'building' Pre-Fab (manufactured) Fourplexes For Rental
I am considering building some 4 plexes; i understand there are some manufactured home comanies that will truck in pre-assembled units and 'install' them for significantly less than building a stick frame building on site.
My understanding is that I should be able to immediately build in a 20% equity position which would allow for easy bank financing of the full purchase price of the completed rental units, since the LTV would only be 80%.
Has anyone done anythign like this before? Any suggestions?
The higher quality "modular" type houses are not much cheaper than stick build, big selling point is quick construction time. Many of these manufactors are in NC... in areas with higher labor rates there may be more of a difference. A lot get shipped out of state from NC. There are some "bad" manufactors from what I hear also. In LTV, value is usually lower of purchase price or appraised value.
A reputable local builder that I priced before was a seller of http://www.nationwide-homes.com . I priced sfh... will give him a call about the multi-family offerings.[ Edited by c5hardtop on Date 07/19/2004 ]
I have never noticed the mfg's to be all that durable. THis would be a consideration for me in the long run regarding appreciation and value. A lot would depend on your rate of return but as a rule of thumb mfg homes depreciate and stick built appreciate.
Maybe take a look at heritage steel homes. They have a 4 plex kit.
[addsig]
I called Heritage Steel, and yes, indeed, they sell kits, which they are happy to ship anywhere.
Problem is, they "sure don't" don't know of any contractors in my area who have experience putting the kits together.
Price was right, though. $63,000 for a 4-plex!!
Too good to be true?
MarleneM
seems to me $63 for the building, $30 for the land, $20 for the foundation/basement (required in MN), and proabably another $25 for heating and a/c, then maybe 10k for carpet and painting keeps me at 150k for a brand new building - has anyone actually done this?
I am especially concerned with the 'upkeep' and durability fo the building - i understood some manufactured home had something like a 20 year warranty. I have to ckeck on the stell buildings.
since 'comps are in the $250k range, looks like my ltv is only 60%! should be able to borrow as much at that rate as i can keep units full without using any of my own money.
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This would allow me to do all of the construction under a single construction loan, then "sell" each building separately to a LLC. The appraisals on each building would easily, and legitimately, allow for a 75% LTV on Fannie-Mae-friendly triplexes and quadruplexes. Is this feasible or am I missing something here?
<font size=-1>[ Edited by drspencer on Date 07/19/2004 ]</font>
Taxes on the gain would be one thing. Additonal closing costs another.
If everything was (was...were...aw, hell, grammar sucks) maintained in the same LLC, or if the loans on individual buildings, i.e. selling price, were for no more than the costs incurred, then capital gains would not be an issue. As far as the closing costs go, do you have any recommendations as to a better way to structure financing for a deal like this so that they are minimized as much as possible? I still think deeding the buildings separately has a lot of advantages with regard to interest rates and loan terms. Plus, it gives me higher prices per unit and a lot more flexibility down the road if one or more buildings needs to be sold off.
Spencer
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On 2004-07-19 13:35, c5hardtop wrote:
Quote:
This would allow me to do all of the construction under a single construction loan, then "sell" each building separately to a LLC. The appraisals on each building would easily, and legitimately, allow for a 75% LTV on Fannie-Mae-friendly triplexes and quadruplexes. Is this feasible or am I missing something here?
<font size=-1>[ Edited by drspencer on Date 07/19/2004 ]</font>
Taxes on the gain would be one thing. Additonal closing costs another.
Quote:
On 2004-07-19 14:02, drspencer wrote:
If everything was (was...were...aw, hell, grammar sucks) maintained in the same LLC, or if the loans on individual buildings, i.e. selling price, were for no more than the costs incurred, then capital gains would not be an issue. As far as the closing costs go, do you have any recommendations as to a better way to structure financing for a deal like this so that they are minimized as much as possible? I still think deeding the buildings separately has a lot of advantages with regard to interest rates and loan terms. Plus, it gives me higher prices per unit and a lot more flexibility down the road if one or more buildings needs to be sold off.
Spencer
"75% LTV on Fannie-Mae", Your LLC cannot get Fannie-Mae loans. You can non conforming loans or commercial loans however.
If you sell them for the same price as cost, as to incur no capital gain, or ordinarly income gain (issue here with holding time and implication of dealer activity), then that does not help your LTV, since "value" is usually lower of selling or appraised.
If you can truely develop this under market value, to the tune of 15%+ under, then you can probably just get a commerical loan from a local bank for full cost. Around here at least, builders get 100% of cost, since most builders work on 15-20% there is instant equity of this amount. But you are not builder.. I don't think developers get this routinely. Banks want lower than 85% on commerical b/c they have to hold extra loss reserves by law for balances over this amount (makes loans appear more risky on finanical filings also).
Basically, yes. Find land that is zoned multi-family, then max out the units/acre using multiplexes of 4 units or less. Ideally, I would be holding all of the properties and generating a nice cash flow, but if it were necessary to sell some as a condition of financing, so be it. Getting rid of a brand, spanking new quadruplex shouldn't be too big a deal...especially with what I see poorly maintained 30-40 year old quads going for these days.
Anyway, I've found one property that is very well suited for this type of project and am in the process of doing my due diligence right now. Now I've got to start dealing with the financing.
Spencer
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On 2004-07-19 14:35, feltman wrote:
so let me see if i get your concept 'drspencer';
buy 4-5 lots all contiguous, break ground on 4 buildings at the same time; this way 1 construction loan would cover all of the land, and however many properties to be built at 1 time. then after construction is complete, deed out each of the completed lots (with a 4 plex on each one); the 4 buildings at a cost of 150k each (or 600k total), then you might be able to sell 2 of the properties for 500k, so you would own 2 fourplexes with a basis of $50k each.
<font size=-1>[ Edited by feltman on Date 07/19/2004 ]</font>
The nice thing about steel buildings is that they last forever, nothing to rot or burn or food for pests. They are super well insulated as well.
I think that any construction crew could put it up, it would of course be nice to have one that had experience. That said, I have always found the best values to be in already built structures in need of rehab. More room for instant appreciation and better cash flow.
[addsig]
Experience of the builder is most certainly an issue. I called the largest manufactured home builder in my area, and the salesman repeatedly threw in the phrase, "If everything is on schedule." I eventually asked him how many new constructions were delivered on scheduled, and he was silent for a while and said, "not many." Apparently significant delays are routine. Having a contract that delineates penalty amounts until delivery is 100% complete could be important. Lining up another contractor to finish an incomplete job could also be important. Take pictures of the job every time you visit it, and keep a log of what has been done by what date. Put name of any subcontractor on checks paid to a general contractor - that way, sub has to sign the check before it gets deposited and sub will be sure to collect their own payment. This leaves a paper trail for you to prove that the sub was paid for your project. Photos, log, signed checks and contracts with penalty clauses all comes in very handy when the sub slaps a mechanics lien on the property a few months later.
Good luck.
MarleneM
thanks marlene; forgot about the penalties for late work - quite an incentive to keep my project rolling.
Thanks all! I have found a new way of looking at some of the large tracts of land that I have seen lately...
I went to the heritage site. And you have to keep in mind that there is a lot left to do once the pre-fab building is "done". There is still insulation, fixtures, drywall, electrical, plumbing, flooring, paint/stain, surfaces, doors, trim, cabinetry, etc....
As a builder, I know that that can start adding up fast. I would caution anyone about thinking of these buildings as "cheap". They are value priced to be competitive with a stick frame home, and in some cases/places, they might be viewed as less valuable. Otherwise everyone would be living in one... right?!
whats the material you were talking about?
That material sounds very good. Anything new that has superior performance, is cheaper, and more enviro-friendly - as many new products I see lately are - bodes well for the future
I've been looking at www.eaglesnesthomes.com -- does anyone have any experience with them?
The product that is talking about is called earthblock. You can PM me and I will direct you to a site that gives you information on the product. I have done a ton of research and it will be something that is huge in the marketplace. Earthblock has been used for years in other parts of the world.
Yes, you are right, it is called earthblock,
but I think you are thinking of a product made of compressed clay and sludge type material used in 3rd world building
where wood and other materials a to costly.
This new product is patent pending and
it's main ingredients are flyash ( what's left after burning coal), and waste wood materials.
But you are correct...this will have a huge impact in the market[place in
years to come.
This changes everything about the quality we will come to expect from
our buildings, whether they are single family residences, an apartment complex, or the new McDonalds down the street.
If your interested in getting involved or learning more, just visit my profile, or pm me.
Have a great day,
Russell Luben