2438 Potter St Development Opportunity

Intro

2438 Potter Street is a stick-built 2BR/1.5BA 1304 SF home on a 9360 SF lot in the South University neighborhood. The home was built in 1984 and has not been updated since then, with the exception of a newer roof and updated sewer line. 

I believe that the highest and best use of the lot would be to split the front home into its own lot and to build a duplex or two tandem houses in the back. The home is situated in a favorable location on the lot that would allow easy access to the sizeable back yard for driveway access. With the area in a severe housing shortage, I would love to be able to contribute a couple of well-designed and well-built units in a sought-after area. With the proximity to the University, shops, parks and schools, they should be very desirable to either owner-occupants or investors.

The current debate is whether the more profitable route would be to go through the process of splitting the lot and developing the duplex, or to simply fix up and flip the property as-is on the large lot.

Market

The Eugene Market has been a steady seller’s market for the last decade. Even after the surge of 2020-2021, prices have continued to increase modestly. It’s estimate that Eugene has a 2.8 month supply of homes (a balanced market is 6 months), with an average Days on Market of 51 days in November.

Site

2438 Potter is located six blocks south of the University of Oregon, making it an ideal candidate for housing for students. The site is across the street from University Park, a delightful multi-use public space. It is four blocks from the Sundance Market, several restaurants and shops, and the Eugene YMCA. It is 5 blocks from Roosevelt Middle School, South Eugene High School and Amazon Park.

The lot itself is flat with clear access to water and sewer at the street in front of the property and city sewer at the back property line.

Middle Housing Approach

The City of Eugene has adopted a Middle Housing Plan in order to comply with the State of Oregon’s Middle Housing Initiative. The goal of both is to densify urban areas by allowing up to four housing units on every property that is zoned for single-family use. 

The process allows for a single lot to accommodate up to four units by-right, with each ‘child lot’ able to be owned and sold separately.

Scenarios

Flip

The current house has good bones but is very outdated. Thankfully the roof, siding, foundation, electrical panel and plumbing are all in good shape. We are making some minor floorplan modifications to create a larger open great room and a master bedroom suite, in addition to replacing the kitchen, adding a mini-splt, enclosing the carport into a garage. Taming the wild backyard is also a big expense, as the original owner was a big fan of embedding rocks in concrete. ARV for the flip-only option is $525-$550k. 

If we pursue the development route, the front house will not have a back yard, and will only have a small front yard, which will reduce the ARV to an estimated $475k ($364/SF)

Expected completion is Mar/Apr of 2025

Comps

Pro Forma

Development

(example of a tandem house with single-car garage)

We will build two two-story 1500SF 3BR/2.5BA tandem houses that allow for each home to have a one-car garage and a small patio and back yard. 

Estimated ARV of each unit is $500k ($333/SF)

Comps

Pro Forma

Risks

Market

The Eugene market has seen steady increase in home prices over the last ten years. The burden of local building regulations and increased costs of construction have led to a severe housing shortage in the area, providing a stable price floor. It is unlikely that a major negative local market shift will happen in the next 18 months. But that is still a lot of time for macroeconomic shifts to cause a drop in demand, a spike in interest rates, or other factors that could affect the marketability of the completed homes.

I have done my best to find suitable comps for the completed properties, but there are few MH projects that have been completed and the unit type is atypical for the current market, so there is some risk that the units are slow to sell upon completion. 

There is still some buffer in the projected profit to be able to lower the price of the completed units if the market has cooled beyond initial expectations.

Regulatory

Delays or complications in the Middle Housing lot split could affect timelines. I have engaged an architect with several MH projects under his belt and have had an initial project consult with the Eugene Planning Dept. One issue is that the local regulations are under legal challenge and the state regulations vary in ways that might have an affect on the finished product, depending on which set of rules is in place when the project is submitted. 

It is possible to complete the MH lot partition and then to sell off the newly-created lot as a backup plan if factors change before the construction.

Construction

Construction delays and cost overruns. This is my first development project in Eugene. I have vast renovation experience and my partner has built a number of SFR’s and we have good relationships with subcontractors, but there are always unforeseen issues on a project of this size.