Advice Needed on Possible Investor Full Build Project

5 Replies

Ok, I know my limitations and as a first venture into RE investing, this isn't anything that I could do; however, I know of at least 3-4 investors that could potentially be interested in this; however, there is a tremendous amount of due diligence I would need to do, before I brought it to them to view.

Unfortunately, I saw this property about 6-8 weeks ago, and I looked it up, and saw that it was owned by what looked like an investment holding company of some sort. It appeared (mind you, I am still learning so I could be wrong on this) they paid around $209,000 for this property. I meant to contact one of my RE friends who is also an investor to see if this is something we could get under contract and possibly either she could purchase as a buy and hold or flip, or sell to someone else. Now, it's listed, so I missed my opportunity to make a offer before they listed it. From what I recalled when I looked everything up on the assessors website, the company who purchased it, had it for some time

The property info:

It is a house that I knew from first blush would DEFINITELY be a scrape and rebuild potential, as it looks wretched. Likely a down to studs thing (just from me viewing from the outside).

-Small property about 1200 sq ft or so (as I mentioned rough condition and would likely be torn down)

-Listed at 300k

-Lot area 20,000 sf ft

Here's where it gets interesting, and I need the help to figure out what an offer would look like. It appears that they have worked with the city where this property is listed, to re-establish two building lots. There is a wetlands issue that would need to be mitigated; however, there are now two parcels listed that the investor would have and could build on both of the parcels.

-Pricing for properties in this area and in the 1-2 mile radius are all over the place, but seem to comfortably rest in that $349,000-400,000 range for a decent 3bd/2bth property with age ranges of properties around the 1950's to 1970'ish range. Mind you, there are some properties that are much more expensive and there are some condos that are listed in the area around $155-190k'ish range (built around that 70's-80's range).

My question is how to determine how much it would cost to build to completely new properties, and how would those be comped out, as there doesn't appear to be a lot of new builds this area; however, I know of some new builds that are going up in the city next to it, which will be starting in the $450k range, and that's approximately 3-5 miles away; if that.

I appreciate any advice you may have. I'd love to be able to get an investor who'd want to build out both properties. I'd be able to assist in the project management, and I have access to quite a few good GC's and specialty artisans (ie, tile, roofers, etc) that could be subbed for the project; however, I don't know (personally) anything about new builds here in WA State.

Thanks for any input in advance!

Let me see if I follow the math here, becuase that is the only part that matters

You can buy the property for 300k and tear down the crappy house, and have 2 building lots, that could potentially have AVR of 450k, so 900k total.  Is that a correct summary of the current deal?

Now on to step two, find a builder and ask this question.  If I partner with you, what will it cost to build two houses on this property? That answer + the 300k to buy the lot - the cost to build two houses is your potential profit.  Thus ends the academic exercise.

Now back to the real world, dont do this deal unless you get help from a seasond investor in your area.  There are way too many things that could go wrong, and a new investor is not prepared to deal with them. This is not a good starter deal

Alternate strategy.  get the property under contract and flip it to another investor with the caveat that the buyer will teach you how to do the building part of this deal. Use an option contract so that if you cant find a buyer you dont lose a pile of money here

To your success

Josh

Originally posted by @Josh Caldwell :

Let me see if I follow the math here, becuase that is the only part that matters

You can buy the property for 300k and tear down the crappy house, and have 2 building lots, that could potentially have AVR of 450k, so 900k total.  Is that a correct summary of the current deal?

Now on to step two, find a builder and ask this question.  If I partner with you, what will it cost to build two houses on this property? That answer + the 300k to buy the lot - the cost to build two houses is your potential profit.  Thus ends the academic exercise.

Now back to the real world, dont do this deal unless you get help from a seasond investor in your area.  There are way too many things that could go wrong, and a new investor is not prepared to deal with them. This is not a good starter deal

Alternate strategy.  get the property under contract and flip it to another investor with the caveat that the buyer will teach you how to do the building part of this deal. Use an option contract so that if you cant find a buyer you dont lose a pile of money here

To your success

Josh

Thank  you for your response! Oh heavens no! I know this is WAY outside of my current expertise! Yes, you have the synopsis down in respect to possible pricing, etc. My goal would be to get it under contract and flip it to another investor. I just wanted to see what information I needed to give to a potential investor, to show a. I did my due diligence on what the potential was for the investment and what they could be looking at in respect to the potential of the 2 plots to build on, and b. offer my assistance, if they needed it, in respect to GC recommendations, etc. 

Also, I do really like the idea you mentioned of seeing if they would allow me to be a part of the process, so I could learn the building part of this deal. THAT would be invaluable to me.

Chante

many investors will welcome the chance to mentor you for one simple reason, if you can bring the deal to them, it is in their best interest to work with you and do more deals like this.  You have value, dont forget that. Move to Pittsburgh and I will work with you, lol

the key thing in this deal for your investor is the AVR, and potential profit.  You can try to front load them with the info on what it will cost to build the new house but every investor will have his own opinion on that.  We all have contractors and suppliers, and our costs are not the same.  There is also a question of material quality that can greatly affect cost to build.  So dont go to far into getting this cost answer for someone else.  Its sort of like finding your friend the perfect man, she may wildly disagree with your assesment.

I hope that helps, now go make some money

Josh

A good real estate agent selling houses in that area could probably work up some reliable comps for houses to be built on those lots. What you might do is go down to your local building and planning departments and research what are called property set backs and check out the zoning for the lots. Some lots will allow only one single family unit others one SFH with a mother in law quarters, some will allow more than one house to be built on one lot and yet others will allow multifamily units that is covered the zoning laws , regulations or ordinances. Next you might consider looking into any drainage issues with the lots and excavation issues and or limitations. Check with the public works department to find out if city sewer, water, gas and electric are available for a new built. However would buy an empty building lot will be concerned about and interested in knowing these things. This is the due diligence on empty building lots.

If there are no comps then you would have to rely on quotes you get from General Building Contractors to give you a cost per square foot to build at that location But without actually building plans designed and stamped by an architect and structural engineer you may not be able to get exact figures but a ball park figure at best. Believe me someone really interested in buying and empty building lot will either know exactly what they have to do or get familiar with the process if they want a home built on an empty building lot. Like Josh said do not worry too much about obtaining exact building costs just focus on the essential information about the lots. As far as hanging around for the process and the actual construction there might be an issue with a contractor's liability insurance and workman's comp policy so that subject may come up. 

Glad you are eager to learn all about that process it will probably serve you for many years to know how to conduct a proper due diligence on any property.

@Josh Caldwell Thank you so much for the vote of confidence! It would be so awesome if I could make this work somehow; it would be a nice way to get me into this process. Also, I'll remember that should I find myself in the Pittsburgh area ;-o) LOL.

@Gilbert Dominguez WOW, thank you for the information around the local building and planning departments. I definitely would need to know about the "wetlands" situation that they list as a due diligence item to be checked, as well as the permitting.

I had to laugh about the "hanging around for the process" comment. Trust me, I'm an insurance person, and before I came to the retail side of selling Commercial Insurance, I was a Claims Specialist for a long time; so there are very few who are more careful or scary than I am! But you are right, if somebody isn't supposed to be there, then they shouldn't be there for HUGE liability issues. I appreciate the input for sure.

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