All Forum Posts by: Mike Wood

Wow, $100/ft2 seems like a steal in California.

On my new construction duplex's in New Orleans, I am struggling to keep them under $100/ft2 and never can I get it below $80/ft2.  That's for entry level housing, not cheap, but not fancy. And that here where labor is relatively cheap and permits are almost nothing (my current project is a $200k project and my permits are less than $1500).  

Best of luck

If you have $300-400k to put into the deal, you should be able to get a construction loan from a bank to finance the whole thing.  Most banks will loan 75-80% of the total construction costs (land costs plus building cost), but will likely want a GC on the project (I have yet to work with a bank that did not require a GC). 

Assuming the construction costs are around $150/ft2 (can be more than $190/ft2, otherwise your $1.2 ARV means your loosing money), the total cost would be ~$1m. If you bank required 80% of cost (thats what I am getting), you would need to bring ~$200k.

You should be able to use the bank to finance the lot purchase and construction at the same time.

Now if your $300-400k is not liquid, that might be a different story.

It kind of depends on what you cost to renovate/rebuild would be.  I am also guessing that the house as it currently stands is worth more per ft2 than a larger house (as is typical), so adding ft2 would reduce your sales price per ft2.  

My guess it that adding that much to the original house is going to cause you to have to update the entire house. Not sure about your area, but that could cost quite a bit.

I definitely would not want to live in a house during a renovation of that size, it would be hell.

Also, depending on how long you have rented the property, you will have to recapture the depreciation when you sell it, regardless if you live in it prior to selling it (unless I am completely clueless on the this aspect of the taxes).

I would talk to an agent to see what the house is worth now. Then ask around with some developers or contractors to see what general $/ft2 for renovation (existing house) and $/ft2 for the additions.  Then you can add the value of the house plus the renovation and addition costs, this will give you your costs. If that is less than you think you can sell it by some amount (I would suggest at least 20%) then I would consider it. Otherwise, keep or sell the house as is.

Given your location, this would be a no brainer for me to install the Central Air.  In New Orleans, window units are a big turn off to tenants, and having lived in Florida, I would anticipate the same thing.  Plus, I bet you could charge more rent for Central air & heat then window units (I know I can, as same ft2/bedroom units go for at least $50-$75 more per month, all things equal). Tenants around here believe that window units are more expensive to operate and dont effectly cool the house.

You need to shop the price.  That initial price seems high, although not crazy.  I know that AC is one of those costs that vary wildly depending on the contractor and how busy they are.  My strategy is new construction duplex properties, so my costs are a bit different.  With that being said, a recently completed duplex house, 2500ft2 total (1250ft2 per unit) cost me $9,000 (one system per unit) and my current project is a duplex house of 1,780ft2 (~900ft2 per unit) and that is costing me $7,000 (again one system per unit). 

Assuming that your property is lacking modern insulation, windows and doors, you might need a larger unit (although the cost difference for small units is not significant) plus you will had the added cost of any required interior modifications (likely using a closet for the A/C unit, dropping a ceiling to add ductwork, unless you have attic access to both units).  Assuming that your total ft2 is 1450 as noted, I would anticipate it costing about $8,000 total.

I also think you will get most of that back when you sell, but might not see any value for the window units.  I surely wouldn't pay anything for the window units, and would likely reduce my offer price to ensure I had adequate money to add Central Air after purchasing the property.

I think you will find that if your bank is placing the mortgage in the traditional markets, you will be forced to conform with Fannie Mae/Freddie Mac guidelines.  One of those guidelines is 75% max loan to value for non-owner occupied investment properties.  My ask if the bank can loan up to 75% of the appraised value, in case you are buying them under appraised value, which would potentially reduce your down payment.

Your bank might be able to try and do the loan as a commercial loan, but generally those will have higher rates and shorter term than the typical 30yr mortgage that are typical with traditional mortgages.