Buying homes as tear downs.

10 Replies

Hello friends, 
High End Tear Down.Curios to what you guys think this house was built for in LA for price per sqft? 

I'm starting to see a ton of tear down homes being built in my neighborhood.
There has to be a decent profit margin on these. 

Thanks! 

Elliot Lamson, The Flip Kings LLC

I am not sure about new construction. But i recommend looking at some prefab/modular companies. That property looks as if it could have been prefab/modular. Which is usually a more economical and faster way to build.

@Elliot Lamson , when you posted "Can you wholesale a wholesale deal?", I got a little concerned, as I shared there. And now this.

Your definition of "taking it slow" (per your profile) seems quite different to mine...

Price per square foot?  In Santa Monica, probably $200-300 if you're experienced.  Though depending on the specific location, dealing with zoning/permits could be your biggest challenge considering the proximity to the ocean...

Originally posted by @Brent Coombs :

@Elliot Lamson, when you posted "Can you wholesale a wholesale deal?", I got a little concerned, as I shared there. And now this.

Your definition of "taking it slow" (per your profile) seems quite different to mine...

 haha just trying to learn as much as possible!!

Elliot Lamson, The Flip Kings LLC

I don't think you could achieve that with 300, with that kind of finishes, it's going to be more closer on the 400. You have to account for city requirements and possibility of getting a more expensive and rust friendly materials, due to the acidity of the zone.

Originally posted by @J Scott:

Price per square foot?  In Santa Monica, probably $200-300 if you're experienced.  Though depending on the specific location, dealing with zoning/permits could be your biggest challenge considering the proximity to the ocean...

They originally bought the property for $975,000.
Building cost ~$250sqft $1,125,000
List Price 3,395,000
-----------------------------------
HML 80/100 11% 3pts. (18moths term)
End up Needing Gap Funding of $585,000
Projected Profit after Holding/Closing Cost ~$785,000 (split 50/50 between gap funder) 
PROFIT-$392,500 

Am i missing anything?? Besides zoning/permitting. 
Not that I'm going to try and put together a deal tomorrow. 
Just seems like there's quite a bit of money to be made. 

Elliot Lamson, The Flip Kings LLC

Originally posted by @Elliot Lamson :
Originally posted by @J Scott:

Price per square foot?  In Santa Monica, probably $200-300 if you're experienced.  Though depending on the specific location, dealing with zoning/permits could be your biggest challenge considering the proximity to the ocean...

They originally bought the property for $975,000.
Building cost ~$250sqft $1,125,000
List Price 3,395,000
-----------------------------------
HML 80/100 11% 3pts. (18moths term)
End up Needing Gap Funding of $585,000
Projected Profit after Holding/Closing Cost ~$785,000 (split 50/50 between gap funder) 
PROFIT-$392,500 

Am i missing anything?? Besides zoning/permitting. 
Not that I'm going to try and put together a deal tomorrow. 
Just seems like there's quite a bit of money to be made. 

First, you don't know that they're going to sell for $3.4M -- that's just what it's listed for.

But, assuming that's what they sell for, then yes, they'll likely make somewhere between $500K-$1M.

Just because they did that doesn't mean that there are lots of those types of deals out there -- this might have been a needle in a haystack, or they might be partnering with the previous owner, or they may have some connections to have gotten the deal for that price.  At very least, they probably worked VERY hard to find an off-market deal.

The question is, how do you plan to find deals like this?  If you plan to go the public sale route, you're unlikely to be successful -- if this were a public listing, there's a good chance someone else would have been willing to pay more (assuming the numbers above are correct).  Or perhaps these guys came with cash in hand and were able to close in 5 days, and nobody else could.

Can you find a deal this good?  If so, how?  And if you can find it, are you going to be able to push it through zoning/permitting in a reasonable amount of time (or at all)?  Then, are you going to be able to build for $250/sf?  Have you built a house before?  Have you done any major rehabs?  Do you have a GC license?  Can you put together a project schedule, find subs and manage them?

I'm not trying to discourage you, but you don't seem to recognize that the people who are doing the project you are looking at probably didn't just make a million dollars overnight.  They worked hard to find a great deal, they worked hard to get the experience they have to get it done, and they probably took some personal financial risk along the way.

So, yes, it can certainly be done.  The question is whether YOU can do it right now (or anytime soon)?

Btw, Manolo would know the prices in that area much better than I would, so listen to him if he says it's higher than what I said...

@Elliot Lamson Don't take permitting and zoning too lightly, sure, it is easy to plug in 100k for permits (assuming you could get it at that price), what if those red inks (city planning corrections) say you have to install a pre-treated wood instad of a regular stud? how would that affect your build? Lets see now, a regular stud will cost you about $3, a pre-treated kiln dried wood will cost about $14, so if your regular house will cost your framing $30,000 that makes your framing cost $140,000 now, that's a $110k difference, plus taxes, thats $120k. Now, this is a bogus example, but if you have no idea what the things i mentioned, or why the city will never require you of such wood, then clearly you're not ready for anything of this magnitude.

As a contractor, and doing 100% employee rate and not hiring a sub, I could do a lot cheaper than most GCs, but I charge what I need to charge, it is a take it or leave it game for me. In my side of the business, your build cost is too low, it's not worth the headache of coastal requirements.

On another note, I won't build anything if it is less than 30% net profit, if everything is said and done, because for sure 10-20% of that would be coming from my build savings as GC and being able to do everything in-house and no subs.

Originally posted by @Manolo D. :

@Elliot Lamson Don't take permitting and zoning too lightly, sure, it is easy to plug in 100k for permits (assuming you could get it at that price), what if those red inks (city planning corrections) say you have to install a pre-treated wood instad of a regular stud? how would that affect your build? Lets see now, a regular stud will cost you about $3, a pre-treated kiln dried wood will cost about $14, so if your regular house will cost your framing $30,000 that makes your framing cost $140,000 now, that's a $110k difference, plus taxes, thats $120k. Now, this is a bogus example, but if you have no idea what the things i mentioned, or why the city will never require you of such wood, then clearly you're not ready for anything of this magnitude.

As a contractor, and doing 100% employee rate and not hiring a sub, I could do a lot cheaper than most GCs, but I charge what I need to charge, it is a take it or leave it game for me. In my side of the business, your build cost is too low, it's not worth the headache of coastal requirements.

Using that same example, is that something you could find out in your due diligence or an unexpected cost?

Elliot Lamson, The Flip Kings LLC

From your own words, unexpected cost is, and will always be UNEXPECTED, that means, you did not expect it, in other words, you missed it. The question is, while you are doing your due diligence, do you know what questions to ask?