Risk Mitigation: The Ballroom

Stan has the grand idea to build a ballroom with historic charm like they did in the old days where they would host feasts and fancy parties. He finds investors to pool the funds and says he will pay them back after 1 year double their money once they can rent out the ballroom for hosting events. Stan find an old historic home for sale and purchases it. It was in a great location in the historic neighborhood downtown therefore also had a mixed used zone town ordinance, which was great for his ballroom. "Beautiful garden, with strong bones, and vintage charm" as described in the sale's description-but it was too old for Stan. It smelled musky from everything to the wood floors and to the water stains on the ceiling. So instead of restoring the historic home, Stan decide's that demolition is the way to go because time is money. Even though the property it is incorporated into an HOA. This HOA requires to update the same “vintage-look” for all exsiting designs on the exterior. However Stan's ballroom design did not intend to match the rest of the HOA’s visible standards. Turns out he submited design plans, however did not complete a builiding permit yet due to some structural issues that needed to be reconfigured, like a staircase leading to nowhere!

Stan demos the home without a permit and then thinks Stan will pay for the permit later with the penalty fees. While Stan’s bulldozer guy is locked in for demo, Lisa the neighborhood HOA president of the board starts yelling at Stan’s bulldozer guy. Stan and Lisa are now in a dispute verbally, she gets so upset she goes home-which is next door to Stan, writes a letter to her lawyers and the entire HOA neighborhood. Lisa then contact her local news and that’s when the public became outraged. Little do they know Stan is very good at clapping back. Stan gets a lawyer but continue to construct on the property because Stan determined for a ballroom. Now he can’t move forward as smoothly in construction and every night goes to sleep thinking about th

e ballroom, what he thought was the path of least resistance actually caused more friction. To the outside he may look like a shark investor, but on the inside he is restless and sleepless until he finds his way. Lisa is also restless and puts all of these signs in front of her home to make sure everyone gets the message.

Consultant's View:

This is a very normal situation for real estate developers to have some form of friction when building, but to what degree is upon the way you go out it. Most times to not ask for permission is a mistake, and can lead to news headlines, and massive lawsuits. To put off the city council meetings usually ends sour. There is a lot of red tape in building but to what degree are you willing to put up with it? The best real estate developers have so much money they can wait out years of real estate lawsuits and disputes, but for Veterans or small builders like us, we can't last very long in those types of situations. Creating a peaceful life for family at home is better than creating disruption. Typically, this could have all been avoided if Stan asked the HOA for permission. How do you ask for permission? First the demolition should have been permitted. If you don’t get the approval from the county first you’re going to have a harder time convincing the HOA that you have full rights to your property.

OR

Write to the HOA first before even purchasing the property. That way you have a clearer answer if you can build on how custom you’d like the ballroom. As overly lavish as it is designed, people won’t like it if you don’t conform to their neighbors expectations and rules that everyone else has to follow. “Rules for thee not for me” type of situation.

Personal View:

I don’t ever like to bring the public or involve too many hands into my real estate, I prefer privately funded ownership and private land ownership. For me obtaining the building permit is as much as I would involve the public affairs, building the home already involves hundreds of workers. I prefer not to mingle with too many investors or tax-funded public government contracts as that complicates delivered quality, and faster timing. But that’s not always the case with most real estate build nowadays in massive neighborhoods has mixed forms of funding, and mixed forms of access like parks and roads being publicly incorporated but somehow maintained by the HOA--these are grey areas of ownership as well.

Your Project Alignment:

For grassroots builders that are starting off, getting into binding situations like these is best to avoid it as a whole. It can deplete a lot more time, money, energy, attention, and focus that is required during the actual construction. It’s better for most real estate construction projects if there’s some level of boundary understanding of private ownership. Building on a HOA isn’t one of them unless the HOA is lenient. Building a entire residential neighborhood plat then forming a HOA is another topic worth discussion for another day. Most historic neighborhoods want to preserve their historic look as a symbol, and memory. They might even have a approved list of remodeling/contractors who are specific for Victorian, colonial style homes. VA Rehab loan might be a possibility here. However, for Stan's case it would have been better to build a ballroom within a budget of private investors or private donations on a different land, residential/commercial mixed-use lot that could serve as a place for a ballroom.