- Conventional 75% Loan To Cost (LTC) construction loan guaranteed by an investor who puts up $150,000 in equity (and has second position on the land and building after the bank’s typical lien position).
- The rookie developer runs the project and earns a fee,( included in the $600K project cost) to support themselves for 8-12 months while the project is under construction.
- Borrower has 2 years of employment with stable or rising income.
- 3.5% down payment (which can be gifted funds).
- Reserves of 3 months PITI.
- Credit Score minimum 580 (640 is more the real world score for local bank underwriting with the FHA insurance).
- PITI cannot exceed 30% of borrower’s gross income which includes 75% of the gross rent on the other three residential units.
- One of the four-plex units must be occupied by the borrower as their primary residence for at least 12 months.
- A maximum of 49% of the building floor area can be non-residential use. Appraiser will verify the non-residential use complies with local zoning.
The Cotton District in Starkville, Mississippi has put up a greatly improved website. Definately worth a look.
I have heard many of Dan Camp’s stories over the years (many of them several times). The advice he gives to young developers is to start small, never sell anything, don’t be afraid of debt, and don’t have any partners. That last bit may be a bit of projection, as Dan is a larger than life character some days and I cannot imagine that he wants anyone telling him what to do.
Dan has built something amazing in a part of Starkville that nobody influential cared about. That’s a good model. If you want greater autonomy when you build, it’s a good idea to pick your neighbors and work in a way that makes their lives noticeably better. Dan warns against quitting your day job before you have enough cash flow from your rental units. He ended up building houses for other people for several years. Something he did not enjoy. He sorta spits the word “clients” when he says “I wasn’t much good with clients”.An alternative to Dan’s prescription would be taking on partners so that you can quit your day job and develop your projects full time.
He recommends against building and selling in a place you care about. The Planter’s Row section of the Cotton District was a for sale section of the neighborhood that still bothers him. People bought the great little sideyard houses and creole cottages to house their kids while they attended Mississippi State. When the kids graduated, the parents became accidental landlords in a college town and have not done very well by the neighborhood.
There are a lot of valuable lessons in the Cotton District. A staggering range of small buildings, some very clever solutions to the crappy local soil conditions, small restaurants with common restrooms and big outdoor seating areas. It is easy to spend a day looking at all the pieces and talking with Dan about how to make the pieces work together. Small pieces assembled over time with real care and attention. Make a mistake, it’s a small one and the fix can be pretty immediate.
A tough site can force good work. An infill site 600′ deep between a railroad and a state highway. From the rear of the site to the front: The red Live/work buildings designed by David Kim are at the rear of this constrained site. They back onto the UPRR mainline track. The white freestanding live/work unit is a transition type between the attached live/works functioning as a second sound wall along the railroad tracks at the rear of the site. Initially used as a sales office, (hence the flags), the white building was purchased by a local CPA for her office. She rented the apartment upstairs to her employee. The blue cottage is pretty typical of the 1000-1600 SF detached houses along the interior streets garages and carriage houses on the alley to the rear of the lots. Some houses were built without garages, with surface parking off the alley. The yellow rowhouses face the arterial road which is controlled by the State DOT. We built a side drive along the state highway frontage after a lot of brain damage.
I have decided that I don’t want to waste anymore calories on spectacularly lousy buildings like this mess by Frank Gehry and Co. My time will probably be better spent on the mechanics of getting decent smaller scale buildings built. There is plenty of work to be done taming overly wide streets ,repealing dopey off-street parking requirements, and helping small developer/builders get their enterprises off the ground. Get the building in the right place. Sort out where the front and the back is. That’s gonna have to be enough, considering the amount of effort required to get such basic things accomplished in most places.
This is not to say that lousy buildings don’t bother me. I’m just coming to terms with the reality that I’m not going to be able to do anything to slow their construction. While the bold vandalism of Frank Gehry gets a lot of play, the problems of lousy buildings are all around us in a less flashy, but very annoying display. For example, how much of this crappy faux lick ‘n stick stone do you see slathered all over buildings these days as if it were some sort of “upgrade” material? I’ll try to limit my frustration with lousy buildings to finer grain stuff where there are straightforward household remedies for the symptoms. I don’t have a cure for whatever is afflicting Mr. Gehry.
There is some excellent work being done by architects working on modest scaled buildings. This work has a lot of merit, but will not bring much glory or acclaim to the Architects producing it. Firms like Union Studio and small shops like Rob Sharp, Tim Busse , Gary Justiss, and Eric Brown. The building above by Eric Brown is an example of a building that does a lot of small things well and the overall effect is worth your attention.
- Heavier materials (stucco) on the bottom, lighter on the top.
- Smaller openings in the stucco walls than the upper story.
- Balconies that are supported by sturdy brackets, and do not require you to wonder about the cleverness of the structural engineer.
- Deep roof overhangs at the eave and on the balconies.
- Shutters that are sized correctly for their openings (-shutters that actually shut).
This is a well-behaved background building, delivering rental apartments in a dignified manner. Some folks may think that this a boring building that lacks the pizazz and flash necessary to make Eric Brown a famous Architect. I think it is rare enough to see the the elements listed above actually delivered competently in a boring apartment building, that the Architects who can do it are on the cutting edge of building and rebuilding places worth caring about.
We really do need more cutting edge boring stuff.
I try to focus this blog on things that would be useful to someone starting out in development, and to folks on the policy and planning side of things who would like to understand the nuts and bolts of development better. So here are three very valuable pieces for that audience. All three of these papers are posted on the http://leanurbanism.org/ web site as part of the Project for Lean Urbanism.