First Project? Here's the best advice I can give a rookie developer
Some general advice for the folks approaching their first project:
A four-plex is a big first step for a new developer. Too big in my view. I think it is better to renovate a house or at most a duplex presents a lot of advantages in scale and complexity your first time out. Hone your craft on a first project that requires less capital and presents less risk . A renovation, a House Hack, an ADU, a flip within the neighborhood you will continue to work are a better fit for a freshman project.
If you are cooking a new recipe for the first time, no matter how much support and encouragement you might have, no matter how many times you have read the printed recipe or written the shopping list, at some point you have to actually cook the thing. There will be things you learn in the process of cooking that you did not pick up on reading the recipe or talking with people who cook the recipe all the time. Start small and learn.
A duplex or a four-plex both have the same sequence. Your financing for either project will be in two stages:
1.) A construction loan for a year or two that will require a downpayment (equity) of 25-30% of the cost of the project.
2.) A 30 year standard mortgage from FHA, VA, Fannie Mae, or Freddie Mac to pay off the short term construction loan.
If you are creating enough value with the construction or renovation of the building, you may be able to take enough cash out at the closing of the 30 year mortgage to pay off an investor or a family member who lent you the rest of the money you needed to have the down payment on the construction loan. The some of the various loan programs above have limits on cash outs. A four-plex is going to require more capital, a larger down payment on the construction loan. t's best to take the next small step unless you are partnering with a seasoned developer. Even then the first time you go solo there will be a lot of learning curve to overcome.
An added caveat. Your first project is going to be a side hustle, since you are probably depending upon other work to support yourself. If you take on too big a project too soon, you may not have the extra time and attention needed to do both gigs decently.
A building/rebuilding a duplex can be a good first project for someone who does not own a house yet. If you build two units or a house hack and live in a portion of the building with your tenants covering the mortgage payment and most of the operating expenses, that lowers you domestic overhead while you learn and build relationships. You are no longer writing a rent check yourself and that can help you make the transition to doing development work full time. All of the 30 year loan programs will count 75 % of the gross rent from your tenant toward your income to qualify you for the mortgage. Your credit score and your Debt To Income ratio (your DTI) are the key things when applying for the 30 year mortgage and those are within your control.
One of the Goal of IncDev is to cultivate lots of incremental developers working at a scale that their development work is their primary or full time gig. You don't want to set yourself back by taking on too large or complex a project from the jump.
Start small with focus and intention. Commit to one neighborhood. Employ your hustle, know how and relationships there to build trust with your neighbors. This will be the foundation for the next couple of projects, so you cannot afford to build a half assed foundation.
Don't be afraid to ask for help here of from one of the IncDev faculty. Everyone one starts somewhere and everyone ends up swallowing their pride and asking for help after making a mistake. Be stubborn in your commitment to the place you care about and to your own constant learning and improvement. Don't be stubborn and go it alone when you really don't need to.
Outdoor Social Space for COVID
Renovated One Bedroom Hurricane Recovery Cottages in the second phase of the Cottage Square Neighborhood in Ocean Springs, MS