Rental Property Investor · Dallas · Member since 2018 · 10 posts · 3 votes
I'm considering purchasing a residential lot in the DFW area to build a house. I've noticed there are many homes for sale from large construction companies in North Fortworth, but not as many in the areas like Euless, Hurst, and Bedford. Do you think it's worthwhile to buy a lot and build a house to potentially sell for profit? If so, could someone explain how construction loans work and share their experiences? Thanks!
@Arjun P. thanks for posting! Always great to hear from a fellow Texan.
Building homes is very different than rehabbing homes. For financing a new build, every lender will require experience building new homes. Until you have that, you won't be able to receive a new construction loan. However, with rehabbing loans...experience is suggested but not a hard requirement.
Hope that helps in some way but feel free to reach out if you want to talk anything through.
I'm considering purchasing a residential lot in the DFW area to build a house. I've noticed there are many homes for sale from large construction companies in North Fortworth, but not as many in the areas like Euless, Hurst, and Bedford. Do you think it's worthwhile to buy a lot and build a house to potentially sell for profit? If so, could someone explain how construction loans work and share their experiences? Thanks!
Hey Arjun. I am a real estate developer and agent in Dallas, TX! I also have my degree in real estate finance from SMU. I have done multiple fix & flip projects as well. Contact me and let’s get this going
@Arjun P. thanks for posting! Always great to hear from a fellow Texan.
Building homes is very different than rehabbing homes. For financing a new build, every lender will require experience building new homes. Until you have that, you won't be able to receive a new construction loan. However, with rehabbing loans...experience is suggested but not a hard requirement.
Hope that helps in some way but feel free to reach out if you want to talk anything through.
What I usually tell people is go look at the profit margins of the big public builders like DR Horton, Taylor Morrison, toll Brothers, lennar etc.. The last time I looked it was about 5% margin.... And they're going to have all the best options like, for example, not having to purchase a lot until the house is sold in some cases. They may have credit from all their trade lines that they also don't pay until the house is closed. They have huge efficiencies of scale building the same floor plan over and over ordering the same packages of materials.
So with that in mind, are you willing to make a 5% profit or less on doing this yourself if everything goes perfect? I think the one way that you can make profit on these is in a couple of ways. One if you can get the lots for really cheap somehow. Like maybe cut a deal with the city for affordable housing if they own any lots and want to get rid of them. The other option is if you can do a lot of the work yourself and know all the trades and can trade business with them. I think if you have to hire all the trades out and you're the general contractor or you hire a general contractor to do all the work. You probably don't have much profit margin if any. That's my take. However, prove me wrong. Also challenge you to price it out. Go see the average cost of a lot for sale in HEB if you can find one. Then go price an engineer to do your site plan and foundation. Price out of foundation pour. Call someone like builders. FirstSource and have them price you materials for one of their pre-built designs. Then go price your labor plumbing electric, roof, finish outs, and landscaping. Once you do that, check out the prices for single family and infill homes. Remember to calculate your holding cost for taxes, insurance and cost of money. Then see if there's any profit in it for you.
Construction loans are short-term, covering your building costs for up to a year. You only pay interest during construction. Once the house is done, the loan converts into a standard mortgage.