All Forum Posts by: Susan Swanson

Quote from @Stuart Udis:

Ground up construction is more capital intensive. It's why buying existing buildings in any condition, particularly in what's percieved to be low barrier of entry price points are competitive.  Those purchases are often less risky, even if you over pay by a small amount.   On the other hand entry level new construction has a great deal of risk. Particularly in the smaller in fill projects you would expect an investor to jump into. The likihood of huge financial loss is certainly higher when you get into new construction.

Unless the investor plans to  self perfrom the construction (which few are qualified to do), the hired  GC must have two qualities: (1) Financial Means & (2) Wherwithal. It's extremely difficult to find both qualities in a GC looking to build a small in-fill project. Most who possess both qualities  recognize its more profitable to simply build for themselves meaning you often have to skip to larger GC's to get  both qualities and they have to be incentivized financially to take on smaller projects. Their overhead, staffing etc. is suited for larger and more complexed projects so those overhead costs are passed along. 

If the numbers work, thats great but construction defects on new construction can also be far more complicated and costly to resolve than in existing rehabs and its very difficult to hold the builder accountable unless they have a long standing track record and reputation (usually the means and wherewithal types). The timing of new development projects can also cause huge swings in material costs and changes in market conditions so its not a process anyone should jump into.

I personally relied on 3rd party GC's to build singles up to 10 unit buildings and it was a nightmarish experience. I basically had to become the GC's bank and began paying subs directly and there were a ton of errors along the way. It simply was impossible to make the numbers pencil using larger GC firms. Thats' why I made the decision to self perform construction last year. All of my projcts are sub 20 well within my comfort zone but should I get involved in a larger project than that I would feel more comfortable with an outside GC but that's ok because the project is large enough to support the overhead and pricing of the more established firm.

If you are an investor who wants to try their hand at new constriucton, I can't emphasize enough the importance of staffing. Get to know the GC well, understand their sub contractor relationships and research them.  Select a good architect. The cheapest architects often prepare the most basic set of plans the municipality allows. This often leads to confusion on the job site. Spending a little more makes the project run smoother with less risk of change orders. Lastly, make sure you are working with a bank who has  great construction administration processes. **** happens, that's just the reality of new construction and having a bank who can help you navigate those issues is incredibly valuable. Along the same lines, healthy contingency and interest reserves are important. 

 Extremely important points that everyone considering GUC should really think about.  It makes more sense to purchase completed or nearly completed new construction that are already pre-negotiated out for investors (it's what I do for my investors) Reputable builders who are financially sound and have the wherewithall & experience.  They take all the risk up front but they know what they're doing.  They build.  They know the areas and do their due diligence. The investor buys. Investor doesn't have to go through all the headaches. Investor gets turnkey cash flowing property.  They carry on with their busy lives. They cash out refi in less than 10 years or sell in 10 years at the point where capital expenditures could start on a new construction property, do a 1031 Exchange.  Rinse and repeat. 

Quote from @Jeremy England:

Quote from @Susan Swanson:

Anyone use the advantage of putting new construction builds in an SDIRA? Grows your retirement savings tax free. Easy way to put down 20-25% on a new build, residential SFH, Duplex or Quad, turnkey PM'd, long term rental with Build 2 Rent model.

 How do you mean?  Like using someone's SDIRA to fund the build?  or the SDIRA actually owning the property?  I'm not sure how that works. 

 An individual investor uses their SDIRA and directs the funds into an investment.  I've used mine as a private money lender and all the interest goes directly into my SDIRA allowing it to grow tax free.  Other colleagues use the funds to purchase an investment property and all mortgage payments etc come from SDIRA and all rental payments go right back into the SDIRA.  The idea is to have this property grow tax free, putting cash flow into SDIRA and having a property grow in equity.  Let's say you sell the property in 10 year or 18 years (whatever timeframe) - it goes right back into your SDIRA.  This is a retirement plan.  Depending on how much is in an individual's SDIRA would determine if they could purchase out right or put 20-25% down and have enough left over to pay mortgage etc from SDIRA. May be able to pay mortgage/upkeep out of pocket. However, any proceeds from the property purchased from SDIRA have to go right back in the SDIRA in order for it not to be taxed. 

Anyone use the advantage of putting new construction builds in an SDIRA? Grows your retirement savings tax free. Easy way to put down 20-25% on a new build, residential SFH, Duplex or Quad, turnkey PM'd, long term rental with Build 2 Rent model.

I literally have a coffee cup that says "Coffee is for Closers" lol

Quote from @Andres Montbrun:

I’ve seen a few Cape Coral builds stall out when the builder overextended or lacked a solid local crew. Were investors paying in stages or front-loading payments? Tough to stay on top of every detail without someone local. I'm curious if anyone’s found a straightforward fix—maybe hiring a new GC under fresh terms—or is everyone just walking away at this point?

Hi Andres, 
Often times these out of state investors were deceived with pictures of builds further along than the investors so draws would be requested.  Investors found out later that their builds weren't as far along as they thought.  In one case, the builder in Cape Coral who had a great reputation btw, was raided and alledgedly being fraudulent and just went belly up leaving investors at a complete stand still.  
The GC option is valid and we've aligned with one who is helping.  I'm not sure how everyone is doing, only the few I've personally been in touch with.  I'm boots on the ground here in SWFL so my investors get accurate information and have someone here to keep the process going.  It helps that we only offer already completed or very near completed new builds.  Takes a lot of the time and risk out of the equation.  

Hi Jay,

There was definitely FOMO! I believe there were good underlying intentions, but when greed took over, it set the stage for investors being misled.  There were people getting pictures of close to finished properties that weren't theirs just to keep the charade going.  This intention was pure deceit.  Thankfully, I am boots on the ground here in SWFL for my investors.  I literally go take pictures & video of the properties with the address clearly showing.  Infrastructure has to be in place and this is what all these impact fees are for. It would be nice if all builders had your same knowledge and integrity.  Fortunately, there are many with this level of integrity and more due diligence is necessary and aligning with the right people and companies. 

Do you see Lehigh Acres being overbuilt?

Hi Neal, thanks for sharing.  This is very insightful.  I am happy to hear you were relatively unscathed. I am appreciative that we can provide information like this on Bigger Pockets to bring knowledge and awareness to investors.

I agree with you. New construction is the new wave that not all BRRRR investors are "coded" to consider. The speed bumps that investors should avoid in new construction are: paying cash for a lot, closing on that lot, finding a trustworthy builder, getting a hard $ loan at high % rates & closing again, then closing a 3rd time when property is finished. That's 3 closing costs! Plus, let's say it takes 8 to 15 months to complete a build. That's a wide-open window that can let a lot of bugs in. Wouldn't investors interested in new construction, less hassle & less capital expenditure builds wish to purchase a nearly completed or completed production build with 25% down with builder incentives, pre-negotiated for investors & turnkey with PM in place via Build 2 Rent? It's a regular close window of 30 days for lender CTC, doing an inspection and letting Title do their thing and it closes once, not 3 times. It's called investing smarter not harder & a lot quicker.

@Robert Ellis.  Hi Robert, I met you at BPCon a couple years ago in Orlando and we have communicated since.  Build 2 Rent (where I am a District Manager) doesn't do ground up construction for the very reasons we are speaking about.  We only provide completed or near completed properties that are pre-negotiated, investor-friendly with builder incentives and there is no transaction until CO, then independently inspected and then closes.  I do understand there are other companies who refer out and this has led to this horrible predicament. We are with our clients every step of the way and do not toss them off.  Build 2 Rent should not be grouped in with these companies as we operate in a completely different way to avoid these pitfalls.  I can sleep at night knowing that I'm not affiliated with the companies that are in any way shape or form involved. I feel bad for the investors who've gotten caught up in this.  For those who have reached out to us, we have been solution oriented. During this process, we've become affiliated with a great GC who heard about what transpired.  He's been successful in completing a few of these so these people can move forward. I know many may not even be in a position to move forward. I'd love to help as many as I can. Hopefully, many are being released easily from any contracts with these builders. 

Over the past year I've had several clients reach out re: new construction being abandoned by a couple builders in Cape Coral FL.  Over this past year I was trying to figure out an economical choice so they could complete.  I deal with completed new construction for investors to avoid all this which takes up a lot of my time but wanted to try and assist.  Three incomplete projects have been finished.  I see by many posts on Bigger Pockets that this situation is bigger than I originally thought.  Has anyone else been able to find a reliable, economical choice for this issue?  What is happening to all of these investors and their builds? Any resolutions?