Building a Home and Selling

16 Replies

I found this good property in a great neighborhood, the house is already built however the inside was left un done.

The foundation is, the electrical is done.  Just the main stuff like the dry wall, all the little stuff to finish off the home is not.

Its been like this for 3 years.  The guy has just been sitting on it i dont know why he didnt finish off the home but recently he just listed it.

My question is to you builders how much would it cost me to finish off the inside.  This house is 100 x 100.  The house is 4 floors if you include the basement.  Yes its a mansion.  Its planned out for 5 bedrooms 3 bathrooms.  Again this is in a great neighborhood with a great school system.

Hes selling the house for 380k.  I just want to know how much it would cost roughly to finish it off

OK, I am not a builder so please take my comments with a grain of salt. But first of all let me say this - deals like this are very dangerous and can potentially wipe you out. Unless you are a seasoned professional who has experience in this type of luxury property stay away! On top of that I would be extremley careful with custom homes that are so far away from the median sales price, which in my area is arround $207k. You have only a very small market you cater to and your potential clients have very specific taste and expectations. Are you sure about the size of the home? You may want to doublecheck the square footage. A realistic number to finish the interior might be arround $50 per sft, but depending on the finishes you choose you could easily double that. And don't forget about hardscrapes and landscaping, which could easily be $30-50k per acre depending on where you are in the country. I can understand that you are probably attracted by the potential big $$ profits, but it does not sound like this could be a good deal for someone who does not have extensive experience with high end homes. There are plenty of great deals out there that are a lot more managable and that's where I would start. Good luck!

I found one like this 10 years ago and found out that the foundation steel was never signed off so the contractor just stopped building rather than tear down and start over.

Your first stop is to the county or city zoning / building department to check permits and code violations.

@Marcus Auerbach  

Yea i am def not a seasoned professional builder i think ill stay away.  Homes in the area with this sqft go for around 800k.  

So maybe something is wrong with the permitting you saying?  Yea ill check with the building dept see what they say.  But to finish the inside if all the permitting is good is around what 50$ a sqft ?  I live in NJ by the way.  And the home is 4000 sqft

The key is to figure out the "true" why he's selling. Remember people don't just leave "200k" on the ground. We have done very well using short sales and ugly scary houses that are really benign into great investments. You just need to figure out he true motive/issue

There is another principle you should consider - you always want to buy equity. You can start by looking into how much the lot is worth and then ad the cost of the existing development. For a situation like this I would pay no more than the lot plus the foundation.

Elisabeth is correct, you have to find out what the true reason is. It might be the permit, but it could be many other things. Also, why has nobody else picked it up?

If you are investing in real estate you are basically fixing problems, that's what you get paid for. First you have to know what the problem is, then how to correct it and how much that will cost and what the risk is. I have not come across a free lunch yet. Be careful ok.

If the home is 100x100 and four floors, isn't that 40,000 sf?!?!?

Regardless, there's no way to know how much it will cost to finish out.  There's too much we don't know:

- What SPECIFICALLY is the scope of work

- What level of finishes

- What type of contractors will you use

- Who will manage the project

- Etc...

The cost could be $30/sf or $200/sf...without a LOT more info, there's no way to know...

I've never seen a house which measures 100 x 100... unless it was multifamily building? Generally, luxury homes can cost anywhere from $150 - $200/sq ft to build from scratch. depending on how much was completed, you can figure out what's remaining based on the level of finishes you are looking to get. 

As @J Scott mentioned above, you need to get a lot more info before you can get a good handle on the costs to complete this project. If it was me, I would do the following:

1) Check on permits and inspections/violations with the building dept. (as mentioned by @Ron Drake  )

2) Bring a well qualified general contractor to the site to get their estimate to completion (I would get 3 of these at a min). 

3) If there are any, I would ask neighbors what the story is with that property. In past experience - I've found this to be the best resource for getting the real "scoop". 

If you are a newbie REI, perhaps look for someone more seasoned to partner up with you. Nothing beats experience!

Good luck! 

The first step is to go into the office of the construction official, and see what if anything has been permited, inspected, and what special requirements they might impose for getting the work done.

There is a good chance as @Ron Drake  stated that the work done is not compliant, failed inspection, or is somehow defective. If this is the case you are starting from 0 and, in NJ building a luxury home in this price point can cost $150-300 per sq-ft easily which would kill your deal. If you need to sheetrock, flooring, kitchens and bathrooms that could be a different story then if you needed to totally rebuild or correct major issues.

There is no way to give an estimate with the information given.

@Steve Wilcox  - I checked with the owner and the township there is no permitting issues.  She just does not have the money to finish the house.  Which is a good issue for me no?

Houses in the area are around 400-450k.

This house however is 5000 sqft the houses in the area about 2500 sqft.  It is the biggest house in this area.

I spoke to a contractor he said about 150k to finish the inside. 

I would be in for about 550k. 

What are your thoughts?  @Alok Sood  @Marcus Auerbach

I personally specialize buying the "shittest" on the smaller end houses in great neighborhood. I find buying the higher end homes are much harder to unload and the amount per square foot decrease the larger more expensive the home! Just make sure you truly understand the arv value!

Originally posted by @Neil P.:

I spoke to a contractor he said about 150k to finish the inside. 

I would be in for about 550k. 

 

You only need one more piece of information now -- How much would the house sell for to a retail buyer should you finish it to the level of that contractor bid?

To get that information, sit down with a great real estate agent, him him/her know exactly how the house will be finished (level and type of finishes) and ask him/her to run a CMA.

Once you have that information, you can determine if this is a good deal or not. Assuming the $550K all-in number is just purchase plus rehab, I'd want the resale number to be in the $750K or above range. That would leave $100K for fixed costs (closing costs, holding costs, commissions, etc) and then another $100K in profit, which would be just under 20% ROI.

@Neil P.  Ah, now we are getting to the bottom of this. It's not conforming, that's why it is not selling. I would be concerned about a house twice the size and price for the neighborhood. Most people want to be in a matching neighborhood and the same social bracket, income level etc. Even if the adjusted comp would suggest 850k you may have a hard time finding a buyer who wants to live in a 400k area and spend twice the money. I have seen people in my old neighborhood move across the street in the other subdivision because the husband got a promotion. Talk about keeping up with the Jonses. That smells like long holding period and steep discounts. Crazy thought. Can you chop off the second floor and make it a ranch that fits the area? You would have to buy for 200, finish for 100 (incl new roof) and sell for 400.

Be careful if your house is double the size of the other homes in the area. It could be a challenge with apprasing as it is an outlier.

as @Marcus Auerbach  said most people who are looking in your area are not looking for a 500sqft house so you need to make sure there is a buyer out there for this. All areas have a ceiling, make sure you are not going to be the most expensive home sold in town, or be prepared to have a long time on the market.

So let me tell you how i found this place my brother is currently searching for a home in this town the reason being that the town has all blue ribbon schools.  He looked at this house the reason he does not want it 


A) its going to take to long to finish it he wants a move in ready house.  

B) he does not want the biggest house on the block

C) all the other house values go up his will remain the same.


Now he has been searching for 6 months for land to build a house, or even purchase a nice for under 700k.  He has been unsuccessful so far. 


Now i know there is many people like him who have a budget so i was thinking if i can get the house and finish the inside.  I can possibly flip it to someone for around the 650 range.

I want to get the asking price down first but if i get the land and house for about 350, and finish the inside for 150.  Looking at about 500k in and sell for 650 which i dont think will be terribly hard being that this is in a great area with blue ribbon schools.



@Elizabeth Colegrove - no i totally understand i should be looking for the small homes in a luxury neighborhood,  It just happened that i came across this home which was left un finished so was thinking about jumping on it.  I have no experience in flipping or building i do have contacts though.  Currently i invest in Multi Family homes only.

@J Scott So my real estate agent is also the builder he does want me to get the asking price down to about 350 so can finish for 500k and sell for 650 maybe a little more or less

@Marcus Auerbach  If i get the asking price down like i mentioned above though then do you think its a good buy? getting everything finished and bought for 500k?

@Elizabeth Colegrove - no i totally understand i should be looking for the small homes in a luxury neighborhood, It just happened that i came across this home which was left un finished so was thinking about jumping on it. I have no experience in flipping or building i do have contacts though. Currently i invest in Multi Family homes only.

You need actual comps to asses the sales price. 

Your brothers concerns of b and c will be the same concerns that all buyers will have

If you are serious about this house you could submit an offer or make sure the buyers are serious about your price, and if so you should pay for an appraisal during your inspection period and make sure there are comps to support your valuation and to support an appraisal for your future buyers mortgage. 

In this thread your ARV idea has gone from 800 to 650, you need to know that a lot better before risking taking on a big project like this and laying out a ton of cash.

Also have you spoken with any construction lending banks (two rivers, provident, valley national, community first, and small banks/ credit unions) and make sure that you will be able to secure financing? If they are not wiling to play have you spoken with HML's?

My advice is to do the following

1. find out if you can actually finance the project

2. Find a reputable appraiser and ask them to do an arv and appraisal (your lender will require it anyway, you can ask that they pick the appraiser and you will prepay for it) in order to make sure its actually a good deal and firm up your arv numbers

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