All Forum Posts by: Ed O.

@Barrett Bridgewater

Excellent tip! Never knew there was any sort of way off the brutal mandated flood insurance. Thanks for mentioning this!

Are you talking a one off build or a full development? 

What is the advantage of this vs. building in a non flood plain? The added cost of flood insurance can run quite high and buyers will catch on to it - which could have a decent impact on your sales price. 

I haven't built in a flood plain...  I'd probably spend more money on a better lot and avoid it. 

Whoa! This is the first post in a long time by someone with more than 5 posts, that has votes (indicating they contribute)!!! Wow. I thought only new users and takers came to this forum...

Anyways:

Pre build, you can get an appraisal and will (likely) have to get one if it's being financed. What it appraises for and what it costs to build are independent of each other. You could get the appraisal and compare it to the cost to build and see how you feel about proceeding. 

There's pitfalls in building in c areas and below. Theft, values, depressed rents, decreased ability to find a great tenant for your great new home, etc. What is the land worth? If the lot cost is minimal, it, to me, is a good indication that it is probably not a good area to build on. For instance, I bought a lot in a C neighborhood for $500. Building on it would have been extremely unwise for an endless list of reasons. 

Now is a very tough time to build. Your best bet is to find plans and take them to several builders and have them price it out as completed. Beware tho - pricing will have a very short shelf life. Get a budget from them and see if you think it's in line. Anything not specifically noted will be done to the minimums. For instance, flooring, if not specified will likely be rock bottom carpet or laminate. Make sure you include specs for things you must have (like lvp or even, in some cases tile). Last, when they're building, make sure they aren't blowing through their budget, potentially setting you up to be out of funds with a home that is not complete. This happens sometimes. 

To see if it's worth it: figure rents, taxes, insurance (get it priced - often new construction units are cheap to insure), cost of capital and see where you're at. New construction homes and units have a lot of upside. 

I have to admit, I'm a bit jealous that my posts in this area don't often catch the time of day, and I've built close to 100 homes. Yours has generated hours of material. 

You'd indicated you've been a project manager on 3 builds, yet in your first post, you asked: 
"What is the first 3 steps to from breaking ground to the next 3 steps?" 

All I can say, is take a step back and look at how many people are wary of this. You've got a big chunk of profit right under your fingers (quick sale), or perhaps more a long ways away in an area you have extremely limited experience. You could lose your rear end on this thing if the market adjusts mid build. Then you may have to move into it and try and keep it afloat. 

I have some thoughts on this, but before going into the weeds, what is your motivating factor in making this loan? 

If more than two steps, code calls for it. It would be wise to anticipate this need on the next one. I would not ask for payment on this. How did it overrun? Handrails are generally straight forward.....

How big is the hole? 

You'd indicated this is your first development. Have you ever build a home or triplex before? 

I wouldn't go to war with the neighbors. It's a great way to add a countless headaches while you build. And then even more when you manage the triplex for the next however many years. 

Is the water meter a dual meter? If so, it would be half yours. You might try and use this minor issue as leverage against the buyer. In reality, I would not be bothered by this arrangement based on what has been presented, which understandably is a little bit limited. 

Foundation plans are pretty simple. Unless you're building something exotic or massive, your foundation provider should be very comfortable laying out piers. Unless mandated locally or as described in the first sentence, hiring an architect for something simple would be a poor use of funds in my opinion. Whoever designed the house should also be able to generate a foundation plan in minutes. 

I'd guess there's a lot of differences from market to market. Here, I'd say do your diligence, talk to a surveyor and get a topo and preliminary plat drawn up. More lots is usually a great thing, but be careful to not develop junk lots, to the extent you can avoid it. Where it gets increasingly expensive is when you bring in the engineers and have the engineered plans done. This, in my market runs 800-1500 per lot on average. It's impossible to get infrastructure bids without them. Infrastructure contractors won't spend much time looking at your project without them. It's unfortunate, but there's few builders and developers on BP as a whole, or at least there's few that participate much in the forums. 

Sure. Raw ground and development loans are risky for a lot of reasons. As your focus gets narrowed into an RV park, the risk increases, because if a project like this did not succeed, the number of buyers and demand for it as an REO would be very limited. In terms of risk of development loans - a lot of developments don't survive and usually the loan amounts are fairly large. They're different from a SFR, in the way that a SFR can be simply sold and usually quickly, to a large pool of buyers. A developed piece of ground or one that is partially developed would be a lot more difficult to sell and would likely be sold at a large loss in terms of what the bank has funded into the project compared to what is netted out of a distressed sale.

OP never responded to my question about experience (love it when ops do this @Raj Gada). I'm guessing he does not have experience in this area. A lack of experience for anyone in any sector is also a large increase in risk for the project / deal. Everyone starts with no experience of course and those that have completed deals are a much safer bet than those working on their first. 

@Charles Chester if you're wanting to get into this niche, it will be easiest to start with a smaller development and be prepared to bring a good % of capital into the deal by yourself, with partners, or with private $ to help get the bank on board with it.