All Forum Posts by: Joshua Fann

I am in the process of trying to buy two properties side by side in a downtown, historic square location, both on "Main Street." One of them is an old warehouse, built in the late 1800s, that was condemned by the city in 2015 and has to be torn down. The other is a corner lot that has a car detail and tire service. The business is pretty small, and they rent the lot for $800/month. 

The warehouse has been on the market for a while, so I put it under contract in February, contingent upon rezoning and the condemnation being removed upon submitting my demo plan to the city. I do not have the car wash under contract yet. Even though it is not listed for sale, the owner came to me and asked if I would be interested in buying it as well. I plan to as it is virtually ready to build on immediately with it's road frontage and access to water/sewer taps. Some investors and I plan to tear down the warehouse, move the car wash trailer, and do a mixed use development that goes with the square. 

Unfortunately, one week ago, a strong north wind blew a 3-course thick, 20 ft high brick wall over onto the car wash property,totaling a work truck belonging to the owner, a small storage trailer, damaged part of the wall of a single wide trailer, and crushed his kids 50cc four wheelers. The roof caved in on this portion, so there was nothing holding the wall up. The city has declared that the car wash cannot do business there until the building is tore down or a structural engineer gives the okay regarding safety. The man who owns the warehouse has had four years to demo and/or shore up the walls. However he is 84 years old and has no money or energy to do anything. All he owns is this building. 

I do not think the car was people are going to sue. I have reason to believe that they partake in some sketchy activity of their own and wouldn't want others snooping around their business. I think they want to settle outside of court. The owner of the lot however has already "lawyered up" and is wanting both warehouse owner and the city to make it right. Making it right, as I understand it, would be--cleaning up the mess, paying for damages (including lost business), and paying for the structural engineer to give the okay on the remainder of the building that is closest to the car wash. The warehouse owner has already declared he's not doing anything unless we follow through with purchasing the lot so he can have some cash. Otherwise, he will probably just let the city take it. 

My question is, do you see an opportunity here to get two lots at a crazy low price, or should I run like heck to avoid this legal mess? If I follow through with purchasing, what's my liability in all this? At the price we are getting the warehouse, our lot cost per townhouse was going to be $17k, with a minimum sales price of $240k per unit. It's a rare deal and I hate to let it go. Thanks in advance

New 30-Lot Subdivision in Springfield, TN. Phase 1 (13 Lots) will be available to build on in January. Lots include water & sewer taps, underground electric, flat building pads and graded front yards/driveways. These lots will be ready to build on--you don't have to do anything but build the house. Deed restrictions on houses:  minimum 1600 sq ft, exterior must be hardie board, brick, or stone. 

Here's what the numbers may look like for you if your lot cost is 60k all in:

Lot -- $60k

2100 sq ft house -- $184k  (1700 sq ft * $100 downstairs + 400 sq ft * $35 bonus room)

Realty + Closing Costs -- ~$23k

Profit -- $25k

Total (Desired Sales Price) -- $292,000 = ~$139/sq ft

I can show you plenty of comps in Springfield that are going for $139-$145 sq ft. These are nice lots, close to everything! We originally planned to build all 30. However, we are a company that primarily focuses on infrastructure and land development, and we are not really equipped to build 30 houses. Please email me at [email protected] or text me at (615) 380-7574 if you are interested. Thanks!

@Sean Davidson I appreciate your input! We're basically looking at doing something similar, except taking a 20% fee off the top, then splitting the remaining 80% proportional to what each party put in. Since we each are putting in half, then we would split that evenly (40% each which adds up to the 80%). That 40% plus our 20% fee is where I came up with the 60/40 split. We've done work for this person in the past, but you are correct--we need to document everything carefully with the potential conflict of interest. 

@Jay Hinrichs The banker I spoke with probably misspoke and meant 75% Loan to Cost rather than Loan to Value, as I would agree with you. That 75% Loan to Cost would leave us with 25% of $760,000, which puts as at a $190,000 down payment that the two parties would split evenly. If we put all the profits from each house into paying for the land, then the break-even-point comes at 14-16 houses depending on taxes at end of the first year and if any emergency draws are needed out of the profits. Thank you for your input Jay! I may contact you with more questions if that is okay. I know that most deals always look the best the first time you look at them. Hopefully this one will continue to look pretty good. 

@Jay Hinrichs 

Well Jay I hate to sound uninformed, but I'm not 100% sure on the cash yet. See the bank will loan up to 75% on the land's appraised value after developments. The after development value should be well over $1 Million. Let's pretend it is exactly $1 Million, then 75% of that is $750,000, which is the cost of the development. By that logic, we wouldn't need a down payment at all. It usually works that way on our construction loans, I'm just not sure if it works that way on land development because we haven't done one this big yet. For the sake of the argument, let's say we each put down $75,000 cash for a down payment (we split all costs 50/50). What would you expect as an investor in this kind of deal?

And yes, we were pretty happy to find this one. In this area the median home is about $180k, but since Nashville keeps pumping that figure goes up everyday. 

I am a part of a family-run construction and real estate development company. My dad is a Civil Engineer, he and my brother are also contractors, and I am a real estate agent. We currently have the first option to buy 13.4 acres in the middle TN area, a suburb outside of Nashville, for $315,000. The property is zoned R15, so we can fit 38 lots there. The property is fairly level, but it does not have a ton of road frontage. We are going to have to cut a road through it. The after development cost (including road, water, sewer, electric, etc.) is around $18,000-$20,000 per lot, so $684,000-$760,000. We will assume the worst case of $760,000. We will be building houses in the 1500-2000 sq ft range. In our area, new construction is going for $130-$140 /sq ft. It should cost us $105-$110 /sq ft to build, which fits in with our 20% profit rule of thumb. Keep in mind that we can also "pay ourselves" to do all of the engineering, site development, construction, and real estate work. 

Based on what I have shared above, let's say that we profit close to $40,000 per house. Starting in the spring (after site development is done), we plan on building the houses in bundles of 6, with hopes to complete 18 per year. With 38 houses, this comes out to a little over $1.5 Million over 2.5 years. Here is my question:

We are currently talking with an investor for the project. We would split the financing 50/50, plus we found the deal and would do all of the work. I was thinking a 60/40 split in our favor would be very fair to the investor. We might could do the project ourselves, but it would stretch us pretty thin. This person also has strong connections at the bank and could streamline the project financially. What do you all think would be a fair share for the investor? 

My parents currently own an over 3000 sq ft home that was built in the 1940s. It sits on nearly 4 acres, and has a guest house, a heated/cooled 1000 sq ft 2 car garage/workshop, and a two-story barn. They inherited this home and have a lot of equity built up in it. The problem is, it's too big for just two people, and since it's older, the utility bill is high (especially during these winter months). Since we live in a rural area, it appraised for $300k. I think it would probably bring around $350k if sold today. They have some cash built up, and since we have our own building company, they are thinking about downsizing and either building or buying something smaller to suit their needs. My dad, rather than selling the current place, is actually thinking about renting it out. He thinks he can get $1600/month for the house and $400/month for the guesthouse (it's about 500 sq ft). He also thinks he can rent the shop out to a local woodworker (it's currently equipped for woodworking), or to a local mechanic/car detailing service for a few hundred each month. Assuming he can't rent out the shop separately, the house and guesthouse rent would still more than cover their payment. The tenants of course would pay the utilities as well.

I might add that the home is very beautiful with old hardwood floors and high ceilings throughout, crown molding, etc. We renovated it in 2012. The walls are plaster and are not likely to be damaged. The hardwood floors have a couple re-finishing jobs left in them. 

I guess my question is, how likely is a home this large to be rented out, and since it's a fairly nice home, does imply that the renters would take better care of it? (Please don't laugh too hard at me--I'm a newb). There are a few similar homes for rent in the area. They are asking $1600-2000+ though I don't know if they are getting those prices are not. My opinion is that he should rent it out for about 10-12 years until he retires, then sell it when the market is fairly hot again. What say you, BiggerPockets?

In 2017, my family-owned construction and engineering company is looking at building a quadplex. To rent out. These will most likely be a set of four town-homes all connected, about 1200 sq ft each. I am actually thinking about living in one of the units, being the property manager, and using the rent from the other units to make the mortgage payment. My question is, since I would be living in one of the units, would the bank give me a homeowner interest rate (somewhere around 3-4%) or an investor interest rate (5.5-6%)? I know that any structure with four or less units is residential, not commercial, so it is my understanding that since I will be living in one of the units I would get the homeowner interest rate. This is my first attempt at a house hack, so advice is much appreciated!