Thoughts on this deal?

Question

Hey everyone,

I am looking at a deal that involves a house built in the 1950s. It has 4 bedrooms, 2 bathrooms. It has been vacant and on the market for over a year, priced at $125K which includes an empty corner lot next to it. I think I can get the propery for $80-90K. I plan to first rehab the existing house (needs $20-25K worth of work). I then want to build on the corner lot. Does anyone have any thoughts on how a new house will sell in an older neighborhood? I planned on building to somewhat match the looks of the existing homes.

Also, I know very little about new home construction. I planned on building for about $100K? Can this get me a 3br 2ba home w/ about 1500 sq ft? I know it depends on the area but any feedback would help. I hope to sell the new house for about $140K.

Thanks in advance,

James

Shaun Steckler · Answer

Without knowing more about the neighborhood, I would say your maximum allowable offer on the house should be $62,500.  Start here and don't go above $75K.

I'm assuming the ARV on the house is at least $200,000.

With regard to building a house for the first time, I would be very careful.  If you don't have the experience, find somebody else who does.

Good luck.

Peter Giardini · Answer

New construction is usually based on a dollar amount per square footage.  In many areas this price can be as low as $75.00 per square foot to $120K per square foot.  Some areas will be more... I doubt many will be lower.

Even with that being said... do you know for certain that the extra lot can be built on without having to jump through any zoning hoops?

I recently had a deal that had an extra deeded lot that would have cost up to $30K to get the zoning to build on it.

And as Jeffrey mentions... a modular build may get you a nice house at a doable price.

Chris Reilly · Answer

No offense, but why in the world would you have considered offering full value less rehab for this?  I agree fully with the direction of Shaun's recommendation, but would be much more aggressive, to the tune of mid-40's.  On the market and vacant a year?  For sure...
As to recommending modular construction in an older (or better yet, 'historic') neighborhood?  No way.  Besides being junk that starts depreciating the minute they're done they also never, ever look like they belong in a neighborhood of traditional construction.  Good luck selling the thing...

J Scott · Answer

James -

You don't say what the ARV is for the vacant house.  Assuming you can get a good deal on the house, you can sell it (for a profit) and keep the land to yourself.

You then have a free-and-clear piece of land that you can build on later or sell off.

Just a thought...

Brian Levredge · Answer

Values just aren't there to justify new construction in most parts of the country.  Not only that but cost per foot numbers usually don't include soft costs (permits, plans, engineering, etc.).  You'll also have carrying costs if you finance a construction loan as well.  Based on your numbers it doesn't look like it would pencil out for a stick built home.

Jeffrey K. · Answer

Did you price out a modular home?

James Vermillion · Answer

Thanks to everyone for the responses. Zoning is good to go. I may pass on this one though as I do not feel like I am ready for a new build just yet. I appreciate the help.

Thoughts on this deal?

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