To build or not to build

5 Replies

Hey guys, first time poster. I have city lot just outside of Guelph Ontario. About 48' of frontage and about 100' deep.  Probably worth about 120-150k. Not sure if I should build on it or sell? It is an eclectic street with homes selling between 300 and as high as 650k. I am assuming it would cost 150-200 / sq ft to build but I have not approached a builder. Currently I could get 65% of the land value for financing, 80% if I am lucky. Any thoughts on the best\most profitable path?

I would start talking to both lenders and contractors to to acquire as much knowledge as possible. Knowledge is power. Use it to determine where you can be most profitable!

@Mike Grabowski

 I agree with @Colin Smith

Do your homework. Every market is different. I almost built my primary home but ended up cancelling the deal. I bought a house much larger in a nicer neighborhood cheaper than I would have built. Look at the upside and down. Good luck.

If you want to get the basics out of the way first find out how much of the lot you can actually use. Setbacks can really kill the useful portion of the lot. Once you have that determined then you can get an idea of what is even possible with it. As for building costs your numbers seem fairly close. It all depends on the area and I of course don't know Canada too well. It's always good to have a general idea of actual options so that when you call the builder you can give them the limitations.

Building is a slow, often painful, and expensive process. If you are thinking of doing it as an investment but still hoping for some appreciation then I would pull the most money out of it that you can and leave well enough alone. If your per square foot cost in your area are around $200/sq. ft forget about building anything that would appraise for and have comps for the $300K range, You will not get anything out of it other than you already have with your lot or lots. Looking at the $650K range there is a maybe but not really that much on the table for you either. Building most times is for those that want a live in home but in the price range you have spoken off I would say its not worth all the trouble as an investment. By the time you pay for soft costs such as soils engineering, architectural design services, structural engineering, title 24 and permits plus construction costs it just won't be worth the head aches and even then it is a very time consuming effort. There is allot of running around to verify what the city will allow. Things like excavation, bringing in services such as sewer, water, electric, and gas are very expensive and time consuming to work out and pay for. Then on top of it there can be lot drainage issues to work out and most likely if you have neighbors they will have something to say about what you build. 

Still if you want to improve the value of your lot I might consider going through the development process to the point of having approved building plans and permits on hand. Builders love this kind of property because it means they can start building right away so do potential owner occupiers because they can  have their house build relatively fast and they will have a brand new house rather than an older house which is valued similarly in the same area. Bringing the development of your lot to this point might get you another $50K to 100K for the lot depending, over and above your costs. People will pay for not having to go through the headaches involved in obtaining building permits. 

Then again who knows. I once purchased two lots in the neighborhood of $700K homes with nearby homes that were also valued at between $1.5M and up to $2.5M. They appreciated from my purchase price of $79K each to $312K each within 18 months of my purchase and that was just the empty lots alone without building plans or any further development other than a one time clean up of the lots to prevent a possible fire hazard from vegetation on the lots and having to cut one or two old trees down and hauled away.

You might also try going through the process just to find out what all is involved in order to get building permits for your lot then you can think again if it would make good sense for you to pursue full development of the lot.

Over the years I have been involved with several projects like this and have seen couples as much as get a divorce because of the related stress , expense, duration, and difficulty of the entire process. I have also seen small builders go upside down on construction costs because of city engineering requirements and unknown issues. Anytime you are going to do something new there is what I generalize as, "set up cost". If you have a lot where one could build multiple units then you can spread your overall development cost among the various units rather than just one single home having to absorb the entire development cost alone.

Thanks guys... I really appreciate the messages in response.  Gilbert I liked your perspective especially given your experience in land/land development. You really have me thinking about taking the project as far as building permit and selling from there. Further investigation and meeting with local builders will definitely be done to assess all options.

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