Real Estate is an Art Form: Think outside the Box

I just got off the phone with an experienced builder who is interested in purchasing a track of land two blocks from a quaint, high-end downtown community in the mountains. He would like to build starter homes that would sell between $220,000 and $240,000. He proceeded to tell me how difficult it is for first time home buyer's to find affordable housing and this is the affordable price range in his community. If the project works out the way that he hopes, he could walk away with a profit of about $600,000 in his pocket. Sounds like a no-brainer right?

What he didn't mention and what we both know is that this community is a bonafide heavy retirement community. It sounds to me like he's building for a market that he desires, not necessarily for the market that is already there. His plan is a good one and $600,000 in profit sounds great. But is he leaving money on the table?

Is a single-family starter village the highest and best use for the available land? The baby boomers are the area’s true market and what are they looking for? They are looking to downsize. They don't want to do yard work and they want their house to be one level or at least have a master on the ground floor. Baby boomers like to walk and enjoy the ambience of small downtown living with high-end touches in a smaller compact area. I envision townhomes or zero lot line patio homes.

I encouraged him to speak with his real estate agent who could pull figures for the price range and the buyer type in that particular area. I also encouraged him to look at some senior living communities, especially in their multi family areas and talk to the builders to find out what they would do differently, what they would have added and what they would have deleted. Builders are happy to share information with each other just as investors are happy to share information with each other. If he can add two additional units, that's another $100,000 each for a profit of $800,000. Is that worth the due diligence? It's certainly worth investigating. Are you leaving money on the table?