All Forum Posts by: Tommy C.

@Hai Loc thanks for the input and sorry to hurt your brain... this spreadsheet is a simple 4 square analysis tool that is widely used on BP. It is set up to be an initial analysis of an investment property. I included the mortgage payment as an expense because at the end of the day that’s exactly what it is. Also, I couldn’t include the purchase price due to the size of the spreadsheet but it was $800k.

Cap rate = net income $33k / purchase price $800k

@Elise Marquette as a lender, what's your take on this? The construction of a 4 Plex would be through a licensed contractor and hopefully financed with an FHA loan. The self build of the additional unit or two would take place after the first 4 units are finished receiving the rental income.

@Stephanie Medellin ahh gotcha. Thanks for the tip!!

@Stephanie Medellin So lets say that you are able to get a one time close construction loan (construction to permanent) for a 4 unit multifamily home. You build the home and start paying your monthly mortgage payments. What would happen if you decided to add another 2 units onto the home by yourself? (Assuming zoning checks out) The additional unit would only be creating more cash for the mortgage payment so I just don't see how this could negatively affect a lender. 

@Tyler Bodi - the parcel that I'm looking at is zoned for planned development so if the city were to approve of more than 4 units I would be set on the zoning side. In regards to financing, I'm just unsure if FHA has restrictions against Accessory Dwelling Units (ADU) attached to an FHA financed 4plex.

@Hai Loc thank you for the response. I included the mortgage payment in a rough estimate that I did for a rental scenario. However I agree with the resale question and I would definitely build the units to meet condo requirements. Here is a look at what I expenses I added... I accounted for 10% vacancy. Property management is 8% of the rental value. Assumed I can build at $110/sqft... The rental value is very conservatively assumed to be $12k but could realistically pull in $13k...

Hi all,

Does anyone know if you are allowed to finance the construction of a 4 Plex using an FHA loan and then use your own funds to build out the basement into an additional unit or two??

This would mean that the FHA only funds the construction of 4 units and I personally build (licensed contractor) or hire out the construction of additional units.

Thanks,

Tommy

@Hai Loc, Yes I would spend $800k all in. I'm not sure what the value of the property would be but I do know that it would produce a yearly cash flow of $35k... Some details about the rental units: 

There would be 4 row style units that are 2bed/2bath, they would rent for $2k/month. Below each one of those units (garden level) I would have a 1bed/1bath unit that would rent for $1k/month.By doing this, I'm getting $12k of rent per month, and my expenses come out to $8900... Monthly cash flow of $3k

Hey @Drew Sygit  thanks for sticking up for the BP rookie! Those are interesting points that you bring up. I hadn’t even thought about security of the construction site during the build.

As far as the original post, I re-read it and realized I left out some valuable information... I've been able to answer some of my own questions by working out the numbers but I do have one concern that would prevent cash flow on this property and that is building rates. Does anyone know what the average building rate is per square foot in Detroit?? I'd like to achieve a cap rate of greater than 5% but its just not possible at $150/sqft. However, at $100/sqft it is possible. 

Another item of concern is property taxes. I crunched the numbers and I’ve come to the realization that the Detroit millage rates are absurdly high. It’s hard to produce any cash flow when you build a $500k building with land acquisition costs of $300k. The reasoning is because my taxable value of the property would be around $400k and I would have to pay $40k per year in property taxes alone. With the high property taxes, my cash flow is definitely contingent on building costs. Any insight by contractors would be greatly appreciated! 

-Tommy

Hey Bigger Pockets,

I’m interested in building a new home and I’m not sure whether or not I’d like to look for a general contractor or construction manager.

At the end of the day, I’d like some say as to whether or not the construction project is being conducted properly so I’m leaning towards a construction manager.

However, I'm not sure if I can get FHA financing while using a CM?? What are some pros and cons of hiring a CM as opposed to a GC?

Thanks,

Tommy