infill project in Edmonton.

[Willyboy]

Hello everybody. I am thinking about doing an infill project in Edmonton like for example buy a lot and build a house with a legal basement suite or a duplex side by side on it then when completed either sell it for profit if any or hold on it and rent it out.

What are your thoughts? Is it a good idea as compared to buying an old house with a basement suite for rent?

 

[Thomas Beyer]

Development needs far more expertise and far more cash to execute.

Do you have both ?

Risk of failure is far higher, too.

 

[Willyboy]

I have the cash but not the expertise.

But the way I was thinking about it is that I have a realtor and they should be able to pick a good area with infills already happening which means if other people are already in that spot it should be ok. Or even other areas but with potential.

The other thing is the contractor. I remember two years ago when I asked the bank they referred me to a contractor which means if the bank trusts that contractor they should be ok too.

I already did some maths and of course a duplex side by side requires more work and more cash but a single detached should be less work and risk I guess.

If I'm wrong in how I'm approaching the matter I would appreciate your opinion I mean what in your opinion could go wrong and put me at risk?

This way if I know where the risk could be I might be able to see if I can mitigate it or just forget about the whole thing altogether.

 

[Thomas Beyer]

Huge huge risk if you don't know how to deal with general contractor. Huge risk for cost overruns. Can you borrow 75% of cost? Is there enough margin to cover all upfront and holding cost?

Did you count lot costs, design costs, engineering costs, approval & permit fees and associated timelines ?

 

[Willyboy]

It was two years ago when I talked to the bank but then I changed my mind and put off all my plans due to the oil crisis. But I remember the broker at the bank gave me a sheet explaining there would be a series of draws and that I would have to spend money out of my pocket at times if the builder and bank schedule didn't match but that I would get my money back once the required construction job in each stage was done.

They explained that there would be a contingency of 10% set aside with the lawyer.

They said I would have to put 35% down for the lot and after construction began they would give me 65% of the lot cost as a first draw and after that there would be other draws in stages.

All in all I did the maths and found out I would have to come up with more money than if I was buying a regular house with 20% down but all of that is not a problem for me in terms of cash.

I remember the builder and I discussed the costs of design, engineering and permit and the time required for that and there's enough margin to cover all the costs.

So money wise I think I am ok but I would be concerned if something unknown was to happen.

I also would be concerned if after everything is completed and if I was to list the property for sale I would break even instead of making profits.

The realtor says I should be making some money based on comparables but because I haven't done that before I am concerned about the possibility of not getting the quality of construction job required and that could affect the selling price.

 

[adriano]

I would tread lightly, just because the bank says they are ok doesn't mean they are. I would check their references and the quality of work they have done. Also I think you will find the banks from 2years ago have really changed their lending criteria. Also if it is easier and less money to buy a place rather than build I would buy it and either rent it or flip it. After all the whole reason for doing this ,is to make money and As much as possible. Building brings a lot of unforeseens and of course can get very expensive and making it hard to make a profit.
Be very cautious.

 

[Thomas Beyer]

Run the real world math based on real costs. Infill lot say $300,000, eng fees, design, DCCs and permit fees $100,000 and then perhaps $200 to $250sq foot for construction cost so $400-500,000 for a 2000 sq ft two stores house. So cost all in $800-900,000.

Sales price has to be $1M more or less to make a return on your effort and money. Is this doable ?

Ideally you buy the lot in cash and pay for designs and upfront fees in cash, then set up draw mortgage to get 30-35% of that back plus 70-75% of subsequent construction cost. Don't forget holding costs like interest, insurance and utilities and realtor cost on exit. You may make $50,000. Maybe $100,000 in a good market or you lose $75,000 in a slow market.

Run the numbers on a specific Lot with a GC of your choice then talk to bank and realtors re realistic sale price. A tight margin business but doable if market is strong with well designed and well located house.

Bon chance !!

 

[Wayne Hillier]

This may seem really negative but Thomas and Adriano are making great points.

Don't get demotivated though. If this is something you really want to do, then do lots of research. Find someone who has experience doing it, be prepared to pay for their knowledge with coaching or consulting.

Best of luck!

 

[Matt Crowley]

Food for thought: http://edmontonjournal.com/news/loc...inds-infill-too-expensive-to-sell-in-edmonton

If you are serious about Infill, I highly recommend you attend some IDEA meetings and get to know some of the developers / builders in that group. https://www.infilledmonton.com/ Some highly competent groups. I also have a personal contact that I can refer you to who does JV deals, experienced with upper-end custom homes. Basically, you want to buy the lot cash and use that equity to draw against to build the home. Permits can be a 3 - 6 months process. PM me for details if interested.

Infill development is much more difficult & expensive than greenfield as noted above. Not a good hobby project for certain.

 

[Thomas Beyer]

Food for thought: http://edmontonjournal.com/news/loc...inds-infill-too-expensive-to-sell-in-edmonton

If you are serious about Infill, I highly recommend you attend some IDEA meetings and get to know some of the developers / builders in that group. https://www.infilledmonton.com/ Some highly competent groups. I also have a personal contact that I can refer you to who does JV deals, experienced with upper-end custom homes. Basically, you want to buy the lot cash and use that equity to draw against to build the home. Permits can be a 3 - 6 months process. PM me for details if interested.

Infill development is much more difficult & expensive than greenfield as noted above. Not a good hobby project for certain.

I have a three page detailed construction budget spreadsheet that I am happy to share. Each line item needs research from permits to 2x4s to windows to boiler to roofing to landscaping and it is easy to be off by 10-20% and there goes your profit.

Building houses is a skill like any other ie flying a plane, making bread, driving a motorcycle, speaking a second language or knitting. Most can master it but it takes time and practice and you will be better on the 10th knitted sweater than on the first 1 or 3 !!

 

[Willyboy]

Thanks everybody for all the responses. Although it might somehow seem a bit discouraging in some aspects this makes me happy because it's better to be well informed and take the advice of the more experienced people than to just jump in and get stuck at some point.

The article in the Edmonton Sun newspaper is really interesting. It sheds some light on what's happening with infills currently.

I'll do the due diligence and run the numbers again and see if I go for it or just buy existing houses.

 

[Michel Lafleur]

There are some really good points above. I too suggest approaching this idea very cautiously.
You'd need to buy the property/land below value, have favorable zoning, plan & execute everything meticulously while staying on budget (time & $$.) Its easy to dream about the perfect plan, but when considering infill projects, consider your worst case scenario and see if your plan is still viable.

In Edmonton, the sub-divided infill properties can get too expensive for buyers to purchase (like the in Edm Journal article above.) The City of Edmonton is promoting infill in certain areas, so its definitely do-able.
If this is what you are thinking, you'll need a 50' lot in a desirable area. Budget for at least a year of holding costs (demolition, permits, permits, permits, construction, then time to sell once everything is ready.) Budget for Realtor & legal fees up front, as well as holding costs (may take a while to sell for the amount you are need to make this profitable.) Holding costs means mortgage/taxes/utiltities/management (snow removal, mow lawns, etc.) and insurance.

If you are thinking of higher density such as a tri-plex, look for an affordable RF3 corner lot in an area that already has plenty of infill AND supports the resale prices that you need to make this project work.

If you are thinking of demolishing a house to rebuild a legal suite - my opinion is its too much time and $$ for the potential returns. Most neighborhoods have a ceiling on resale values of legally suited houses - in most tenant friendly neighborhoods, Im going to say that's around $450k give or take. In the university area, that may be in the $600's - but expect that vacant lot to cost you well over $400k to start. Look at the sold comparables in the area & don't try to defy math....that rarely works. My suggestion here would be to buy one that needs some work to legalize and has opportunity to uplift and add value/appeal.

If you are considering high end single family homes or higher density (4/6 plex or an apartment), you'll need to partner with someone who has development experience. At these prices, this is far too lucrative for most people to dive into it on their own unless you (or your partners) have really deep pockets.

I am an investor and a Realtor in the Edmonton area; I'd be happy to explore this conversation with you further, and discuss some opportunities that I know of around the city.