Do you see anything potentially wrong with this plan for residential new construction?

86 Replies

I am building a house...

https://www.dropbox.com/s/2ta56u5d2esz6h9/house.JP...

... that will cost about $73,000 to build, mostly because I'm doing a lot of the labor myself.

Based on current market data, I think I can sell it for $140,000.

Then, I will build the same house again, but in the area around San Jose, CA because I researched home prices and saw that houses go for 5.5x more. I can build the same house for the same $73,000 and profit around $540,000 after the sale and taxes.

Do you see anything potentially wrong with this plan?

Originally posted by @Account Closed :

I am building a house...

https://www.dropbox.com/s/2ta56u5d2esz6h9/house.JP...

... that will cost about $73,000 to build, mostly because I'm doing a lot of the labor myself.

Based on current market data, I think I can sell it for $140,000.

Then, I will build the same house again, but in the area around San Jose, CA because I researched home prices and saw that houses go for 5.5x more. I can build the same house for the same $73,000 and profit around $540,000 after the sale and taxes.

Do you see anything potentially wrong with this plan?

 Details please. Do you have a lot/tear down house? Where in San Jose? Have you researched material prices? 

I've been approached by a realtor who's selling her clients' lot ready to build in east san jose. To me it didn't seem like a good deal but maybe you can cut the construction costs significantly so that it makes sense to you.

In Florida, I have a lot for $3,500. They are a dime a dozen. I have not looked into lot prices yet around San Jose, but I wouldn't buy anything within the city limits... it would be on the outskirts.

Yes, I have researched material prices. They are about the same. No significant difference and I did this by calling Home Depot in San Jose, CA and comparing to the prices I got from Home Depot in Orlando, FL.

I have not researched prices for contractors in San Jose. That might be more expensive, but I am doing a lot of the labor myself, so that would hopefully be minimal. The only things I need a contractor for are the foundation, the plumbing that goes in before the foundation, the masonry wall, the roof framing, and the HVAC installation. Everything else, I can do myself.

PS: What do you think of the house? Pretty sharp, huh? Any suggestions?

@Account Closed  I do see things wrong with the plan, specifically, the layout. Buyers want open concept plans. The only thing I see is a 3D rendering of a floorplan. That doesn't show enough information to give any kind of opinion. 

  • How many square feet is the house?
  • What does the exterior of the house look like?
  • Roof?
  • What are the dimensions of the house?
  • What is the size of the lot? 
  • What are the setbacks on the lot for sidewalks, landscaping, garage, etc.?
  •  What types of materials will be used for interior and exterior finishes?
  • What are the costs of all permits and fees? 

From what you have here, if that's all you have you cannot possible know what the cost of construction will be, therefore talking profit is unrealistic. 

I will tell you that building in San Jose is not going to be cheap. Believe me, if there were the profit in deals that you think there is, all of us would be there! 

Originally posted by @Karen Margrave :

@John Farmer  I do see things wrong with the plan, specifically, the layout. Buyers want open concept plans. The only thing I see is a 3D rendering of a floorplan. That doesn't show enough information to give any kind of opinion. 

  • How many square feet is the house?
  • What does the exterior of the house look like?
  • Roof?
  • What are the dimensions of the house?
  • What is the size of the lot? 
  • What are the setbacks on the lot for sidewalks, landscaping, garage, etc.?
  •  What types of materials will be used for interior and exterior finishes?
  • What are the costs of all permits and fees? 

From what you have here, if that's all you have you cannot possible know what the cost of construction will be, therefore talking profit is unrealistic. 

I will tell you that building in San Jose is not going to be cheap. Believe me, if there were the profit in deals that you think there is, all of us would be there! 

 The current drawing is about 2400 sq ft, but that could change. The exterior is masonry block with stucco finish. The dimensions of the house are in the blueprint that I did not include. The size of the lot in Florida is roughly .33 - .4 acres, but they are a dime a dozen and for only a few thousand dollars. Setback requirements are no issue. Interior finish? Do you mean paint? Costs of permits and fees is included. Here is my MS Excel spreadsheet that itemized everything to the dollar.

https://www.dropbox.com/s/ujx82fcnqpjnnjq/new%20ho...

Everyone would be doing it? Everyone would do the labor themselves? They would build a house from scratch with their bare hands? Really? They would do the drywall, the electrical, the plumbing, the roof plywood, the roof shingles, the gutters, the painting, and build the interior frames without hiring help? Are you sure? Do most people even know how to do that?

That is where the profit is.

I have the cost of construction itemized to the penny.

@Account Closed

John,

    That would be a sweet deal, but I think there are probably a few flaws in it. I'm guessing that California has some pretty substantial impact fees, water taps, sewer taps, parkland fees etc..., just to mention a few. I imagine the city will have to have stamped engineering plans ( that will be additional expenses), that are specific to the particular lot you have purchased. These are just a few ideas I have. I think it is great you are doing all the work, but I suspect the margin won't be quite as large as it originally appears. I do agree with Karen that if this were truly possible there would be a lot more people doing it. Cheers!

Stuart 

Hey @Account Closed ,

Materials at your standard Home Depot so cost about the same everywhere.  New construction in the San Jose area will run about $250-$350/sqft, depending on finishes and location.  All things being equal, you will pay 2-3 times more for the same job here (roof, framing, plumbing, etc) as you will in FLA.  And the lot will cost God know how much more than $3500.  Depends dramatically on location.   

I think your math is a little fuzzy.  You are not going to net $540k after taxes doing this in San Jose.  In order to do so you'd need to get the land for free, the materials for free, have the house built for free, have no holding costs (insurance, taxes, utilities, etc) or permit fees, and sell for about $750k while paying no commissions or closing costs.  This assumes you hold the house for over a year and pay long term capital gains.  

Even if you pay cash for everything (vs a loan) and don't account for the cost of your money and do the work yourself and don't account for the cost of your own labor, I think you are missing a few hundred thousand dollars worth of expenses in your calculations.

And yes.  EVERYBODY would do this here if it made any sense.  I know dozens of investors and contractors who can build a house from scratch with their own hands and none of them do this because the numbers don't add up.

Originally posted by @Jeff Pollack :

Hey @John Farmer,

Materials at your standard Home Depot so cost about the same everywhere.  New construction in the San Jose area will run about $250-$350/sqft, depending on finishes and location.  All things being equal, you will pay 2-3 times more for the same job here (roof, framing, plumbing, etc) as you will in FLA.  And the lot will cost God know how much more than $3500.  Depends dramatically on location.   

I think your math is a little fuzzy.  You are not going to net $540k after taxes doing this in San Jose.  In order to do so you'd need to get the land for free, the materials for free, have the house built for free, have no holding costs (insurance, taxes, utilities, etc) or permit fees, and sell for about $750k while paying no commissions or closing costs.  This assumes you hold the house for over a year and pay long term capital gains.  

Even if you pay cash for everything (vs a loan) and don't account for the cost of your money and do the work yourself and don't account for the cost of your own labor, I think you are missing a few hundred thousand dollars worth of expenses in your calculations.

And yes.  EVERYBODY would do this here if it made any sense.  I know dozens of investors and contractors who can build a house from scratch with their own hands and none of them do this because the numbers don't add up.

Where are you getting your numbers from? $250-$350/sq ft. If you are pricing anything based on price per
square foot, then I don't know what you are talking about... because it doesn't cost substantially more
to build a house that is 2400 sq ft than it does to build one that is 1700 sq ft IF YOU ARE DOING THE
LABOR YOURSELF!!! It really only takes a couple more days. I know someone who has done this in Florida about 10 times and made a hefty profit each time. I would do all of the plumbing post-foundation myself.

Everyone would be doing it? I don't think so. Most people don't know how to build a house and even if they
did, they would be too lazy to do it and would hire a contractor and pay too much for labor.

I should have clarified. Not IN San Jose, but around San Jose. Just checked. The cheapest land I could get
would be about $20,000. But who knows, maybe I'll build somewhere else then. But if you take into consideration
the sales price, that is not very much. Why wouldn't it sell for at least $600,000. That's what houses there
are going for, and even more.

Labor is part of the expense but honestly there are guys in CA that work for $15 bucks an hour and are excellent at what they do. The amount of time you will be holding the property and all the impact fees permit fees purchasing the lot etc will cost significantly more and the labor of 8 guys at $15 bucks an hour adds up but if you're able to do all of that work seems like you could also over see others doing it. It seems smarter to manage the guys and build a few of the houses to get in the ball park of the profit you're talking about. Thats just what I would do rather than building it myself.  

Here are median home values for many major metro areas around the country, taken from Zillow.com.... I just search realtor.com for land in a 20-mile radius of these cities. I don't have to build in the city limits, and preferably wouldn't because it would cost more.

https://www.dropbox.com/s/0pzitrs328y3kir/median%2...

And here is my house.... Yes, I do have professional blueprints, I just don't feel like posting them and this isn't the final version anyway....

https://www.dropbox.com/s/2ta56u5d2esz6h9/house.JP...

Originally posted by @Lance Wakefield :

Labor is part of the expense but honestly there are guys in CA that work for $15 bucks an hour and are excellent at what they do. The amount of time you will be holding the property and all the impact fees permit fees purchasing the lot etc will cost significantly more and the labor of 8 guys at $15 bucks an hour adds up but if you're able to do all of that work seems like you could also over see others doing it. It seems smarter to manage the guys and build a few of the houses to get in the ball park of the profit you're talking about. Thats just what I would do rather than building it myself.  

Why would I pay anyone even $1/hour if I can do it myself, let alone 8 guys. They are taking my profit. I would start with one house and then build more.

Look at this house that was just listed at $700,000 in San Jose. Nothing special about this place...

http://www.realtor.com/realestateandhomes-detail/3...

@Account Closed  

John, 

I'm sure your plan will work, but you really need to do your research about building in California. Masonry block plans most likely will not be approved for residential construction. Permits will cost more. The lot that you found for comparison. Does it have utility, water/sewer? If not that's an additional cost and it won't be cheap. 

If your plan works locally. Just do it over and over again in an area you are familiar with.

Good luck. 

Originally posted by @Stuart Birdsong:
@John Farmer

John,

    That would be a sweet deal, but I think there are probably a few flaws in it. I'm guessing that California has some pretty substantial impact fees, water taps, sewer taps, parkland fees etc..., just to mention a few. I imagine the city will have to have stamped engineering plans ( that will be additional expenses), that are specific to the particular lot you have purchased. These are just a few ideas I have. I think it is great you are doing all the work, but I suspect the margin won't be quite as large as it originally appears. I do agree with Karen that if this were truly possible there would be a lot more people doing it. Cheers!

Stuart 

 Correct me if I'm wrong, but I don't think Karen knows how to build a house.

@Account Closed  The listing you included in San Jose for $700k makes the point. It is nothing special.  It's a 7000 sq. ft. lot. and it's listed for $700,000. 

There's no way, even doing all the work yourself (which would take an incredible amount of time) and using all cash, that you're going to be able to buy the land, have plans and engineering done, pay all permits and fees, plus all materials and be into it as cheap as you think even if it's bare bones.

Anywhere in the bay area, land is expensive. It's much like here in Orange County. 

Here's the reality of costs there. San Jose New Construction - Built by BP member Granted your house is much simpler, but that only accounts for a small portion. 

BTW, we are licensed general and electrical contractors, do our own preliminary design, and are licensed real estate brokers. We wouldn't consider trying to build a house completely on our own just using our own labor, as it would be a huge waste of time. Time that is better spent finding the next deals while the actual construction is being done by subs. Though we do handle the excavation as it's more cost efficient. 

John Farmer Great Plan! I mean ambitious! I am not an expert in numbers for new construction but people like new, so you may have a market if you will be done before the next crash, when you could buy new houses on Foreclosures. By the way, why did not you think about pre manufactured houses, as I understand they are very cheap and may look nice. By the way, probably if you will build a fourplex or duplex - it may give you a higher return

Why would I pay anyone even $1/hour if I can do it myself, let alone 8 guys. They are taking my profit. I would start with one house and then build more.

So you're going to build the house alone.  No hired help?  Well, I guess if you have infinite time and your time is worth nothing why not do it all yourself?

Look at this house that was just listed at $700,000 in San Jose. Nothing special about this place... 

http://www.realtor.com/realestateandhomes-detail/3...

Anybody can list a house for whatever they want.  Doesn't mean they will get it.  This house is listed for at least $100k more than its worth.  And the lot alone would cost you over $350k.

But don't listen to me or anybody else from the Bay Area.  You know more than we do. The reason nobody here has pulled of this brilliant plan of yours is because nobody has thought of it.  If they have thought of it they must lack the skills to pull it off.  If they have thought of it and have the skills required they must just be too lazy to make $540k on every deal. Yeah.  That must be it.     

Originally posted by @Jane A. :
John Farmer Great Plan! I mean ambitious! I am not an expert in numbers for new construction but people like new, so you may have a market if you will be done before the next crash, when you could buy new houses on Foreclosures. By the way, why did not you think about pre manufactured houses, as I understand they are very cheap and may look nice. By the way, probably if you will build a fourplex or duplex - it may give you a higher return

Thanks! Do you know where I can find prices on these per-manufactured homes? Other than google, which I will do right now? And, btw... when is the next crash? Lol... if only it were that easy to predict..... but such is the risk......

Highly unlikely you'd be able to do the electrical, plumbing, HVAC, anything requiring a licensed contractor, yourself.  But hey, let us know how it works out!

Originally posted by @Jeff Pollack :

Why would I pay anyone even $1/hour if I can do it myself, let alone 8 guys. They are taking my profit. I would start with one house and then build more.

So you're going to build the house alone.  No hired help?  Well, I guess if you have infinite time and your time is worth nothing why not do it all yourself?

Look at this house that was just listed at $700,000 in San Jose. Nothing special about this place... 

http://www.realtor.com/realestateandhomes-detail/3...

Anybody can list a house for whatever they want.  Doesn't mean they will get it.  This house is listed for at least $100k more than its worth.  And the lot alone would cost you over $350k.

But don't listen to me or anybody else from the Bay Area.  You know more than we do. The reason nobody here has pulled of this brilliant plan of yours is because nobody has thought of it.  If they have thought of it they must lack the skills to pull it off.  If they have thought of it and have the skills required they must just be too lazy to make $540k on every deal. Yeah.  That must be it.     

 Okay even if it's only $200,000, that's still alot. And it wouldn't take more than 3 months to build. It doesn't take long to build a house if you are working on it every day. You can build the frames to a house in a matter of hours and do all the drywall in 3 days tops. It would take another 3 days to put the plywood on the roof.... why do you think it takes so long?

Why are you saying my time is worth nothing? My time is worth the profit I will  get when the house sells. It doesn't take infinite time. The only hired help is to pour the foundation, build the masonry wall, do the pre-foundation plumbing, install the HVAC, and build the roof frame. I have not looked into the difference in cost between contractors in Florida and in California. Perhaps it costs more in California, but even if my numbers are off by a whole $300,000... that still leaves me with $240,000 of profit.

And it doesn't have to be California. I could go to Colorado, etc. There are any numbers of places. The money is made in the time, efficiency, and quality of my labor to build the house.

Originally posted by @Wayne Brooks :

Highly unlikely you'd be able to do the electrical, plumbing, HVAC, anything requiring a licensed contractor, yourself.  But hey, let us know how it works out!

 You don't need a contractor if you sign an Owner-Builder permit.

Originally posted by @Jeff Pollack :

Why would I pay anyone even $1/hour if I can do it myself, let alone 8 guys. They are taking my profit. I would start with one house and then build more.

So you're going to build the house alone.  No hired help?  Well, I guess if you have infinite time and your time is worth nothing why not do it all yourself?

Look at this house that was just listed at $700,000 in San Jose. Nothing special about this place... 

http://www.realtor.com/realestateandhomes-detail/3...

Anybody can list a house for whatever they want.  Doesn't mean they will get it.  This house is listed for at least $100k more than its worth.  And the lot alone would cost you over $350k.

But don't listen to me or anybody else from the Bay Area.  You know more than we do. The reason nobody here has pulled of this brilliant plan of yours is because nobody has thought of it.  If they have thought of it they must lack the skills to pull it off.  If they have thought of it and have the skills required they must just be too lazy to make $540k on every deal. Yeah.  That must be it.     

 The lot alone would cost me $350,000? Really because according to the Santa Clara County Assessor, the land under 365 Serrano Ave. is valued at $24,965.... you were off by about $325,000. Plus, I would build outside the city limits anyway. Land is just land. It doesn't matter what it's officially appraised at.

John Farmer Really I believe that too often people are too busy to invest their labor if they could make money easier. Everybody has favorite business model. You may have DIY business model. It is not common right now just because other business models in re are still performing well. For example buying distress property and rehabbing for flip or for hold works great for people who like to invest their own labor. A lot of landlords use DIY approach as well. Developers are building new houses already - it means there is a market and if you will save 50-200K by investing your labor it should work. I just googled pre manufactured houses and found that 2000+ sq ft cost below 100K . I talked to few developers recently and everybody says that permits take much longer than construction and cost A LOT. I guess - you may find hidden expenses there - permits and utilities.
Originally posted by @Jane A. :
John Farmer Really I believe that too often people are too busy to invest their labor if they could make money easier. Everybody has favorite business model. You may have DIY business model. It is not common right now just because other business models in re are still performing well. For example buying distress property and rehabbing for flip or for hold works great for people who like to invest their own labor. A lot of landlords use DIY approach as well. Developers are building new houses already - it means there is a market and if you will save 50-200K by investing your labor it should work. I just googled pre manufactured houses and found that 2000+ sq ft cost below 100K . I talked to few developers recently and everybody says that permits take much longer than construction and cost A LOT. I guess - you may find hidden expenses there - permits and utilities.

 So let's call the pre-manufactured home 90k. Then, I have to add the cost of the land and permits to that, right? And still need a well, septic, and all of that. So it would still be cheaper to build it myself. It's not a "job" if you enjoy doing it. What is more fun than building a house? And if I do this 4 times in a year and make even $300k per house, that is $1,200,000 million per year. Which I would use as  down payment on a hotel as I continue to build and sell these houses. And once I get the process down, I will be able to do it more efficiently. This is how Fred Trump started. And how he was able to pass an inheritance on to Donald that allowed him to grow a fortune. It all started with humble Fred Trump building houses from scratch.

I think you'll be in for a few surprises if you expect to build a 2,400 square foot house in Florida for $73k in 90 days by doing all of the work yourself.    If you proceed please post a progress thread.

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