- Joined
- Aug 26, 2010
- Messages
- 380
I wanted to put a post on to give the numbers of a deal I just refinanced and share a couple insights I picked up. Fundamentally the post is about the returns and the learning available if you will look at projects requiring major construction. I will post this in a couple other forums to try and help people looking for insight on development or thinking of major construction work. I"m putting a lot of detail because I always wish people posted detailed summaries of their deals, the numbers and what they learned.
My main realisation is that learning how to conduct major construction work can mean being able to quit a full-time professional job and become a full-time investor to replace the immediate income lost. This could be followed by rapid financial independence within 2-4 years depending on the amount of capital you start with. Achieving that level of wealth should be possible in any market from downtown Toronto condos to small towns. You also can start at any level of experience in construction so long as you are willing to dig into things and make tough decisions. Starting at a low level of experience will be no problem for people who like to lean into big unknown challenges to accomplish a vision and who can handle anxiety and stress. The path should and often does lead to a pot of gold but it also has the motivation of a steadily growing steamroller of personally guaranteed debt behind you. The highs are high and the lows get pretty deep too.
Fundamentally the returns come from being willing to take on an area of investing that makes other investors afraid, unwilling, or for whom it isn't feasible. If you like working hard and major growth through pushing personal boundaries, then taking on a big construction project is a good personal and professional choice.
I had only done minor cosmetic things before this project - changed a bathroom and replaced a roof, redone a couple of units with new laminate floor and paint. With high competition in the market for multi family right now a guy with construction experience and I jumped, partnering 50/50 for financing, operations, everything including deciding stuff.
Our project -
Bought a laneway on about 1 acre of land linking a well travelled main road and the ocean in a Halifax sub-market. The lane had an oceanfront house with two story unfinished garage addition at the bottom along with a good condition deep water wharf and boat ramp; 6 very small two level 2 bed 1 bath townhouses in the middle; and a 80 yr old character house turned into a duplex at the top main rd end. Paid the primarily welfare level C class tenants to leave and gutted them all. The oceanfront garage was turned into two 1 bed open concept apts; the 9 existing units were completely renovated incl putting in dishwashers and in-suite laundry; parking lot created and 300 ft laneway paved; landscaping; all new kitchens, bathrooms, roofs, decks, windows, doors etc. My partner and I acted as the general contractors - sometimes with our own labour and sometimes with up to 3 contractors with labour of their own. We bought and delivered all materials, sourced sub-trades and relevant experts and professionals, obtained permits and got municipal permissions, and did the design work. We also handled the property mgmt and leasing. We basically did everything except swing the hammers.
Bought for 750K in mid Jan 2013; 375K total construction spending; both construction financing and mortgage were interest only 75 % LTV with 1 year term and prime plus 1.5% rate. Refinanced on Wed Dec 18 th for total mortgage proceeds 1.175 mill. Cash in was 270K total or 135K each. Cash out was 181K, or 90K each.
Basically we created an extremely unique 11 unit laneway complex of A- units with 5 appliances, all with private entrances and parking, and shared oceanfront amenities like the wharf, boat ramp and two decks. By focusing in on the unique nature of the property we command above market rents and tenant pays all utilities. This took one year and left about 45K each of our funds in the deal ie cost us 45K each; returns are mortgage amortization of about 15K/yr each and cashflow of about 9-10K/yr each, plus 100-150K equity each.
So overall for the amount of work and dedication required to find and then execute on the deal I think the returns are fair. What it really taught me is that someone making a 50-100K/yr job should be able to leave paid work to take on a large construction project, whether overseeing others or doing it oneself in more classic sweat equity single family home rehabs. If someone can price the construction time and work, then they can quit. In fact, quitting now and spending the first few months learning how to price a deal and the work required is easily achievable so long as you are willing and able and you have access to enough capital to take down a deal.
Hopefully this post helps someone if they looking at different options. Good luck!
My main realisation is that learning how to conduct major construction work can mean being able to quit a full-time professional job and become a full-time investor to replace the immediate income lost. This could be followed by rapid financial independence within 2-4 years depending on the amount of capital you start with. Achieving that level of wealth should be possible in any market from downtown Toronto condos to small towns. You also can start at any level of experience in construction so long as you are willing to dig into things and make tough decisions. Starting at a low level of experience will be no problem for people who like to lean into big unknown challenges to accomplish a vision and who can handle anxiety and stress. The path should and often does lead to a pot of gold but it also has the motivation of a steadily growing steamroller of personally guaranteed debt behind you. The highs are high and the lows get pretty deep too.
Fundamentally the returns come from being willing to take on an area of investing that makes other investors afraid, unwilling, or for whom it isn't feasible. If you like working hard and major growth through pushing personal boundaries, then taking on a big construction project is a good personal and professional choice.
I had only done minor cosmetic things before this project - changed a bathroom and replaced a roof, redone a couple of units with new laminate floor and paint. With high competition in the market for multi family right now a guy with construction experience and I jumped, partnering 50/50 for financing, operations, everything including deciding stuff.
Our project -
Bought a laneway on about 1 acre of land linking a well travelled main road and the ocean in a Halifax sub-market. The lane had an oceanfront house with two story unfinished garage addition at the bottom along with a good condition deep water wharf and boat ramp; 6 very small two level 2 bed 1 bath townhouses in the middle; and a 80 yr old character house turned into a duplex at the top main rd end. Paid the primarily welfare level C class tenants to leave and gutted them all. The oceanfront garage was turned into two 1 bed open concept apts; the 9 existing units were completely renovated incl putting in dishwashers and in-suite laundry; parking lot created and 300 ft laneway paved; landscaping; all new kitchens, bathrooms, roofs, decks, windows, doors etc. My partner and I acted as the general contractors - sometimes with our own labour and sometimes with up to 3 contractors with labour of their own. We bought and delivered all materials, sourced sub-trades and relevant experts and professionals, obtained permits and got municipal permissions, and did the design work. We also handled the property mgmt and leasing. We basically did everything except swing the hammers.
Bought for 750K in mid Jan 2013; 375K total construction spending; both construction financing and mortgage were interest only 75 % LTV with 1 year term and prime plus 1.5% rate. Refinanced on Wed Dec 18 th for total mortgage proceeds 1.175 mill. Cash in was 270K total or 135K each. Cash out was 181K, or 90K each.
Basically we created an extremely unique 11 unit laneway complex of A- units with 5 appliances, all with private entrances and parking, and shared oceanfront amenities like the wharf, boat ramp and two decks. By focusing in on the unique nature of the property we command above market rents and tenant pays all utilities. This took one year and left about 45K each of our funds in the deal ie cost us 45K each; returns are mortgage amortization of about 15K/yr each and cashflow of about 9-10K/yr each, plus 100-150K equity each.
So overall for the amount of work and dedication required to find and then execute on the deal I think the returns are fair. What it really taught me is that someone making a 50-100K/yr job should be able to leave paid work to take on a large construction project, whether overseeing others or doing it oneself in more classic sweat equity single family home rehabs. If someone can price the construction time and work, then they can quit. In fact, quitting now and spending the first few months learning how to price a deal and the work required is easily achievable so long as you are willing and able and you have access to enough capital to take down a deal.
Hopefully this post helps someone if they looking at different options. Good luck!