The Small Developer/Builders Group on Facebook now has over 600 members. Small Developer/Builders Group

Some members are curious lurkers, some are practicing developers, and many are on the fence trying to figure out what it would take to make the move from their current day job into developing small scale, incremental projects. We have seen several clusters of folks connect through the group and decide to meet up in person.  It's been quite marvelous to watch the group grow in number and see the discussion move past daily posts of whatever is on my mind that I think might be useful.  Click the link above and ask to be added to the group if this sounds like something you want to explore.

The August Small Developer Bootcamp in Duncanville has been capped at 75 participants.  There were 56 people registered as of lunch time Friday.  So just 19 spots are left.  If you were intending to join us in Duncanville, now is the time to go over to the registration page and sign up.  It looks like the event will fill up at the early bird registration price of $100.

Boot Camp Registration / Strong Towns

Here is the To Do List I accumulated  at CNU 23 in Dallas

• Figure out ways to reinforce the connections between the rapidly growing ranks of the Rookie Developers to reduce everyone's learning curve.

• Set Up FaceBook Groups for Small Developer/Builders with a sub-set the "CNU Lady Developers". (and no, I did not name the group...)

• Develop a TurboTax-like Wizard for developing basic development pro formas with Keith Hopkins of Stage Capital Group.

• Webinar with Mike Hathorne on using Google Earth to organize site selection materials for small projects.

• Get a working group going with bankers and appraisers to vet the patches, hacks and workarounds needed for small projects in walkable urbanism.

• Line up one Small Developer/Builder "Shark Tank" and get it funded.

• Submit comments to HUD on expanding the amount of non-residential space in mixed use building financed with the HUD 221(d)(4) Loan program. (Proposed changes in the HUD MAP Manual are still in the public comment phase which closes May 14th).

• Get materials into shape for the Lean Urbanism "Developer in a Box" Tool by October.

• Coordinate the framework for the Lean Building Types Tool with Bill Dennis and David Kim so that it dovetails with the Curated Sketch-Up building types tool kit Bill is shepherding.

• Figure out the communications strategy for recruiting and mentoring small developers builders with Ben Brown and Scott Doyon.

• Figure out a structure for rookie developers to do their first project next to seasoned operators, (sort of like a medical residency).

There is clearly a lot to do. In addition to all this mentoring and advocacy, David Kim and I have our own projects to deliver between now and CNU 24 in Detroit  June 8-11, 2016. A number of people have volunteered to help with this stuff, but don't be surprised if I am calling you to enlist you in the effort.  Contact me on Facebook if you want to be added to the Small Developer/Builders group.  Email me if you want to help with something on this list.  janderson@andersonkim.com

Post a comment here on the blog or email me if I told you that I would put something on this list and have forgotten it.  It has been a big week and I am pretty sure that something important has slipping my mind by now....

Updated june 2, 2016  

NOTE:  The Limit on Nonresidential space in a 1-4 unit home financed with a FHA 203(b) mortgage was increase from 25% to 49% in September of 2015.

A question that I am hearing a lot from prospective developer/builders is "How do I get started?".  One way to get started is with a Four Plex that you will also live in.

Over the last 10 months I have been digging into the details of the FHA four plex loan program and the FHA 203K Rehab and mortgage program which is available for 1-4 units as vehicles to help people get started.  I will be presenting this Dallas this week at CNU 23 in the session with Monte Anderson at 9am on Thursday morning How to Build & Finance Small-Scale Incremental Urbanism,  but here is the short version:

Goal = A rookie developer builds a 4 plex with a partner and buys it with an FHA 30 year mortgage.  They establish a modest but credible track record while working on a lean project at low risk.

Project costs for the sake of this exercise = $600,000.

• 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.

The Investor has a contract to sell the Four Plex to the rookie developer for $650,000 and the rookie developer has pre-qualified for an FHA insured 30 year mortgage (FHA 203-b) with the following underwriting requirements:

• 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.

Assuming a year for construction and lease up, the Investor/Guarantor would see a 35% IRR on an investment in a hard asset with minimal construction and leasing risk.  The 30 year FHA mortgage as the take out loan is really straight forward.  The rookie developer and the investor get to know each other in a low risk deal that takes 8-12 months.

The developer goes through the entire project arc and end up owning a building with some decent equity which they helped create.  The developer has demonstrated their ability to get a project financed, built and occupied.  They can live cheap while pursuing their next project (rent free) in a live/work that showcases what they can do.  PDF of the FHA Underwriting Manual:

http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4155.1/41551HSGH.pdf

The FHA 203K approach could be similar for an existing building.  You can use the FHA 203-k purchase/rehab loan to purchase an existing small apartment building of 5-6 small units that could be converted to a 4 plex as part of the renovation.   FHA 203-k loans are set up to include the cost of renovations.  Small apartment buildings are tough to finance with conventional commercial loans and tend to get rented to death, requiring a lot of work when they go up for sale.  Unfortunately the 203-k loan can take 6-8 months to get approved.

The intent with both of these approaches is a low risk entry into development and building with the rookie developer fully engaged and gaining experience in all aspects of a project in a compressed arc.