2438 Potter St - Middle Housing Development Opportunity
It all begins with an idea.
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 two tandem (attached) houses or two detached 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.
The area surrounding the University of Oregon is its own submarket that is somewhat insulated from economic fluctuations due to the constant demand for student housing for purchase by out-of-town parents. This submarket has almost no available inventory under $750k:
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.
Existing home & shed
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. Expected processing time (from submission of land-use application) is 6-9 months
If this development is successful, there is ample opportunity to repeat this playbook on many other sites. I already own another site that has been segmented for such purpose, and I see countless other locations that could be successful candidates. The goal would be to take the learning from this project and scale our capacity to meet the opportunity.
Development Scenario
Preliminary site/utility plan for land-use application
The lot will be split into three: the existing house on one lot, and two new flag lots with an access driveway with parking for four vehicles. We are exploring two housing types:
1500SF 3BR/2.5BA tandem houses that allow for each home to have a one-car garage and a small patio and back yard.
~1500 3BR/2BA detached houses without garages, allowing for a smaller footprint and more space on the lot
Estimated ARV of each unit is $500k ($333/SF)
Example of tandem houses with garage
Example of detached home without garage (curtesy of Cultivate Inc)
Comps
Pro Forma
Timeline
May 2025 - Submit Middle Housing Application
May - July 2025 - Architectural Work (Cultivate Inc)
August - September 2025 - Permitting review, get bids from contractors
October 2025 - Modify existing renovation loan into construction loan (Pre-development funding repaid)
October 2025 - Begin construction
January 2026 - Middle Housing Division approved
April/May 2026 - Complete construction
May 2026 - List properties for sale
The Need
I am raising $100k to cover pre-development work. The funds will be used for the following:
Completing survey work for the land-use application
Engaging Cultivate Inc for architectural services (including any subcontracted engineering)
Permitting costs and System Development Charges
These are costs that need to be incurred prior to final permit issuance. Once permits are issued, the current renovation loan on the property can be converted to a construction loan that will fund the building and repay the pre-development funds. That timeframe is ~4-6 months, so expected payback would be sometime in early Fall 2025.
The Terms
$100k note in 2nd position, secured with lien against the property.
1st position note: ~$350k from Cetan Funds, local hard-money lender who has funded the purchase & renovation and will carry the construction note as well.
Combined loan-to-value: $82% on existing valuation of $550k for the SFR.
Value of rear two lots when land division is complete: $125k/ea
Term: ~6 months
Rate: 12% annual interest-only, paid in full upon first draw from the construction loan
Personally guaranteed
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 12+ 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. It is also possible to sell the current house as-is at any point and recoup costs.
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.