[Xiaoxi]

I've been hashing out what to do for housing for quite some time, and after talking with a friend, came up with something that sounds ideal for both of us.

Background: In the DC metro suburbs (avg cost is like 450-600k). Houses are usually old, bland design, too much wasted space, not enough garage space, etc. I hate the idea of paying so much for so little benefit.

My friend (close, trusted) has a few properties, one of which is a rundown house but the general area is decent. It has a huge backyard that is easily bigger than the house itself. So I thought:

What if I bought partial ownership of the property from him and built on the empty space? Even better, he's offering that co-ownership for free on the condition that I pay for 100% of the building cost. He speculates this addition will increase the value of the property anyway. And down the line when I move or sell, I'd be entitled to my portion of the returns or rent income. And all the while, the house that's already there is/can be rented out to others (he doesn't live there).

I don't really have a good understanding of real estate yet and this is an area he's never had to deal with either. So a few questions:

1. how much would it cost to contract out a build? I'm thinking 2 stories + 2 car garage. I don't want a big house, 2br/bath, a main area, & kitchen/dining combo is enough. Would like to be a nice modern design though. Is 60-100k realistic?
2. how does financing for this work since I assume it doesn't fall under mortgage?
3. do zoning laws usually permit something like this?

Thanks in advance for any advice / insight. Let me know what you guys think!

[wren57]

Originally Posted by Xiaoxi

I've been hashing out what to do for housing for quite some time, and after talking with a friend, came up with something that sounds ideal for both of us.

Background: In the DC metro suburbs (avg cost is like 450-600k). Houses are usually old, bland design, too much wasted space, not enough garage space, etc. I hate the idea of paying so much for so little benefit.

My friend (close, trusted) has a few properties, one of which is a rundown house but the general area is decent. It has a huge backyard that is easily bigger than the house itself. So I thought:

What if I bought partial ownership of the property from him and built on the empty space? Even better, he's offering that co-ownership for free on the condition that I pay for 100% of the building cost. He speculates this addition will increase the value of the property anyway. And down the line when I move or sell, I'd be entitled to my portion of the returns or rent income. And all the while, the house that's already there is/can be rented out to others (he doesn't live there).

I don't really have a good understanding of real estate yet and this is an area he's never had to deal with either. So a few questions:

1. how much would it cost to contract out a build? I'm thinking 2 stories + 2 car garage. I don't want a big house, 2br/bath, a main area, & kitchen/dining combo is enough. Would like to be a nice modern design though. Is 60-100k realistic?
2. how does financing for this work since I assume it doesn't fall under mortgage?
3. do zoning laws usually permit something like this?

Thanks in advance for any advice / insight. Let me know what you guys think!

Lawyerbrah checking in. General impression - this is a bad idea. You're going into essentially an investment partnership with a situation where you live there and the other guy doesn't. It's going to be very difficult to draw up a proper contract to protect both parties' interests. As for your questions:

1. Think more like $150k. I know because I've looked into doing the same thing.
3. I'll answer this first because it effects 2. You should see if the lot is able to be split. You could have your buddy sell you the land space with a permanent easement over his portion of the property for the driveway. If you can split the lot then you should be good to build a resident on the lot.
2. You can get a mortgage on building a new property but it's more difficult. Banks will want to inspect the area and your plans to make sure if you default the resale will be at least what the loan is. Given your idea, there isn't much marketability for a large garage loft so I think you'd have trouble financing.

[eluded]

No.

[jgoens]

Getting into a partnership on a property that you intend to live on is a disaster in the making. If it's a pure business deal maybe a good idea. Lets face it, the price of the property is already near the top and it will go up in time..but how much time and how long do you want to be bedded with this guy?

[csu87]

Just to build you are looking at 200k +

For financing you just take out a construction loan.

Another thing to consider is the zoning of the property and applicable codes. Most times you cant build a second house on a property unless it's zoned for multi family residential.

[overcoil]

The WashPost had a story about a week back on friends that built homes on one of their friends property - all sharing the same lot. The guy who owned the property slipped in some contractual rights that screwed over one neighbor.
I tired searching for the article couldn't find it. Homes were in N. Virginia.

[W Cole]

Originally Posted by Xiaoxi

I've been hashing out what to do for housing for quite some time, and after talking with a friend, came up with something that sounds ideal for both of us.

Background: In the DC metro suburbs (avg cost is like 450-600k). Houses are usually old, bland design, too much wasted space, not enough garage space, etc. I hate the idea of paying so much for so little benefit.

My friend (close, trusted) has a few properties, one of which is a rundown house but the general area is decent. It has a huge backyard that is easily bigger than the house itself. So I thought:

What if I bought partial ownership of the property from him and built on the empty space? Even better, he's offering that co-ownership for free on the condition that I pay for 100% of the building cost. He speculates this addition will increase the value of the property anyway. And down the line when I move or sell, I'd be entitled to my portion of the returns or rent income. And all the while, the house that's already there is/can be rented out to others (he doesn't live there).

I don't really have a good understanding of real estate yet and this is an area he's never had to deal with either. So a few questions:

1. how much would it cost to contract out a build? I'm thinking 2 stories + 2 car garage. I don't want a big house, 2br/bath, a main area, & kitchen/dining combo is enough. Would like to be a nice modern design though. Is 60-100k realistic?
2. how does financing for this work since I assume it doesn't fall under mortgage?
3. do zoning laws usually permit something like this?

Thanks in advance for any advice / insight. Let me know what you guys think!

I didn't read any of the replies but if he has a lot of excess land he wants to sell he should get it separately parcelized and sell it to you or someone else. Not sure how the current house is setup if this is possible.

[jpnh]

No

Not just no.....HELL NO

[Xiaoxi]

Originally Posted by wren57

Lawyerbrah checking in. General impression - this is a bad idea. You're going into essentially an investment partnership with a situation where you live there and the other guy doesn't. It's going to be very difficult to draw up a proper contract to protect both parties' interests. As for your questions:

1. Think more like $150k. I know because I've looked into doing the same thing.
3. I'll answer this first because it effects 2. You should see if the lot is able to be split. You could have your buddy sell you the land space with a permanent easement over his portion of the property for the driveway. If you can split the lot then you should be good to build a resident on the lot.
2. You can get a mortgage on building a new property but it's more difficult. Banks will want to inspect the area and your plans to make sure if you default the resale will be at least what the loan is. Given your idea, there isn't much marketability for a large garage loft so I think you'd have trouble financing.

Thanks for the insight. Looked into it yesterday and it's exactly as you described... the lot would have to split off into a separate property / address in order to permit building a house. That's gonna require petitioning with city council...not good

So now I'm thinking more of looking for a foreclosure and building on that instead. If you don't mind me asking, can you give a high level breakdown of the costs that tallied up to 150k when you were looking into it?

Originally Posted by W Cole

I didn't read any of the replies but if he has a lot of excess land he wants to sell he should get it separately parcelized and sell it to you or someone else. Not sure how the current house is setup if this is possible.

How difficult is this to get done? Would it be more likely to be rejected or accepted by city hall?

[08njSTEP]

Good luck buying a foreclosure. My buddy hasn't been able to buy any he's looked at in over 18 months. It's just not like normal house purchase. He had big cash to throw down too.

[Xiaoxi]

Originally Posted by 08njSTEP

Good luck buying a foreclosure. My buddy hasn't been able to buy any he's looked at in over 18 months. It's just not like normal house purchase. He had big cash to throw down too.

In what sense is it difficult?

[08njSTEP]

Unless you have full cash asking price you are in line behind those that do. The real estate agents hook up with investor friends to grab marketable properties and block regular buyers. There are a lot of other reasons also, but those are the 2 biggies. Like all things...those with connections have easier access....those with investment money have more leverage to make profit.

[Xiaoxi]

Originally Posted by 08njSTEP

Unless you have full cash asking price you are in line behind those that do. The real estate agents hook up with investor friends to grab marketable properties and block regular buyers. There are a lot of other reasons also, but those are the 2 biggies. Like all things...those with connections have easier access....those with investment money have more leverage to make profit.

Damn...thanks for the headsup. Definitely something to keep in mind.

With that said, the same friend in the OP was able to get 2 foreclosures around this area, so who knows

[csu87]

Originally Posted by Xiaoxi

. If you don't mind me asking, can you give a high level breakdown of the costs that tallied up to 150k when you were looking into it?

I priced out building my own house about 1.5 years ago and was looking at 300k ish for 4k sqft ranch including a finished basement.

Also, this would have been me managing the work, and using my company's equipment for the earthwork and doing that portion myself.

General rule of thumb from my residential contractor buddies is 100k per 1k sqft for average finishes, 150k for high end finishes, for a contractor to come in and do it all.

Also, unless you profession is construction and you can give the bank enough of a comfort level of you managing/ doing the work, it will be hard for them to approve a loan without a gc.

Obviously, this is location dependent and material costs dependent. I believe your labor costs are 15-20% higher out there on the east coast than here in CO. Not sure on materials.

[nyalpine90]

first you need an architect, usually architects have engineers and contractors they work with. you will need to file permits and design has to get approved before any construction starts. so you need to cover permit fees, architects fees and engineers fees.

be prepare to replace old pipes, old elec. wiring etc. and make new home up to code.

also depends on type of building materials you want, granite, marble, etc

400k-500k

[Naz24]

Originally Posted by Xiaoxi

I've been hashing out what to do for housing for quite some time, and after talking with a friend, came up with something that sounds ideal for both of us.

Background: In the DC metro suburbs (avg cost is like 450-600k). Houses are usually old, bland design, too much wasted space, not enough garage space, etc. I hate the idea of paying so much for so little benefit.

My friend (close, trusted) has a few properties, one of which is a rundown house but the general area is decent. It has a huge backyard that is easily bigger than the house itself. So I thought:

What if I bought partial ownership of the property from him and built on the empty space? Even better, he's offering that co-ownership for free on the condition that I pay for 100% of the building cost. He speculates this addition will increase the value of the property anyway. And down the line when I move or sell, I'd be entitled to my portion of the returns or rent income. And all the while, the house that's already there is/can be rented out to others (he doesn't live there).

I don't really have a good understanding of real estate yet and this is an area he's never had to deal with either. So a few questions:

1. how much would it cost to contract out a build? I'm thinking 2 stories + 2 car garage. I don't want a big house, 2br/bath, a main area, & kitchen/dining combo is enough. Would like to be a nice modern design though. Is 60-100k realistic?
2. how does financing for this work since I assume it doesn't fall under mortgage?
3. do zoning laws usually permit something like this?

Thanks in advance for any advice / insight. Let me know what you guys think!

Background, I do acquisitions for a private equity real estate investment firm. So if you want to have a conversation on the phone, i'd be happy to explain further

ANSWERS:

1. Budget about $200/SF to build a home, soup to nuts

2. Financing is a construction loan. Essentially you end on a draw schedule and pull money as costs are incurred. Think of it as a line of credit almost. At end of construction when you get the CO, you will convert the debt to traditional by selling yourself the home. However, without having a separate lot, and since the first home is most likely encumbered by a mortgage, this is impossible. Brings me to your next question

3. NO. Generally you cannot just arbitrarily build another house on a lot just because its "big". You would probably need to subdivide the land and re entitle it for residential. The problem is that without a variance (even if you do not sub divide), building another structure may be difficult because of set backs, etc. Also, getting a variance can be very difficult, especially in wealthy areas, you get a ton of people in the neighborhood contesting it.


Seriously, PM me, i'll hop on a call with you and explain. But it would be helpful to show an aerial of the lot or upload a site plan

[csu87]

OP, found a pretty general cost breakdown of building a house. Its from 2013, so expect prices to be more, and it is for an average quality house, so keep that in mind. If anything, it gives you a decent breakdown of what all is needed and you can price from there.

http://porch.com/advice/new-home-con...costs-numbers/

[nyalpine90]

Site Work fees seem very low.

Im in the engineering business those numbers look very low.

Architect and Engineering fees are seperate

[Mr Tonka]

Originally Posted by Xiaoxi

Damn...thanks for the headsup. Definitely something to keep in mind.

With that said, the same friend in the OP was able to get 2 foreclosures around this area, so who knows

Originally Posted by Naz24

Background, I do acquisitions for a private equity real estate investment firm. So if you want to have a conversation on the phone, i'd be happy to explain further

ANSWERS:

1. Budget about $200/SF to build a home, soup to nuts

2. Financing is a construction loan. Essentially you end on a draw schedule and pull money as costs are incurred. Think of it as a line of credit almost. At end of construction when you get the CO, you will convert the debt to traditional by selling yourself the home. However, without having a separate lot, and since the first home is most likely encumbered by a mortgage, this is impossible. Brings me to your next question

3. NO. Generally you cannot just arbitrarily build another house on a lot just because its "big". You would probably need to subdivide the land and re entitle it for residential. The problem is that without a variance (even if you do not sub divide), building another structure may be difficult because of set backs, etc. Also, getting a variance can be very difficult, especially in wealthy areas, you get a ton of people in the neighborhood contesting it.


Seriously, PM me, i'll hop on a call with you and explain. But it would be helpful to show an aerial of the lot or upload a site plan

This guy knows what's up. Several years ago any swinging dick could go into the court house and buy foreclosures (providing they had cash in hand) for for 1/3rd of the market value. But once hedge funds and private equity groups started snatching up the foreclosures it was next to impossible to get anything worth flipping. Pretty much, their business model included any normal persons ideal foreclosure and they were willing to pay much more than most local investors were. With Billions in their pockets, it's become very difficult to get a foreclosure that is desirable to live in or flip. Though nothing lasts forever and all markets are different. If your buddy is able to buy foreclosures, maybe for a realtor fee, he could hook you up with a foreclosure that is desirable to you?

In your partnership, the only way i'd participate in that is if you could just buy the excess property with an easement as others have stated. Everyone is loyal and trustworthy until they have money on the stake.

I bought two properties to build my house on. Reconfigured the land lines to better suit my needs planning to build a 2nd house to sell. Then because of wetland restrictions had to merge the two properties back into one. The process was vague and slightly time consuming, but after a few visits to the county building department, it was fairly easy. Just be mindful as to what building another single family home would do to the value of the home. You may spend $300k to build it and have it only be worth $200 after the fact due to being built in someone else's back yard.

[Mr Tonka]

Originally Posted by nyalpine90

Site Work fees seem very low.

Im in the engineering business those numbers look very low.

Architect and Engineering fees are seperate

It's all pretty low. Figure it's a track home for reference.

$12k for flooring in a whole house is garbage flooring. May as well line the floors with newspaper and call it a day.

[csu87]

Originally Posted by nyalpine90

Site Work fees seem very low.

Im in the engineering business those numbers look very low.

Architect and Engineering fees are seperate

Originally Posted by Mr Tonka

It's all pretty low. Figure it's a track home for reference.

$12k for flooring in a whole house is garbage flooring. May as well line the floors with newspaper and call it a day.

These are at cost pricing. The water/sewer fee is low. Usually that tap is 30K + depending on the city.

The permit fees are right in line with what I pay for a small $300-400k project from every municipality around here. I usually budget 5% of total cost in permits. And the Architect/Engineering fees would depend on if you went full custom or use a base plan and build from there.

But like i said, this is 3 years old and pricing isnt adjusted for nice finishes, location, etc. this is the mid level house with carpet/laminate throughout and probably laminate countertops and cheap appliances/fixtures. Hell you can spend 20-30k on just appliances if you want to, and they only have 4k budgeted.

[Maestro]

In this financial market, no bank will cut you a loan for a house you intend to build on someone else's property. No bank is going to risk cutting you a loan of any sort without having full rights to the property. I am not sure what kind of lease of deal you would legally set up that a Bank would except to allow them to cut you a loan.

Plus building a house is not going to be less expensive than buying one unless you do most of the work yourself. When you hire someone to do the work usually their fee are inline with the market you are in. If find someone lower cost it is usually for a reason. I do lots of my own work and hire people from time to time and found most people who do not charge the going rate do poor work.