All Forum Posts by: Justin Woodworth

@Greg Dickerson

Thank you for responding. When you say there should be at least a 20% margin, is that the typical margin in your area? Also, when you say this doesn't make sense, what to you is sticking out thats not making sense.

Update: After rereading my post, the lot is developed, trees are gone, it has city sewer, water and electric already ran to it.

Hey Guys and Gals,

I need help analyzing a new construction deal I am very interested in pursuing. Since I have limited experience in this field I think it would be best to have you guys triple check my numbers! Here goes

Lot:55k

House:275k

Total Property Value: 330k

Build Time: 4 months

Sale time: 1-12 months (can be sold while under construction)

My plan is to get approved for a construction loan. I have found a bank that does a 80-20 LTV interest only construction loan and they will also credit me the GC fee (up to 16k) and all the real estate sales fee (6% so 19.8k) The max they will lend out for the 330k price point is 264k. My lot fee comes out of that so 264k - 55k is 214k. Now I only have 214k to build the house itself but with the GC fee and Realtor commissions added as a credit (35.8k in total) that puts me at 249.8k of the banks money to build the 275k house. I will have cash to cover the difference (25.2k, but will have extra just in case).

Recap

Actual banks LTV ratio is a 92-8 on a 330k new construction property. The interest rate of the loan is 5.5% (interest only).

I have negotiated a deal with the builder and he is willing to build and develop the lot for 5k. He is a well known builder in the area and very reputable. He states that generally he makes 7% of the total cost of the property in profit for himself. (330,000/100 = 3300 (1%)) (3300 x 7 = 23,100). I have negotiated a flat fee for the builder of 5k. If he is only taking 5k off his normal 23.1k profit that leaves 18.1k left in the property for profit. First question, does 7% profit as a builder sound like a legitimate number?

Now, there are interest payments and holding costs to consider. The loan is 5.5% interest but only based on the money pulled out for construction. The draws would be around 1/4 of the total loan 264k. The builder says that he can build this building in 4 months. There have been many instances of people buying these homes before they are even finished being built in the market I am looking in. I am not banking on it, but it is a pleasant thought. The property taxes per month on a 55k lot come to 96$ a month. The total interest due after 4 months of construction come to $3200. In 4 months the total holding costs will come to $3584.

So we have the $18,100 profit minus the holding costs of $3584 which comes to $14,516 of profit on the table once the building is completed. 

For every month after the final draw I will owe interest on the totality of the loan (264,000 at 5.5% interest comes to $1210 a month in just interest. When we include property taxes it will still be evaluated at 55,000 which means my property taxes are still $96 dollars a month. So every month I have to pay $1300 in property taxes and interest). 

If the building is sold before it is finished being constructed (theres a good chance in the neighborhood and market, but not guaranteed) I would make $14,516 on a $25,200 investment. Plus I would be the Realtor on the sellers side so add that commission. Every month after month 4 means I have to pay $1300 in interest and taxes which cuts into my profit. It would take 11.16 months just for the deal to break on just the money that the builder is keeping in the deal. 

Do these numbers coming from my builder sound correct? Am I missing any costs? I have always been taught when something sounds too good to be true, it probably is, but JUST IN CASE ITS NOT go to BP forums ha

Thanks for any and all advice

Yikes! Let me know what the damage is. I live in Madison and it can be rough to find a good deal and I have personally never had to deal with that type of ceiling tile. 

Hey folks,

I recently changed brokerages. My new brokerage is partnered with a builder and I am very excited about the opportunities (possibly building a condo complex coming up in a year and more). At this brokerage I have quite a few perks when it comes to building new quads/duplex's which is exciting.

My question is this: What would the added benefits of building a new duplex/quadplex be? What would be the negatives?

For positives my thoughts are: Everything in the building is new w/ a warranty, marketability, complete control of what's in the building

For negatives: Holding costs on the construction loan, rents not hitting 1% rule (still cash flows), delays. (What am I missing?)

It feels to me that it is not strictly a cash flow move but also an appreciation move. I know we don't generally invest for appreciation. Thoughts? Comments? 

Thanks everyone!

Do you have any more photos?

Hey guys and gals,

So recently I became a Realtor (wow these start up costs suck!) and I own my first duplex. People in my sphere of influence have been reaching out to me about owning their own multi-family properties. They like the idea especially since I make a few hundred bucks a month taking up one half of my duplex and my friends/family pay 900-1200 a month in rent. So here is my dilemma. 

I do not have all the real estate sales systems down yet. The paperwork is something I am getting better at, I am working on lead generation and have my focus on helping people buy and sell real estate. But I see a HUGE potential in having them buy multi family through me and then being the property management for them. I just think right now I need to get one set of systems down first before tackling another. 

Has anyone had success with this? Ideas? Thoughts? Troll comments? Ill take them all!

Thank you

Justin

I never would have thought that Rich Dad Poor Dad would have changed my life so significantly. 

3 weeks after finishing the book in 2 days: Became a BP Pro, learned to analyze deals (took Brandon's advice and did 100), bought an amazing duplex.

6 weeks after: Started school to become a Realtor. Found multiple mentors who needed someone with time and a great work ethic

8 weeks after: Officially blessed through the state to be a Realtor, got my first closing lined up and am working to change the lives of others through real estate investing. 

I just wanted to share my happiness and tell you guys that if you're struggling, just keep pushing forward. Learn more. Read more. Work more. A master has failed more times than the beginner has tried. And I always will feel like a beginner. Have a great week!

Hey guys and gals,

I have found an off market quadplex where the owner is interested in selling. My only concern is that the person who has owned this property has only owned it for 12 years so I am sure he has a decent sized lien left on his property. My concern is that the lien follows the property and not the person. Does anyone have any experience in dealing with a seller financed deal where they still have a mortgage? Thanks

Justin

I'm not an expert by any means but shouldn't you have 3 GC's come by for estimates? I feel like 1 person is not a big enough sample size.

Hey BP'ers

Currently looking through properties and I have found a 3 unit in a local area. All the numbers look good but I know better than to just look at the numbers. I have not looked at the property yet or have had it inspected so bare with me. 

The house was built in 1880. The notes state that it has been updated and well taken care of. Has anyone owned a property this old? I would imagine there are unexpected expenses that I haven't thought of. Anyone know any Unknown-Unknowns or have any experience in this? Advice? Run? More due diligence(duh)? 

Thanks guys and gals

Justin