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Thread: Construction: a tale from the other side of the desk

  1. #1
    Cyburbian jresta's avatar
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    Construction: a tale from the other side of the desk

    I decided 2 years ago to take the plunge and buy a house. I had $25k to spend and i was wary of what it would get me and how far from work i would have to move so I decided i was up for the challenge of a fixer-upper. I found one. Initially i saw it as a potential house. It was a dead and decaying 640 sq. ft. workingman's rowhome in South Philly. There were abandoned lots all around. There had been a fire in the house just to the north which schorched a good deal of the roof of this house. That fire brought down that house and the 2 houses north of it.

    The previous owners bought it in February 2002 for $9,000 to rehab and resell. They were handymen, or so they thought. As is quite common for such handymen in Philly they try to fix everything but the gaping hole in the roof. The city issued them a 'stabilize or demolish' order because the façade had buckled. They tore it off and gutted the interior down to the joists, without permits. The city issued a "stop work" order and the gentlemen were fined. They stopped work and put it on the market listing it for $25,000. At the time they could've easily gotten $35k for it so i jumped on it offering them $22k. They were sold at $23k. This was October '03

    The lot is 9 blocks south of Rittenhouse Square in what was a long undervalued and overlooked neighborhood. The area between Catherine and South Streets gentrified quickly. The southward creep slowed considerably at Catherine because of the crime and drug dealing south of Christian St. North of Christian St. the neighborhood was largely intact although a good deal of the housing was vacant or abandoned. Between Washington and Christian the neighborhood had been nearly obliterated.


    They sellers had so many fines from Licenses and Inspections, the Parking Authority, and the Water Dept. that they walked away with $3000 to split between the two of them. This is only after the one partner (the other guy didn't show up) tried to reneg on the agreement of sale at the settlement table (i walked out.) At the next settlement date, 3 months later, the other partner was absent again. The third time being a charm, i only had to wait 45 minutes for the pair to show up. We settled on St. Patrick's Day '04

    It took until June (about 3 months from settlement) until we had some rough plans drawn up by the architect. Several contractors agreed that no part of the building was salvageable so we went back to the drawing board. We were running out of cash so we went to the bank to get $10k to keep the architect happy and to finance the initial phases of demo/construction. We spent $1000 of it to secure and stabilize the property. $6000 of it went to the architect. The rest of it was used to repay part of the loan and property insurance.

    About 2 months later we had new plans and the size of the house had grown dramatically. We had another architect review the plans and he shredded them with his pencil. He was absolutely right. The mistakes were obvious to us once he pointed them out. We just hadn't been looking. One of the biggest problems was a two-foot easement that straddled our northern property line. Not being able to build on that foot put a lot of unnecessary constraints on the living space itself. It took me 6 months to find the owner, get him to agree to extinguish the easement, then get him to sign the necessary papers.

    A year after settlement we sit down with the architect and start from scratch, again. We finished with the drawings in July of '05. Now it's the contractor's time to shine.



    I get an estimate from the builder about 2 months later. It' too high so we make a few changes to get the price under control. That takes another 2 weeks. In October I make my first trip to City Hall. I had been incredibly anxious about the entire L&I process machine after all of the horror stories i'd heard from other professionals in the business. I did my homework and went with the proper paperwork already filled out. I was there for 90 minutes one day and two hours a week later. Granted, i'm a lot more familiar with the process, even though i've never done it myself before but 80% of the people waiting with me were architects, developers, or builders. These are people who do this weekly or monthly and should probably have a line of their own.

    I felt incredibly sorry for the average joes and janes. The jargon might as well be a different language and the paperwork is worse than a hospital. There is no one there to walk you through the process and you can stand in line for an hour just to find out what paperwork you need.

    I turn in all of the required documents, visit nearly every floor in the building, pay $300 to get the water "turned off" (there's no plumbing in the building) and get preliminary approval for demolition. Now it's time to go to the bank for a construction loan. Knowing this could take a long time I ask the contractor for a seperate estimate just for the demo. He comes back with $14k. We get it checked out and that's about normal. We balk.

    The project has to move forward but the chances of a bank lending us money to do something we've never done before on a street that's still half vacant were slim. We don't know any potential investors and we could probably only squeeze another $30k in equity out of it.

    We go to the realtor that helped us find it and list it (right around Thanksgiving '05) for $99k (with plans and permits) with the understanding that we'll settle for a good deal less. 2 days before our listing was set to expire we get our first reasonable offer - with one contingency - the buyer has 3 weeks to secure a construction loan.

    Yesterday, one day before the expiry of the contingency, we hear that the buyer, a real estate agent from the suburbs who has made a name for himself doing this sort of thing (in the burbs), has secured financing. We don't have a closing date as of yet but we should know within the week.

    I'm not quite sure what kind of profit he's looking to make but if he can manage to sell it for $300k he'll probably net about $40k. I'm impressed that a bank actually loaned him the money. The dumpsters and contractor vehicles have been moving south in one giant wave at the pace of about a block every 6 months (since i've owned the property). At this point they're less than a block away but they're on the main streets like Carpenter and 18th & 19th. The lots are 16-17 feet wide and 75 ft. deep as opposed to the paltry 14 x 50 we had to work with.
    Indeed you can usually tell when the concepts of democracy and citizenship are weakening. There is an increase in the role of charity and in the worship of volunteerism. These represent the élite citizen's imitation of noblesse oblige; that is, of pretending to be aristocrats or oligarchs, as opposed to being citizens.

  2. #2
    Unfrozen Caveman Planner mendelman's avatar
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    Well, that is some story. Thanks for sharing. I was wondering how your project was coming along. Are you guys at least getting a decent (10%) profit from the experience?

    I like the house. And the house plans are much different than what I am used to. Here in Chicagoland, a house like that would need tons of variances. It is completely anathema to the 'as of right' residential construction here.

    What are the construction costs for a house like that?
    I'm sorry. Is my bias showing?

    The ends can justify the means.

  3. #3
    Cyburbian chasqui's avatar
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    Good going

    Agreed, that is quite a story. The thing I kept thinking was how city staff / politicos wonder why infil housing isn't happening in their city, or what they can do to make it happen. It IS risky. Sounds like most people would have become very discouraged thoughot the process. Good going, and glad you stuck with it! Let us know how it turns out - photos!

    Luis

  4. #4
    Cyburbian abrowne's avatar
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    Dastardly architect.

  5. #5
    Cyburbian jresta's avatar
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    The construction costs are about $150k. That does include all electrical/mechanical, fixtures, and the cantilevered, 3rd floor, rear balcony and spiral staircase (all iron) It doesn't include kitchen applianes or washer/dryer nor does it include upgrades for bathroom or kitchen fixtures. If i built it out, with upper end (but not top of the line) appliances and fixtures I would expect, from start to finish, to pay about $200 to $210k. That includes the cost of land acquisition, all architect, survey, demolition, etc. Similar new construction in the neighborhood is selling for $300k. I think, because of the street, this one will fetch about $280k. I think the guy who's buying it will have it finished and sold by September. There's nothing he has left to do but go back to City Hall, turn in my paperwork with his name on it, and get the permits reissued. I'll keep this up to date.

    Our inital investment was $23k. After we pay off the home equity loan and the various taxes and broker fees we'll take home $67k. I guess that makes our profit a little more than 10%

    a few things i forgot to mention:

    Before we went with our current architect we were flirting with this architect from our neighborhood who does some really neat work in a contemporary style that's still very human scale and would fit well in a rowhouse neighborhood. We just couldn't afford the materials or the added engineering costs and wondered if it would really be worth it to spend so much money to build a work of art on a street with a 12 ft. cartway.

    As you've seen, the house we planned for is three floors with a roof deck. With the exception of the corner buildings the rest of the houses on the block are all 2 floors. We wanted the house to fit in with the rest of the block as much as possible.

    The zoning allowed us 3 floors up to 35 ft. in height but the roof deck required a variance because it counts as a 4th floor. It's pretty standard and i've never heard of one getting turned down. It's a good way to maximize your out door space when your "backyard" measures 14x11

    I think the one thing the city could do speed the process up is to extend a loan to itself and pay architects to come up with 5 or 6 different plans for all of the standard lot sizes in the city. With the exception of the oddly shaped corner lot here and there i'd guess there are only a dozen or so lot sizes. Have them available at L & I as pre-approved plans. You pick the one that suits you and pay $300 for it. The city pays itself back for the architects. So much property here just gets passed on from generation to generation and sits dormant because there's no pressure to build. There are no loans to pay off. The taxes are $150 a year at most on an empty lot and the cost of surveying, architectural work, and permits is $10k at least. But first you have to know where to start. If Joey McManahan from Kensington knew that, to build on great grandma's old lot, all he had to do was go down to L & I with his checkbook, look through a list of builders and surveyors, then a list of cooperating banks - he'd probably build on every lot in the family estate and get all of his brothers and cousins to move back from Maple Shade, NJ.

    In March of '05 we discovered a squatter. I was riding by the house one day and noticed mail in the mailbox. It was all to the same person. I went in the house but no one was home. There were dozens of books in neat piles and a half eaten container of chinese food, judging by the rice, it was from last night. He had found scraps of insulation and plugged all of the cracks in the walls and windows. He even attempted to stop the roof from leaking with an umbrela. I went by the next morning and he was there. We talked for a few minutes and i told him that i understood his predicament but that the house wasn't safe to be in. I asked if there weren't other places he could stay, motioning to all of the other empty houses on the block. He said he had family in the neighborhood and that he would figure something out. I told him to take his time moving his stuff but that he had to be gone by the next day because we were boarding the place up. He was gone a few hours later and left me a note of apology.
    Last edited by jresta; 31 Jan 2006 at 1:31 PM.
    Indeed you can usually tell when the concepts of democracy and citizenship are weakening. There is an increase in the role of charity and in the worship of volunteerism. These represent the élite citizen's imitation of noblesse oblige; that is, of pretending to be aristocrats or oligarchs, as opposed to being citizens.

  6. #6
    Unfrozen Caveman Planner mendelman's avatar
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    Quote Originally posted by jresta
    Our inital investment was $23k. After we pay off the home equity loan and the various taxes and broker fees we'll take home $67k. I guess that makes our profit a little more than 10%
    Maybe this is a way for you to get some experience and start building development respect from lenders - Be a turn-key developer for sites: buy vacant lots/buildings needing demo, get plans made for a new building, get the permits all ready, and then sell it to a builder/developer for actual construction.

    You've already got 67K to use as capital.

    I like your idea for the city to get some pre-approved plans available. That would certainly help redevelopment alot.
    I'm sorry. Is my bias showing?

    The ends can justify the means.

  7. #7
    Cyburbian jresta's avatar
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    Quote Originally posted by mendelman
    Maybe this is a way for you to get some experience and start building development respect from lenders - Be a turn-key developer for sites: buy vacant lots/buildings needing demo, get plans made for a new building, get the permits all ready, and then sell it to a builder/developer for actual construction.

    You've already got 67K to use as capital.

    I like your idea for the city to get some pre-approved plans available. That would certainly help redevelopment alot.

    I have a wedding to pay for so it'll be a little less than that but yes, i'll definitely be doing it again. For a developer it takes 90% of the risk out of the project. When he knows that everything has already been approved the only thing to gamble on is "will it sell for what i'm asking." I think the only reason ours took as long as it did to get a decent offer is because of the timing. The market was starting to tank nationally and people were waiting to see what would happen here. The growth has slowed, for sure, but it hasn't stopped.

    For now, though, we're just going for a fixer-upper. The apartment is getting cramped and we're ready for a house. I have my eye on a few places that need a ton of work on the interior but are otherwise in move in condition.
    Indeed you can usually tell when the concepts of democracy and citizenship are weakening. There is an increase in the role of charity and in the worship of volunteerism. These represent the élite citizen's imitation of noblesse oblige; that is, of pretending to be aristocrats or oligarchs, as opposed to being citizens.

  8. #8
    Cyburbian abrowne's avatar
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    That's an interesting little business... the buying, demolition, plan-drawing, permitting, and then handing it off.

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