All Forum Posts by: David Edwards

I have a plan to build out a duplex community, 6 duplexes (12 units) on 1 acre of land that cannot be subdivided. The original idea had been to subdivide the land and build 3 quad-plexes but I met with the city and that's not going to be possible due to the lot requirements so now I am looking at one twelve-plex.

This plan in theory has a four phase buildout:

Phase 1: Buy Acre, finalize design with city (we have preliminary approval but need to own lot to finalize) Start driveway and build parking for 1 duplex, build 1 duplex and assorted land improvement (utilities, sodding, fence, Shed), Rent out

REFINANCE - From Builder loan to Long Term 30 year

Phase 2: Continue driveway and build parking for second duplex, assorted land improvement

REFINANCE - Cash out refinance should allow me to pull out cash due to built equity (numbers check out based on comparable of quad-plexes of similar design relative to cost and maintaining 25% equity), Rent out
Use Cash-out Refi plus additional funds for next phase

Phase 3: Finish driveway including turn around required by city due to length of driveway to meet the needs of a firetruck etc, build duplexes 3 & 4, Rent out

REFINANCE - Cash out refinance should allow me to pull out cash due to built equity (numbers check out based on NOI evaluation of property value, 8 units now so different valuation methodology, while maintaining 25% equity)
Use Cash-out Refi to fully fund next phase

Phase 4: Build units 5 & 6, Rent out

Cash out Refinance to max value where it still makes sense for units to cash flow, laugh my self silly, find another plot of land and do it again.

Here is the question, each phase will take 3-5 months* (variance is due to effects of Corona-19 on builders). Can I refinance the new build this fast as outlined so I can apply cash out refi to the next phase? If not, what's a more realistic timeframe? 

Or... Could I structure an original loan to be phased (multiple draws) with later draws using the property itself as growing equity to power the loan? I have a lender lined up, they want to work with me to do this but while I have worked to save up the cash to fund the first phase equity they have not thus far wanted to spend much time planning this out all the way with me so I'm turning to you guys for thoughts.

Or.. any other ideas... or gotchas I should think about?

Lastly, what do you think of this plan overall?

*This time frame is due to the build methodology which if you have seen my other posts you'll understand is Modular Duplex construction. If you haven't seen and are unaware Modular homes are not Manufactured (mobile) they appraise the same as stick, high quality (due to my vendor), are not HUD tagged, and have a much shorted build time then you might expect if you are thinking stick builds. These also happen to come with a total of 8 years of roof to foundation and everything in between warranty.

Thank you,

-Dave

Please clarify your use of the word Modular.

Do you mean a true modular home, IE built in pieces but NOT a manufactured/mobile home?

If you mean a true modular, then basically you consider that the same as any other home. It will appraise the same, be taxed the same, repair, and sell the same as any stick home with similar styling. What it will rent for depends on your area, so you'll need to do the research there, looking at COMPs, biggerpockets new'ish tool "BPInsights: Rant Estimator" or Rentometer.com. Just make sure you buy at an good price.

I am guessing that the home has septic and likely well due to the lot size, often it is a requirement that homes with septic have larger lots then homes with access to public sewers and water will have.

This said, reading between the lines I am guessing you don't mean modular at all but rather a manufactured home. There is some very slight debate on this but very very often a manufactured home will lose value over time, they are referred to as a car that you sleep in in some circles. This is because a manufactured home is built to lower standards and also because they are not tied to the land, they are not "Real Property". You'll want to look that up. Because of this, you may want to buy for land value with a slight bump in price for the manufactured home asset as well.

Depending on your market and the price you can get it for it may make a decent rental, you have to look around at market that would rent it and determine if you're in an area that attracts a premium clientele for these types of homes or if the people that would rent it would be more of a headache than it is worth. 

You could always buy the lot, use it for your current needs and then sell it off or improve it as well...

There is no way to have the public water extended to your lot? If at all possible that would be the best solution all around.

I'd inquire with the local government, find out of possible, what it would take, or even if there are existing plans to do so.

@John McCurley Who you want is "Modular of Texas" These guys have their office in Waco Texas.

I am in the process of working with them to do a 6 duplex build on a piece of land down here around Houston.

I compared them against 6 other modular home vendors, I evaluated their finishes, pricing, price per square foot, standard duplex plans, willingness to modify, and i reached out to three of their recent customers for feedback and ModularofTexas came out the winner. Others were cheeper but there were reasons including terrible build, bad customer service, and lack of modifications.

Standard pricing with these guys includes the Duplex,I am going with a 3 bed 2 bath: 71x30' design which is 71x15' per side, and the foundation which they have standardized around a Slab with piers (gives your home the steadiness of the slab with the raise of piers). Also included at base price are the basic quality appliances (AC, hot water, furnace, oven, microwave, fridge). They provide free upgrades to the sub-floor, the front door (texas star is standard), and some finishings.

With all of this the cost per square foot is at $88., smaller footprint duplexes have a higher cpsf just to cover fixed costs.

For my project I have had them tweak the floor plan and I'm upgrading the flooring to Luxury vinyl, counter tops to granite, appliances to stainless steel, and a few other odds and ends. My cost per square foot (without land) is going to be about $105, new build around here is generally north of $150 cpsf and the homes should appraise for far more than they cost, especially when i get my 3rd, 4th, 5th, and 6th units on the land and I'm then appraised based on Cap Rate and not comparables.

Private message me for more, i can share all sorts of useful  info with you including contacts.

Use Rehab calculator under tools on bigger pockets.

Resulting output is great for investor discussions.

Also prepare details on the area (niche.com is helpful), comps, days on market so the investor has confidence in your exit strategy and figures they have a good chance of getting there money and profit.

Also, prepare a note backing their loan with the property so they have more downside protection.

Does anybody have a New Caney Texas (just north of Houston) contractor they would recommend?

I'm looking around for a contractor to go with me to see a potential rehab project and provide me with a quote on the work. Mostly it's drywall, insulation, painting, and tile (stone and/or luxury vinyl) flooring.

The general contractor I have worked with in the past has recently become less than reliable, it is difficult to get him on the phone and he's disappear for a month or so without leaving any word (not corona, I did ask on that last time we spoke).

Thank you

Anybody in the business of Marinas? Specifically I am looking at marina's capable of and focused on providing docks for houseboats, either year round or as vacation homes. I am seeing anecdotal evidence (needs more research) that Marina's are in the same place as mobile home parks with a lot of mom & pop operators, deferred maintenance, and potential too be more of an infrastructure provider than a home provider.

There certainly seems to be various classes of maria's as well and location matters as areas closer to big cities can charge higher dock rents while still being cheaper than a home or rent.

I'd love any thoughts here. Thank you

@Mitchell Benson I am still working to finalize plans and purchase the specific lot so I don't want to go into to much detail. I am planning to post here this weekend about elements of the project and see if I can drum up partners interested in learning through doing with us if that interests you.

@Eric Teran thanks for calling this thread to my attention.

@Sue Hough Modular homes themselves are absolutely viable in Chicago. The challenge however may be in the transit route. In practice if you can't get the modular to the location due to bridges, narrow roads, or other obstructions it may be difficult/impossible for a land route.

Some modules could be designed to be flown in, but that's a whole ballgame of airspace permissions and I can see that as being a huge issue, possible insurmountable.

However Modular itself is not illegal. That said, you may have to educate people on it because they may confuse modular construction with manufactured/mobile homes. I find this is often the case when I've been discussing my proposed project with the City of Conroe Texas. I've pushed through it however and as Eric mentions people have pushed through in Chicago as there are projects that have been completed.

Also the point on classification of the structure, this may also be an areas that can be resolved with education of the council/bank/others that you are talking to. A modular home is a building methodology, it's not a home classification unlike Mobile/manufactured or HUD housing.

To this point @Jon H. is absolutely correct, a modular home is appraised and judged the same as a stick built home by Fanny/Freddy and any associated banks. 

Biggest issue with town ordinances is getting past the education/language barrier, the modular home builder that I am working with to design a 6 duplex multi-family project has connections with the state government here in Texas and can push through any obstinate local official that does not understand that Modular is valid, if you're looking modular finding somebody that can help with this seems useful.

Biggest issue with banks for me so far is the education, which I've been able to push through for most banks I've talked to as I hunt for a good financing deal, as well as the draw schedule, which i am trying to design to be most beneficial for me with minimum days of loan.

Stephen,

You want "modular" housing not manufactured.

Per many commentators and reality of the market you will find that manufactured housing, what used to be known as "Mobile Homes" do indeed depreciate. This is because manufactured housing is not what is known as "real property" meaning they can be moved and are not tied to the land. Additionally despite increasing quality of "manufactured" housing it is still manufactured to HUD standards and not necessarily local building codes. "Manufactured" homes for this reason are appraised differently than other housing and are also subject to various deed restrictions regardless of the idea to put a "manufactured" home on a foundation.

"Modular" housing is a different ball game. Modular homes are built at or higher than local building codes for the area you will be establishing the home. "Modular" housing is classified as real property and is appraised the same as any stick build.

"Modular" homes do have many of the value points that you state in you post in that you can generally have you modular built faster and cheaper than stick built.

I am in the middle stages of vetting modular companies here in Texas and will be working to build out several modular duplexes on a piece of land I have identified, jut working with the county engineering team to verify infrastructure. I've identified a bank that LOVES modular homes as they appreciate the short build times and resulting equity.

I also have 1 rental unit that is a HUD manufactured home, it rents out ok but anybody that buys from me eventually will need to be all cash or find a specialist lender, it's annoying. Still it was my first foray into the game and worked out well, I should make a post on it.

@Eric Teran may be along shortly to discuss the benefits/value of design and you really couldn't go wrong picking up a book called "The Modular Home"  by Andrew Gianino. It's on audible as well as print, i'd get both the audio so you can get through it quickly and the book so you have all of the design plans and checklists.

I have a few other posts on this topic out there if you want to look and if you'd like to speak more directly do feel free to connect and we can private chat or have a call.

-Dave