License Law and Texas Mechanical License Law, a person who owns, occupies and has homesteaded the home where the work is to be performed is exempted from the requirement of having a licensed person do the work and may do any kind of plumbing or mechanical work on his/her homestead themselves. The work performed by a homeowner requires a permit (when required by Chapter 52 of the Dallas Building Code) and inspection (if required). If no permit or inspection is required, the homeowner is required to comply with the plumbing/mechanical code.

A homeowner may perform general building work on their own property after obtaining all of the proper permits.
Compliance with the Dallas codes is required on all types of work as well as obtaining the appropriate inspections.

I would love any insight as well. We’ve been approached by them as a new construction seller.

Hi Michael, your general contractor will need to register with the city to get a "home repair license" to pull a permit. It's super easy to get. (S)he'll just have to have insurance, which I highly recommend. (S)he does not need a state-level license. They'll also have to have a master licensed plumber to any plumbing work. And you'll need an engineer to get involved to move the load bearing wall. If you need any recommendations for local people, I'm happy to pass some names along. My husband has been a general contractor for 15+ years in Dallas. We just started a new company exclusively building affordable new construction homes.