All Forum Posts by: Jonathan Orr

Derek, to give you the 10,000 foot overview in my perspective and what I do...see below

1) Most developers have an excel based proforma or underwriting.  I know some companies and people use Argus which is a varied version of excel but has alot of capabilities related to real estate. 

2)Do it all.  Brokers, agents, driving for dollars, Loopnet, Crexi, referrrals, I think focusing on one limits you to other options.  I don't personally believe there is a one way is best.

3)How I structure deals is to get a property under contract and go through the entitlement process. Usually out of my own pocket or with investors (equity). When we are ready to close and move to the construction phase, a construction loan is brought in and other needed equity comes from a variety of places (other investors, LP investment firms, etc...) Most construction loans I am working with are I/O and some have the ability to turn to perm loans.

4)For quickly evaluating a property and deciding if it is something to move on, I trust my own underwriting and my partners knowledge to see if a project will be feasible.  Then during the entitlement phase, bringing in a 3rd party to run a true feasibility analysis is well warranted.

5)There is no set standard, I like an extended period to close.  my past project I negotiated that I didn't have to close until I was able to obtain building permits.  All is a case by case scenario, but I would recommend not to close until you feel entitlement are either approved or extremely close.  Of course during those time you will have deposits and possible extensions (something for your attorney to work out)

6)It is all case by case, best to find out what is needed is to talk to the local city, some want the moon, others just a plat and site plan.

7)We always create a LLC to purchase the property, keeps some secrecy but is more for legal reasons.

8)very subjective questions, all depends on what you want to see and what your investors want. I try to achieve 20% IRR in a very general sense. I know guys who just want a 11% ROC.

9)Majority of contracts are custom with boiler plate items depending on local municipality and laws

10)LLC to purchase and hold the property

11)Depends on what you want to do.  I know guys who "merchant" develop, which is develop then sell at CofO.  I know guys who hold for 5-10 years,  some guys like to see at stabilization. 

12)All depends on what your investors want, there is no straight answer

I hope this helps, again this is my opinion from what I do.

-Jonathan

@John Kelleyreally depends on exact location, current zoning, what type of demand generators in the area, what’s around it etc...lots of questions to determine highest and best use.

@John Johnson I think 30% is shooting for the moon a bit. For new construction deals I generally am finding for multifamily (California and Arizona) your operating expenses being closer to 40%

This may be a bit different for these tiny homes which I don’t know much about but I feel 30% is aggressive.

Have you spoken to any PM groups to get their input on what they are seeing in your market? That would be a good way to get a pretty solid number

I am not a tax professional but I would recommend creating a LLC and purchasing the property under that LLC. I call it a single entity llc and you funnel everything through that LLC from the beginning. The creation of a LLC is fairly cheap but adds a layer of protection if something were to happen during construction. You still should get liability/construction insurance but it all goes through that LLC. This is what I usually do.

Exactly, I have seen situations where they rent the "main house" on long term while the back is for AirBnB. Or both for AirBnB. I see a lot of flippers getting into it because they get into the bread and butter of rehabbing an existing house and then they add the ADU. Only downside at least from what I can see is you can only do one ADU per lot.

If you have a property in mind, first thing I would do while getting the property under contract is do your research on the zoning. The use of technology with GIS and city ordinances online allows you to get a basic understanding of what is already allowed. Additionally, with these dwelling units I have heard of people getting variances instead of rezoning which is much easier and less costly process.  It all depends on the city and truly the only way to find out is go talk to the local planning department

@Beau M. in my experience as long as an engineer and architect have signed off on the integrity, construction type and process usually is not a big deal.  The bigger deal I have to deal with in cities is the style and visual appeal (which I realize does go hand in hand with construction type sometimes).  The visual look and style will mean more to cities whether in or out of city limits over what exact type of materials you are using.  Don't get me wrong the materials and process are important but that is for building inspectors and departments to decide.  Getting a project approved will be on the look and style which varies depending on what the planning department and your local council want to see built.

The zoning is critical. I know in CA that most cities do not like to see the typical SFR home changed into multi units like duplex or triplexes if it is not already zoned for that. However, one thing you may be able to do is look into ADUs. That has become extremely popular out here on the West coast because of technicalities within zoning allowing a smaller unit and you are keeping the existing home. However a majority of the time the developers I know that are doing them are adding them for short term rental income, not long term stay. The key is finding a property with a large enough space to put the 300-500 sq ADU.

@Brandon Olsen I do agree with Greg on finding a local developer and getting a NDA is a great way to find the financial backing plus gives you an opportunity to negotiate with them on your terms.  Remember, if you don't own the land you could always work with the current owners and negotiate how you are the "Owners representative"  then when you approach other developers you will have a agreement with the land owner that you must be involved and will receive some compensation and authority. 

Another option is to raise the needed capital.  Work with the current owner on putting the land into the deal with you as the developer and then working with architects, engineers, etc... to first clean up the property and determine the highest and best use.  You can put together and agreement with the owner of the land to work in tandem and make you the "lead"

@Chris Blackburn just grading and basic site setup for construction, I would appreciate it Chris, thanks!

@Aaron K. Thank you for the feedback Aaron.  Of course this was being done prior to this craziness.  It will go to accredited investors but there is some friends and family that I have in mind to show this too which is why I am trying to make it easy to read and not trying to over complicate it and provide some basic info.