Buying land and building a multi-family home on it
Demetri WilrightPro Member
New to Real Estate · Kent, WA · Member since 2024 · 2 posts · 4 votesBuying land and building a multi-family home on it
Most Popular Reply
Ty CouttsBusiness Member
Lender · Denver, CO · Member since 2022 · 467 posts · 230 votesHi Demetri Wilright, buying land and building a property can be a rewarding venture, but it also comes with its unique set of challenges. I would consider the following in your position.
Location:
Zoning and Land Use: Ensure the land is zoned for the type of property you want to build. Check local zoning laws and future land use plans.
Accessibility: Consider proximity to roads, utilities, schools, and other amenities.
Market Trends: Research property values in the area to understand the potential for appreciation.
Land Characteristics:
Topography: Flat land is generally easier and cheaper to build on than sloped or rocky terrain.
Soil Quality: Conduct a soil test to determine if the land is suitable for building. Poor soil can lead to expensive foundation issues.
Flood Zones and Environmental Concerns: Check if the land is in a flood zone or has environmental restrictions.
Utilities and Infrastructure:
Water, Sewer, and Electricity: Ensure these utilities are available or assess the cost of bringing them to the site.
Road Access: Check if there are existing roads or if you need to build access.
Permits and Regulations:
Building Permits: You'll need various permits for construction, which can be a lengthy and complex process.
Environmental Regulations: Ensure compliance with environmental laws, especially if the land has protected species or habitats.
Contractors and Construction:
Hiring Reputable Contractors: Vet contractors thoroughly, checking references and previous work.
Cost Overruns and Delays: Budget for potential overruns and delays. Construction projects often take longer and cost more than initially planned.
Financing:
Land Loans: Land loans can be more difficult to obtain and have higher interest rates than traditional mortgages.
Construction Loans: You might need a construction loan, which covers the cost of building the property.
Benefits of Partnering:
Experience and Knowledge: A partner with experience can help navigate the complexities of land purchase and construction.
Risk Sharing: Sharing the financial and operational risks can be beneficial.
Network: An experienced partner will have a network of reliable contractors, suppliers, and inspectors.
Considerations:
Partnership Agreement: Clearly define roles, responsibilities, and profit-sharing in a legal partnership agreement.
Finding the Right Partner: Choose someone whose expertise complements your skills and who shares your vision for the project.
If it's your first time buying land and building, partnering with someone experienced is often a wise choice. They can provide invaluable guidance and help you avoid costly mistakes. However, if you prefer to go it alone, make sure to do thorough research and consider hiring a consultant or mentor for guidance.
Feel free to ask more specific questions or for further details on any of these points! This is a lot of information, so please schedule a time to chat with me if you'd like down below.
Ty Coutts - Aslan Home Lending 544 Reviews
6 Replies
- 2yTy CouttsBusiness MemberLender · Denver, CO · Member since 2022 · 467 posts · 230 votes
Hi Demetri Wilright, buying land and building a property can be a rewarding venture, but it also comes with its unique set of challenges. I would consider the following in your position.
Location:
Zoning and Land Use: Ensure the land is zoned for the type of property you want to build. Check local zoning laws and future land use plans.Accessibility: Consider proximity to roads, utilities, schools, and other amenities.
Market Trends: Research property values in the area to understand the potential for appreciation.
Land Characteristics:
Topography: Flat land is generally easier and cheaper to build on than sloped or rocky terrain.Soil Quality: Conduct a soil test to determine if the land is suitable for building. Poor soil can lead to expensive foundation issues.
Flood Zones and Environmental Concerns: Check if the land is in a flood zone or has environmental restrictions.
Utilities and Infrastructure:
Water, Sewer, and Electricity: Ensure these utilities are available or assess the cost of bringing them to the site.Road Access: Check if there are existing roads or if you need to build access.
Permits and Regulations:
Building Permits: You'll need various permits for construction, which can be a lengthy and complex process.Environmental Regulations: Ensure compliance with environmental laws, especially if the land has protected species or habitats.
Contractors and Construction:
Hiring Reputable Contractors: Vet contractors thoroughly, checking references and previous work.
Cost Overruns and Delays: Budget for potential overruns and delays. Construction projects often take longer and cost more than initially planned.Financing:
Land Loans: Land loans can be more difficult to obtain and have higher interest rates than traditional mortgages.Construction Loans: You might need a construction loan, which covers the cost of building the property.
Benefits of Partnering:
Experience and Knowledge: A partner with experience can help navigate the complexities of land purchase and construction.Risk Sharing: Sharing the financial and operational risks can be beneficial.
Network: An experienced partner will have a network of reliable contractors, suppliers, and inspectors.
Considerations:
Partnership Agreement: Clearly define roles, responsibilities, and profit-sharing in a legal partnership agreement.Finding the Right Partner: Choose someone whose expertise complements your skills and who shares your vision for the project.
If it's your first time buying land and building, partnering with someone experienced is often a wise choice. They can provide invaluable guidance and help you avoid costly mistakes. However, if you prefer to go it alone, make sure to do thorough research and consider hiring a consultant or mentor for guidance.
Feel free to ask more specific questions or for further details on any of these points! This is a lot of information, so please schedule a time to chat with me if you'd like down below.Ty Coutts - Aslan Home Lending 544 Reviews - Investor · Carmel, IN · Member since 2024 · 55 posts · 22 votes2y
Hey @Demetri Wilright, love the name! I'd recommend considering things like:
- location (proximity to schools, retail, hospitals etc.)
- Zoning (ensure that the land you want to build on is zoned for your desired build)
- Road access
- Survey and title issues
- Market trends
Additionally, I would definitely recommend partnering/consulting someone with experience to ensure that everything goes as smoothly as possible.
Best of luck!
- Property Manager · Tacoma, WA · Member since 2024 · 60 posts · 39 votes2y
Short Answer: find plans --> ask a builder how much it would cost to build plans --> add 15% to this estimate --> ask a bank what their interest rates are and figure out what your debt service will look like --> hit up local property managers and ask them what they think they could rent it for.
Long Answer:
Little late to reply here. I'm right down the road in Tacoma. Recently I built a home on raw land and held onto it for investment purposes in Pierce County, so I can walk you through that entire process. Additionally, I have a bud who is currently building a duplex on raw land in Tacoma with the intent of investment purposes as well. Hit me up if you'd like to meet up and talk about the details - I built a huge PDF of all of the lessons-learned from the experience too. (It was my first time building, I did not use a consultant, everything worked out fine.)
Some things I learned during the process:
1. Your builder is the most important part of the project (pre-renting, of course).
2. Youtube University and Podcasts can teach you 90% of what you're looking for. I consumed all the various podcasts and youtube videos using various key words of my project. Each phase of the build, I would watch/listen to a few hours of what to expect. It allowed me to be educated when I was talking to the lender and builder, it also saved me in some things I didn't know.
3. A consultant would help, not necessary. Just be super humble in asking questions. Sparing your ego and asking the "dumb" questions could save you thousands of dollars or the project entirely.
4. Permitting wasn't as bad as all the forums say. Go to the permitting office and introduce yourself. The government still works in the 1950s (maybe 70s). Say hello to them, remember their names, ask all your various dumb questions to them. Paid dividends.
5. Hit up a few local property management offices about what their going-rates are for rentals. Local laws, etc. I also asked these folks, "if I were to build the perfect rental, what would it look like?" Helped me with designs and overall a sanity check.
6. It's a process, not rocket science. You can do it, just scary to put a lot on the line.
- Investor · Miami, FL · Member since 2015 · 355 posts · 268 votes2y
It's hard to say without specifics but generally in today's climate, it's very tough to make the numbers pencil out on a development with high interest rates, cost of land and high cost of construction.
Seasoned developers can perhaps eek out a slim margin and are more bullish on future gains. You need to have some sort of "in" to make it worth it: either you're stealing the land, you can source materials and labor on the cheap or you have an ability to get it upzoned beyond what others believe can be done.
- Investor · Austin, TX · Member since 2015 · 51 posts · 18 votes2y
A little late to the party, but I hope this helps you and others. Your lender may already require it, but I cannot stress how important a Phase One Environmental Site Assessment (or "Phase I ESA") is for many commercial deals. I am a Geologist and have done hundreds of them, and I am a Subject Matter Expert for a large engineering company. Very long and complicated background, but a Phase I ESA screens the property for hazardous materials problems. Things like underground gas tank leaks, high metals in the soil due to previous use, underground tanks, previous landfills, etc.
Most importantly, a Phase I ESA gives you the "Innocent Landowner Defense" protection under federal Superfund regulations. Basically, it protects real estate owners (and investors like me) from liability for environmental contamination that they did not cause. I have had clients who were litigated for contamination on their property that the PREVIOUS owner or an adjacent owner caused because they didn't get a Phase I ESA. The legal fees alone can be in the six-digit range, and cleanups can go into the millions. A Phase I ESA probably would have identified the issues BEFORE they bought the property and protected them from liability.
Hopefully this helps. Don't let it scare the bejesus out of you. Just like a good surveyor can protect you from boundary disputes, a good environmental professional can walk you through this process.
- Flipper/Rehabber · Hutchinson, KS · Member since 2018 · 5 posts · 0 votes2y
Hey Demetri,
Great subject to ask about! I’m thinking about doing the same thing.
As far as a good deal for land, I believe what the others posted is good to consider.What comes to mind for me is making sure the location is where people want to live. That’s big picture and an obvious answer but one I wouldn’t want to overlook.
Another big picture thing I think about is that it comes down to the numbers. (Obvious as well:) I tried to track down what the expenses will be for the duplexes I’d like to build and wrote it on a spreadsheet. So ask your permit office or building inspector how much the permit will be, what type of foundation is required, and what all they have to approve. I talked to our building inspector and he is trying to help me with buying a piece of land by printing out a paper that shows where the closest city sewer is. That was helpful, as it’ll probably cost a few thousand to tie into that. (There’s some work I need to do yet to see how many thousands). Try to separate each task on the build and estimate how much each task will be.
The advantage of new builds for rentals is hopefully not much maintenance for years. If you have any other advantages you see, Demetri, I’d like to hear those.
Hope this helps!
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