Can you make money building a home

Question

Hey BP,

I am a new investor. Recently, a plot of land became available at a significant discount in an affluent part of of California. The reason the property is so inexpensive is because the land is surrounded by other land owners and has no direct access to the street. Meaning, in order to build a home i would have to get an easement from one of the land owners surrounding the property.

I am wondering how to determine whether the plot of land is worth purchasing. And if i did purchase, can i really make money in a build?

Ultimately, How can i determine whether this is a good investment or not?

Best,

Rick Albert · Answer

Really what you have is a "paper lot."  This means you are land locked surrounding by others.  The problem is what guarantee do you have that the other owners can grant the easement?  Also what utilities are there?  If not, there is cost to run it.

Cost of construction is high. Between permits, architecture, engineer, and other fees, you are most likely looking at at least $100,000 before you even get started (depending on what you build).

There is a reason why the land is so inexpensive.  If you are a new investor, I would focus on smaller, less complicated projects and build up from there.

Alternatively, maybe there is an opportunity to flip the land to one of the neighbors, expanding their lot.  Or you can see about buying their land, making it no longer "lot locked."

JD Martin · Answer

With no experience you are unlikely to make any money on a new build. Yes, you can make money on new builds - that's why there's contractors out there building houses - but it tends to be either on economy of scale, or with knowledge/experience/contact levels that allow you to compete as a small builder. You're talking about doing something that's already difficult and adding a layer of difficulty to it with the lack of access. For what it's worth, I built a new house before and lost my ass on the build.