Another recent thread had discussed some alternatives to conventional practice, and some interesting comments were made. The thread was looking for non-profit ideas. My interests are a little different , although I share some of the sentiments regarding conventional practice.
Anyway, I bought a large, cheap, and run-down duplex a while back and have been rehabbing it. Funny, after designing and managing many projects within conventional practice, this has proven to be -- for me -- far more enjoyable for many reasons.
The duplex rehab is fairly extensive -- interior/exterior upgrades, windows, roof, moved a few walls around, relocated kitchens and other functions, new finishes, cabinets, landscaping, etc. -- the whole drill. I've done some labor myself, but have mostly hired the labor needed. A little of everything is involved, including design and planning, some interior design, a little light engineering, some project management, some real estate items and concerns, some financing tasks, a little marketing, etc.
I'll be keeping the duplex long-term, and plan to rent out both units. (Also, I'm already currently a landlord.) Anyway, this project has been just what I needed... it's been great to walk through the progress of a project that I own, and the lack of both bosses and clients is like fresh air.
I like to think of this as something like Jonathan Segal, only on a tiny scale. Lately, I'm also beginning to kick around the idea of building a new duplex.
Anyone else here doing anything similar with new construction or rehab, plus owning and leasing?
No I'm not, but congrats!! This is the kind of thing more architects should be doing if possible. More variety of tasks, more control, less interference from asshole clients, and more financial upside. Keep up the good work.
so you need capital up-front, to buy the duplex and pay for the upgrades, right? in this case, since you're moving kitchens and such, it sounds like the cost of the upgrades is fairly high?
if you financed the cost of the duplex, you're paying a monthly fee plus interest on the note. it sounds like your upgrades are time-consuming as well. for people who do their own work, it becomes especially time consuming due to the fact that someone without a lot of experience is going to take considerably longer than a team of half a dozen people who do the given task every day. you don't make any money on the project until someone signs a lease and starts paying you, so how do you keep paying the loan and interest while performing the work?
at some point you will get a couple tenants and they will pay you every month. have you looked at the local market to see what people pay in that area? you're going to have continuing costs, such as paying off any financing, taxes, insurance, upkeep/maintenance, etc. when you consider the money in (rent) minus money out (the stuff above), how long will it be before you break even and start getting ahead?
most of here know how to design, and a lot of us have a pretty good idea how to frame a wall and such. i am sincerely curious to know how you got the financing end to work?
Cash is king. Used to be banks would happily underwrite theses kinds of projects based on rising RE values and a simple proforma, now you have to have lots of skin in the game. Leveraging your personal assets is a risky move on a spec project. Which means you need either a pile of cash or an investor and probably both.
for a lot of people curt's concerns will be very real. i think it CAN work, but you've got to be lucky.
we renovated our first house, did a lot of the work ourselves, and sold at the top of the market, clearing a good profit and feeling good about the work we did.
without being really strategic, though, that's no vocation. if we sold our second house, despite more investment and better design and improvements, the math wouldn't work.
and that's our primary residences. having the capital to put in to investment-only property is a luxury and i don't know how i'd convince anyone to invest with me in such a dodgy endeavor.
sounds like you've been smart, saint. i'd love to think your kind of effort could grow into a career path, scaling up. it's a rental market right now, which works for you. good luck!
have you quit your day job, or does this have to be an after-hours/supplementary endeavor?
yes i think we are all very curious as to the numbers and financing.
that is a lot of remodeling. our cost for this type of projects for customers is about $150.00 $200.00 a square foot.
so if the duplex is 1000 sq. ft. the renovation cost is 15K to 20K on top of the mortgage that you are servicing
it will be a while before you see a return but i think that it is worth it if you keep the duplexes long term. after a while the renters will pay the mortgage off and then you have retirement income.
the tough part is having start up money
Dec 26, 13 11:58 am ·
·
"Cash is king."
Music to my ears. But from the student loan debt to the designer shoes to the latest MacbookPro, most architects defeat themselves before even starting.
Really, the kind of small scale project that Saint in the City describes should be the bread & butter of architects right now, it'a a shame that so few can participate in such endeavours.
It's hard to give advice without knowing your specific market. All real estate is largely market driven. For example, there is an investor in my area whose background is in IT. She has a little cash, not a lot (relatively) She buys houses for $15-40k and rents them out from $600-$1000 a month. In a couple of years she will be paid back and own these homes free and clear. These areas are not war zones, but not highly sought after suburbs either. While the houses may appreciate a little, she is mostly in it for the cash flow. Good plan for her. I would hate it.
Just like any other business, spend some time defining what your market is going to be. Typical rule of thumb is called 50% rule for cash flow investing. If your total rents are $1000/month, 50% will go towards expenses (property taxes, maintenance, insurance, vacancies, etc) That leaves you with 50% or $500 left. From that you can pay yourself for your investment ($100/door) and the rest can go towards the mortgage.
Building new is do-able, that's why we are in an apartment building boom right now, but again, you need to have the right location. New construction is going to need the highest rents available to make sense. You will only be able to command those rents in specific areas of town. Plus with many competitors, the market will eventually turn. When is that going to happen... your guess is as good as mine.
I'm living in a duplex now and renting half to a tenant. It helps pay the mortgage. This is house number three. Don't underestimate the amount of time and money it takes to do a project. It's very high. My first one was a gut renovation we lived in while doing it. Made money but it took 3 hard years of work and I could have made more by working at McDonalds and banking the extra cash. I would recommend buying decent place, that can be rented out without any work, that cash flows right away. Only reason to do it as a design project is if it can cash flow. Or if you are going to live in it.
So just one archinecter posting actually owns investment property.... Gruen, would love to compare notes. Also on my third. Going well.
I appreciate the other posts as well. For the most part, however, they contain too many wrong assumptions... can't really respond.
For those actually interested in any sort of real estate investment, you'll need to do your homework. And, you'll need to study legit information. I get a lot of free real investment advice from individuals who have never owned investment property, but have owned a personal residence or two, and are quite anxious to share their "expertise" about what can and can't work.
I really am not getting rich off this but it does make life more comfortable.
I do most if the work myself.
Today: demo for an attic project I expect to take 2 years and just result in a nicer space for me. Payback=rest of my life. But I do expect to break $$ even.
I've owned three rental units and am down to two. Looking to dump those two this spring as I'm relocating to another part of the country. 50% rule has been spot on in my experience.
I'm thinking of getting another rental unit, prob a 3 or 4 plex, in 2 or 3 years. Not sure how to finance it though cuz I'll prob be short on cash. Any bright ideas for getting financing w little down?
Gruen -- financing... tri's and quad's can be an excellent move. Would this purchase be in addition to what you now own? Or replacing several properties with one large one? Or...?
Reason I ask -- if you own one or two and want to add a 3 or 4 plex in addition to those, that's a major leap upward from a banks point of view since you'd be doubling or tripling your portfolio in one move.
I'm in a group doing this right now - it comes from the German idea of baugruppen. Brute Force Collaborative explains it all better than I can (from their website):
" the idea of forming baugruppen (building groups) has been on my mind for quite some time. As BFC hails (kinda) from Berlin & Freiburg – we’re both familiar w/ the concept. Baugruppen are basically collectives formed w/ the intent of building housing – but eliminating the developer in order to keep costs down significantly. A project manager is often utilized. Essentially, this makes a lot of sense if it can be pulled off, though there can be financing hurdles. In Berlin, Baugruppen can save up to 25-30% of costs – for a variety of reasons (no developer risk/profit, little or no marketing). The stunning MFH Passivhaus featured in PHbdW 02 was built by a baugruppe.
One thing I really like about baugruppen is the instantaneous/intentional community. There is buy-in & consensus before a building takes shape. In a society that is increasingly insular and introverted – there’s a lot to be said for the connections and networks that baugruppen can foster. And in my mind, baugruppen aren’t co-housing developments (although I guess they could be). They vary from the small scale (duplex) to a massive undertaking with varied typologies like zanderroth architekten’s Zelterstrasse 5 in Prenzlauerberg.
Yet another aspect I really like about the baugruppen concept is that the owners can be brought into the design process – they can bring their ideas and needs to the table, which is not usually the case with developer-initiated projects. I really like the idea of setting up a framework that the owners/inhabitants can modify aspects/fenestration to suit their needs. Sort of a functional structuralism, perhaps.
All construction expenses will be open and transparent. Our overall costs will be substantially lower than in a regular private development, especially considering that there is no developer to be paid and no premium for a guaranteed price. We’re also investigating tax savings as a result of this unconventional model of owner/user.”
No such thing as "no developer". In your example, the owners become the developers. They take on the risk and the work that a developer would have to do in exchange for their equity in the project. Depending on how the project manger is hired and paid, he could be seen as a fee based developer. This is simply DIY development where the home owner is potentially "saving" 20% or whatever by taking on the tasks that a developer would typically do. I put "saving" in quotes, because they are not really saving that money, they are earning it through their own labor. Seems to work fine when you have like minded people with the means and capacity to take on this type of project. People build their own homes all the time. Why not multifamily? Don't think it will change the market.
You're right, wurdan - the owners take on the developers risk, absolutely - but for us (a group of 3 architects and acquaintances), this scheme makes sense. It's what we do in our daily jobs. I agree with you about questioning the "savings," too. We will be working damn hard to save whatever % we aren't having to pay a developer, but again, we already have the expertise for that, so beyond creating a longer work day for ourselves, we look at it as one would trading sweat equity for financial. None of us are wealthy in the slightest, and in fact this is one of the draws - we purchase a land plot together, splitting the costs, and we're already "ahead of the game" in that sense. It's not for everybody and personally, I'm anticipating a bumpy road. That doesn't mean it may not prove to be worthwhile for myself and others.
I'm not trying to change the market, I'm just trying to afford a place to live. That it'll be custom-built is a huge bonus (as a designer).
Gruen -- sounds like a good plan. By the way ...your attic reno that you mentioned... will that be a third rental unit in addition to the two (duplex units)? That's essentially what I'd like to do on mine as well. Turn a duplex into a tri. THAT....is bang for the buck. However, the renters below may take issue with the construction noise...
Dustin -- sounds interesting. Updates would be really appreciated. Any long terms plans to design/develop/own beyond your residence complex?
And, Brute Force Collaborative is absolutely the best firm name I've ever heard..
Design Develop Own
Another recent thread had discussed some alternatives to conventional practice, and some interesting comments were made. The thread was looking for non-profit ideas. My interests are a little different , although I share some of the sentiments regarding conventional practice.
Anyway, I bought a large, cheap, and run-down duplex a while back and have been rehabbing it. Funny, after designing and managing many projects within conventional practice, this has proven to be -- for me -- far more enjoyable for many reasons.
The duplex rehab is fairly extensive -- interior/exterior upgrades, windows, roof, moved a few walls around, relocated kitchens and other functions, new finishes, cabinets, landscaping, etc. -- the whole drill. I've done some labor myself, but have mostly hired the labor needed. A little of everything is involved, including design and planning, some interior design, a little light engineering, some project management, some real estate items and concerns, some financing tasks, a little marketing, etc.
I'll be keeping the duplex long-term, and plan to rent out both units. (Also, I'm already currently a landlord.) Anyway, this project has been just what I needed... it's been great to walk through the progress of a project that I own, and the lack of both bosses and clients is like fresh air.
I like to think of this as something like Jonathan Segal, only on a tiny scale. Lately, I'm also beginning to kick around the idea of building a new duplex.
Anyone else here doing anything similar with new construction or rehab, plus owning and leasing?
Would love to... how to finance?
No I'm not, but congrats!! This is the kind of thing more architects should be doing if possible. More variety of tasks, more control, less interference from asshole clients, and more financial upside. Keep up the good work.
so you need capital up-front, to buy the duplex and pay for the upgrades, right? in this case, since you're moving kitchens and such, it sounds like the cost of the upgrades is fairly high?
if you financed the cost of the duplex, you're paying a monthly fee plus interest on the note. it sounds like your upgrades are time-consuming as well. for people who do their own work, it becomes especially time consuming due to the fact that someone without a lot of experience is going to take considerably longer than a team of half a dozen people who do the given task every day. you don't make any money on the project until someone signs a lease and starts paying you, so how do you keep paying the loan and interest while performing the work?
at some point you will get a couple tenants and they will pay you every month. have you looked at the local market to see what people pay in that area? you're going to have continuing costs, such as paying off any financing, taxes, insurance, upkeep/maintenance, etc. when you consider the money in (rent) minus money out (the stuff above), how long will it be before you break even and start getting ahead?
most of here know how to design, and a lot of us have a pretty good idea how to frame a wall and such. i am sincerely curious to know how you got the financing end to work?
Cash is king. Used to be banks would happily underwrite theses kinds of projects based on rising RE values and a simple proforma, now you have to have lots of skin in the game. Leveraging your personal assets is a risky move on a spec project. Which means you need either a pile of cash or an investor and probably both.
we renovated our first house, did a lot of the work ourselves, and sold at the top of the market, clearing a good profit and feeling good about the work we did.
without being really strategic, though, that's no vocation. if we sold our second house, despite more investment and better design and improvements, the math wouldn't work.
and that's our primary residences. having the capital to put in to investment-only property is a luxury and i don't know how i'd convince anyone to invest with me in such a dodgy endeavor.
sounds like you've been smart, saint. i'd love to think your kind of effort could grow into a career path, scaling up. it's a rental market right now, which works for you. good luck!
have you quit your day job, or does this have to be an after-hours/supplementary endeavor?
yes i think we are all very curious as to the numbers and financing.
that is a lot of remodeling. our cost for this type of projects for customers is about $150.00 $200.00 a square foot.
so if the duplex is 1000 sq. ft. the renovation cost is 15K to 20K on top of the mortgage that you are servicing
it will be a while before you see a return but i think that it is worth it if you keep the duplexes long term. after a while the renters will pay the mortgage off and then you have retirement income.
the tough part is having start up money
"Cash is king."
Music to my ears. But from the student loan debt to the designer shoes to the latest MacbookPro, most architects defeat themselves before even starting.
Really, the kind of small scale project that Saint in the City describes should be the bread & butter of architects right now, it'a a shame that so few can participate in such endeavours.
It's hard to give advice without knowing your specific market. All real estate is largely market driven. For example, there is an investor in my area whose background is in IT. She has a little cash, not a lot (relatively) She buys houses for $15-40k and rents them out from $600-$1000 a month. In a couple of years she will be paid back and own these homes free and clear. These areas are not war zones, but not highly sought after suburbs either. While the houses may appreciate a little, she is mostly in it for the cash flow. Good plan for her. I would hate it.
Just like any other business, spend some time defining what your market is going to be. Typical rule of thumb is called 50% rule for cash flow investing. If your total rents are $1000/month, 50% will go towards expenses (property taxes, maintenance, insurance, vacancies, etc) That leaves you with 50% or $500 left. From that you can pay yourself for your investment ($100/door) and the rest can go towards the mortgage.
Building new is do-able, that's why we are in an apartment building boom right now, but again, you need to have the right location. New construction is going to need the highest rents available to make sense. You will only be able to command those rents in specific areas of town. Plus with many competitors, the market will eventually turn. When is that going to happen... your guess is as good as mine.
that is a lot of remodeling. our cost for this type of projects for customers is about $150.00 $200.00 a square foot.
so if the duplex is 1000 sq. ft. the renovation cost is 15K to 20K on top of the mortgage that you are servicing
$200 x 1,000 sq.ft. = $200,000. Correct math is critical, as is anticipating every conceivable cost including interest, permits, payoffs, etc.
Ever scribe out a long response and somehow lose it before you get it posted?...
Anyway, ya'll just go ahead and assume it was brilliant.
no wonder i am broke
thanks miles
^ Don't blame it on me.
So just one archinecter posting actually owns investment property.... Gruen, would love to compare notes. Also on my third. Going well.
I appreciate the other posts as well. For the most part, however, they contain too many wrong assumptions... can't really respond.
For those actually interested in any sort of real estate investment, you'll need to do your homework. And, you'll need to study legit information. I get a lot of free real investment advice from individuals who have never owned investment property, but have owned a personal residence or two, and are quite anxious to share their "expertise" about what can and can't work.
And, you'll need to save some money.
I really am not getting rich off this but it does make life more comfortable.
I do most if the work myself.
Today: demo for an attic project I expect to take 2 years and just result in a nicer space for me. Payback=rest of my life. But I do expect to break $$ even.
I've owned three rental units and am down to two. Looking to dump those two this spring as I'm relocating to another part of the country. 50% rule has been spot on in my experience.
Gruen -- financing... tri's and quad's can be an excellent move. Would this purchase be in addition to what you now own? Or replacing several properties with one large one? Or...?
Reason I ask -- if you own one or two and want to add a 3 or 4 plex in addition to those, that's a major leap upward from a banks point of view since you'd be doubling or tripling your portfolio in one move.
I'm in a group doing this right now - it comes from the German idea of baugruppen. Brute Force Collaborative explains it all better than I can (from their website):
" the idea of forming baugruppen (building groups) has been on my mind for quite some time. As BFC hails (kinda) from Berlin & Freiburg – we’re both familiar w/ the concept. Baugruppen are basically collectives formed w/ the intent of building housing – but eliminating the developer in order to keep costs down significantly. A project manager is often utilized. Essentially, this makes a lot of sense if it can be pulled off, though there can be financing hurdles. In Berlin, Baugruppen can save up to 25-30% of costs – for a variety of reasons (no developer risk/profit, little or no marketing). The stunning MFH Passivhaus featured in PHbdW 02 was built by a baugruppe.
One thing I really like about baugruppen is the instantaneous/intentional community. There is buy-in & consensus before a building takes shape. In a society that is increasingly insular and introverted – there’s a lot to be said for the connections and networks that baugruppen can foster. And in my mind, baugruppen aren’t co-housing developments (although I guess they could be). They vary from the small scale (duplex) to a massive undertaking with varied typologies like zanderroth architekten’s Zelterstrasse 5 in Prenzlauerberg.
Yet another aspect I really like about the baugruppen concept is that the owners can be brought into the design process – they can bring their ideas and needs to the table, which is not usually the case with developer-initiated projects. I really like the idea of setting up a framework that the owners/inhabitants can modify aspects/fenestration to suit their needs. Sort of a functional structuralism, perhaps.
All construction expenses will be open and transparent. Our overall costs will be substantially lower than in a regular private development, especially considering that there is no developer to be paid and no premium for a guaranteed price. We’re also investigating tax savings as a result of this unconventional model of owner/user.”
No such thing as "no developer". In your example, the owners become the developers. They take on the risk and the work that a developer would have to do in exchange for their equity in the project. Depending on how the project manger is hired and paid, he could be seen as a fee based developer. This is simply DIY development where the home owner is potentially "saving" 20% or whatever by taking on the tasks that a developer would typically do. I put "saving" in quotes, because they are not really saving that money, they are earning it through their own labor. Seems to work fine when you have like minded people with the means and capacity to take on this type of project. People build their own homes all the time. Why not multifamily? Don't think it will change the market.
You're right, wurdan - the owners take on the developers risk, absolutely - but for us (a group of 3 architects and acquaintances), this scheme makes sense. It's what we do in our daily jobs. I agree with you about questioning the "savings," too. We will be working damn hard to save whatever % we aren't having to pay a developer, but again, we already have the expertise for that, so beyond creating a longer work day for ourselves, we look at it as one would trading sweat equity for financial. None of us are wealthy in the slightest, and in fact this is one of the draws - we purchase a land plot together, splitting the costs, and we're already "ahead of the game" in that sense. It's not for everybody and personally, I'm anticipating a bumpy road. That doesn't mean it may not prove to be worthwhile for myself and others.
I'm not trying to change the market, I'm just trying to afford a place to live. That it'll be custom-built is a huge bonus (as a designer).
Sounds great. Go for it and good luck!
Will your units be condominiums?
Update us as your project progresses.
Gruen -- sounds like a good plan. By the way ...your attic reno that you mentioned... will that be a third rental unit in addition to the two (duplex units)? That's essentially what I'd like to do on mine as well. Turn a duplex into a tri. THAT....is bang for the buck. However, the renters below may take issue with the construction noise...
Dustin -- sounds interesting. Updates would be really appreciated. Any long terms plans to design/develop/own beyond your residence complex?
And, Brute Force Collaborative is absolutely the best firm name I've ever heard..
.
We're just starting development drawings currently, but I'll be sure to update when possible now that I see some interest.
wurdan - our units will be condos. We are incorporating so we can make decisions on a voting basis.
Saint, my attic project is for my use, but also as a back pocket unit that I can rent (on air bnb or permanently in case of emergency).
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