Well, it's finally happening! I dipped my toes in a project a few years back but I'm diving all in now :-)
In a nutshell I'm looking to...
-Purchase land (0.15+ acres) -Build a new construction home (2100sf, 4bed, 3 ba, 1 story)
-I have a private lender on board to provide funds for land purchase, no payments/interest, lump sum due in a year -I have a hard money lender willing to fund the project pending my application (just did LLC last night so not finished!) -Most importantly I have a real estate investor that will serve as a mentor/consultant start to finish (20+ years w/ wide variety of homes)
I've ran comps for a billion times for the specific areas I'm interested in that would be similar to what I want to build - yet I've never truly done a fix n flip and obviously haven't built a house and that makes me nervous. Has anyone just dived in like this or have any tips? I'm meeting with the private lender tomorrow to finalize paperwork, then the investor and should have application off to hard money lender by next week!
I am a little nervous about acquiring a vacant lot and how long that could take. Ideally I'd like to spend less than $50,000 (max $70k) for the land, and $160,000 for construction and sell around $375K-$420K - and according to recent sales in the areas of Dallas I'm looking in it really seems doable!!!
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
Where did you get the idea that you could build a brand new 2100SF house for $160k? That would be only $76 per SF. That is impossible. Nowadays you will be lucky to get it built for $250 per SF. Even if you could, that would be over $500k....
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
Where did you get the idea that you could build a brand new 2100SF house for $160k? That would be only $76 per SF. That is impossible. Nowadays you will be lucky to get it built for $250 per SF. Even if you could, that would be over $500k....
Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
4y
@Vanessa Hammonds I think trying to start spec building right now is at the worst times in history. Labor shortages have caused crazy increases in subcontractor costs. Materials cost have increase 15+% in the last year.
Based on your post, it sounds like your "mentor" is not doing a good job. If your mentor/consultant has been telling you the things that you noted in your post, please run away from them. They are telling you very, very bad information.
To put things into perspective, I doubt there is anywhere you can sell new construction at $190/ft2 ($400k @ 2100ft) and the land would only be $50k (infill lot). More likely your looking at +$100k for the lot. I also agree with others that there is no way to build new construction anywhere near where your costs are. More likely in the $125-150/ft2. That will reduce your potential profit to almost nothing (if not negative).
While I current have a new build in process right now, I am only building now because I have to. I have another piece of vacant land that I will not be starting construction anytime soon.
Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
4y
Very very risky. Just closed on a home that took almost 2 years to build from a production builder. So you don't want to be caught upside down on the lot have having to pay that off if your construction is slow....and it is super slow right now. Plus City of Dallas if that is where your lot is, is super slow with inspections. Everyone is complaining. Lots of things out of control. https://www.nbcdfw.com/news/lo...
Using private money and hard money will be the most expensive thing you will do and will add greatly to the cost of your home. Factor in extensions....that might be another 1-2% of the cost of the home, just on financing. If you are going to go against all odds, go get bank financing. If you're telling me you can't get bank financing and that is why you are going after private money and hard money, you're not ready. You want to have a lot of reserves for when things go wrong or are slow, or stuff gets stolen, or damaged.
Next risk that is real is interest rate risk.....it's going up. What is your target interest rate for closing final loan? 7-8%.
Development like this is the most risky part of real estate. Plenty of good people loose plenty of money doing this. I'd like to see you do 20 flips before you move on to development, including a couple of big hairy projects. Dont try this for your 1st or 2nd home unless you have a ton of contacts, experience, worked for a builder, own a construction company, know 6 subs very well in each of the trades, etc.
You've seen the builders cancelling contracts? It's because they contracted at the wrong price and couldn't sell them to the buyer at the price contracted. They're scum for cancelling contracts, but maybe got out alive due to rising market. I think at this point material prices are still in flux, labor availability still a ?, and where demand and interest rates will be 12-18-24 months. https://www.google.com/search?...
Well, it's finally happening! I dipped my toes in a project a few years back but I'm diving all in now :-)
In a nutshell I'm looking to...
-Purchase land (0.15+ acres) -Build a new construction home (2100sf, 4bed, 3 ba, 1 story)
-I have a private lender on board to provide funds for land purchase, no payments/interest, lump sum due in a year -I have a hard money lender willing to fund the project pending my application (just did LLC last night so not finished!) -Most importantly I have a real estate investor that will serve as a mentor/consultant start to finish (20+ years w/ wide variety of homes)
I've ran comps for a billion times for the specific areas I'm interested in that would be similar to what I want to build - yet I've never truly done a fix n flip and obviously haven't built a house and that makes me nervous. Has anyone just dived in like this or have any tips? I'm meeting with the private lender tomorrow to finalize paperwork, then the investor and should have application off to hard money lender by next week!
I am a little nervous about acquiring a vacant lot and how long that could take. Ideally I'd like to spend less than $50,000 (max $70k) for the land, and $160,000 for construction and sell around $375K-$420K - and according to recent sales in the areas of Dallas I'm looking in it really seems doable!!!
You've seen the builders cancelling contracts? It's because they contracted at the wrong price and couldn't sell them to the buyer at the price contracted. They're scum for cancelling contracts
Not necessarily. It is one thing to stick to your word, but another when due to no fault of your own, costs skyrocket after you have signed a contract and there was really no way to foresee this. A local GC had to cancel a new home contract because by the time the land was ready to build, his costs had gone up $100,000. Remember, this was not due to anything he did. So is he supposed to eat the $100k and go out of business, and ruin his families financial position for a decade or more?
No. The proper thing for the customer to do is to man up and renegotiate with the GC to create a new contract that is fair to both parties.
@Vanessa Hammonds I think trying to start spec building right now is at the worst times in history. Labor shortages have caused crazy increases in subcontractor costs. Materials cost have increase 15+% in the last year.
Based on your post, it sounds like your "mentor" is not doing a good job. If your mentor/consultant has been telling you the things that you noted in your post, please run away from them. They are telling you very, very bad information.
To put things into perspective, I doubt there is anywhere you can sell new construction at $190/ft2 ($400k @ 2100ft) and the land would only be $50k (infill lot). More likely your looking at +$100k for the lot. I also agree with others that there is no way to build new construction anywhere near where your costs are. More likely in the $125-150/ft2. That will reduce your potential profit to almost nothing (if not negative).
While I current have a new build in process right now, I am only building now because I have to. I have another piece of vacant land that I will not be starting construction anytime soon.
Hi! thanks for the input. I'm most nervous about the construction cost & time. Not necessarily what the home could sell for. Fairly confident in the price that I could acquire the land for since I've spoken with owners and know what they will sell for (most above $50K and below $90K hence where I said max $70K), would like to see about auctions as well though.
The very small area I'm looking in...new construction sales this year were $331K, $559K, $435K, $585K, $420K, $412K, $579K, $585K, $585K, $362K, $565K (I did not look at sales under $300K because those homes tend to be in bad shape purchased with the intention to flip or tear down). The prices in 2021 averaged lower but still averaged over $400K. Of the homes sold this year I could only find the sales prices for 2 for the land they were built on, which were $55K & $69K for the land - when I dug further back into 2021, I found purchase prices of land that new construction homes were built on at $60K, $44K, $39K, $48K, $45K and $25K. I only pulled the sales price of land for homes in which a new construction home was built and sold for reference. I didn't pull these numbers out of thin air, they are the numbers in the specific area I am interested in.
I am clearly new, but, if every single new construction home I pulled sold that sold this year sold between $218-$256/SF - I am assuming it can be built for less, but I'm very unfamiliar with this part so thats a variable I'm trying to research on my own. Most of the homes built in 2021 in this area were smaller and most sold between $180-$200/SF.
For example, one 2,100 sf home sold for $365K at $174/SF - the land was acquired for $45,000
Another home - 1,940 sf sold for $375K at $193/SF - land was acquired for $48K
Another sold for $505K, land acquired for $26K
Another sold for $350K, land $44K
Another sold for $370K, land $60K - another $435K/$69K, $331/$55K
So I'm literally seeing land purchased under $70,000 and then homes built and sold $350K-500K+ so I figured if it is constantly being done, I could do so as well. But whomever said I'd be lucky to build for $250/SF...if that were true...then every single home in this area would cost significantly more to build than what it sold for and that doesn't seem right at all.
My mentor/consultant (not really sure what to call him, he's invested in real estate for 20 years and built a number of homes above and below my range) said he would walk me through it for a percentage of my profits, he's nearing retirement and has done pretty well and I think he has the time and really enjoys mentoring me, which thus far has been mostly on the realtor side of the industry not the investment side. He knows me, knows I'm eager and was fairly impressed with what I did with my home in Houston.
I selected a specific area in Houston, bought a crap house for $75K when EVERYONE told me it was a bad deal and my interest was double digits (which sucked but I didn't plan at all and my only option was owner financing), did as much of the Reno I could myself (around $25K or so, stopped at HVAC, roof, foundation, etc) rented it out for 5 years, made over $100K doing so, and then I was ready to put another $60K into it to quadruple the purchase price but my health deteriorated and I sold it (for double what I paid). Had I put the $75K I could have sold for $300K. It's worth around $350 now.
We haven't even met to discuss specifics, I just remember him mention his budget for a house over double the size so I took half of that to get started. I have to start somewhere. If the realistic construction budget is $200k or something else then that is what it is. I'm sure if he actually heard me say a ridiculous number he would let me know. I remembered someone saying they found Bigger Pockets really helpful and that I should join it so I thought I'd seek some feedback here. I have plenty of time to learn, tweak, adjust etc. I highly prefer to build rather than flip, and want to explore that before giving up on the idea. Thanks for taking the time to read.
Where did you get the idea that you could build a brand new 2100SF house for $160k? That would be only $76 per SF. That is impossible. Nowadays you will be lucky to get it built for $250 per SF. Even if you could, that would be over $500k....
I must be missing something........
Thanks, it may very well be impossible and I'll readjust. Every single new construction home in this area has sold under $250/SF with the exception of one at $256/SF - some selling as low as $170/SF so I think if these new construction homes are being sold on average $200/SF they are being built for less than that.
@Vanessa Hammonds I think trying to start spec building right now is at the worst times in history. Labor shortages have caused crazy increases in subcontractor costs. Materials cost have increase 15+% in the last year.
Based on your post, it sounds like your "mentor" is not doing a good job. If your mentor/consultant has been telling you the things that you noted in your post, please run away from them. They are telling you very, very bad information.
To put things into perspective, I doubt there is anywhere you can sell new construction at $190/ft2 ($400k @ 2100ft) and the land would only be $50k (infill lot). More likely your looking at +$100k for the lot. I also agree with others that there is no way to build new construction anywhere near where your costs are. More likely in the $125-150/ft2. That will reduce your potential profit to almost nothing (if not negative).
While I current have a new build in process right now, I am only building now because I have to. I have another piece of vacant land that I will not be starting construction anytime soon.
Hi, thanks for responding! He didn't suggest any to these numbers - didn't mean for my post to come off that way. And yes, the last new construction home in this area sold last month...1700 SF at $193/SF, another last month 2557 SF at $218/SF. 50K is just the number I'm hoping for, I looked ever new construction property that I could find the sales price of the land and $50K was not unreasonable. There were new construction homes that purchased the land for more, and some that purchased for less. But that's where I got it from. And from some of the owners I have made contact with willing to sell (some as high as $90k for their lots).
Thanks for the estimate on $125-$150/SF, I appreciate it!
Just curious, why did you say you are only building because you have to? In normal markets, do you prefer to fix/flip?
Very very risky. Just closed on a home that took almost 2 years to build from a production builder. So you don't want to be caught upside down on the lot have having to pay that off if your construction is slow....and it is super slow right now. Plus City of Dallas if that is where your lot is, is super slow with inspections. Everyone is complaining. Lots of things out of control. https://www.nbcdfw.com/news/lo...
Using private money and hard money will be the most expensive thing you will do and will add greatly to the cost of your home. Factor in extensions....that might be another 1-2% of the cost of the home, just on financing. If you are going to go against all odds, go get bank financing. If you're telling me you can't get bank financing and that is why you are going after private money and hard money, you're not ready. You want to have a lot of reserves for when things go wrong or are slow, or stuff gets stolen, or damaged.
Next risk that is real is interest rate risk.....it's going up. What is your target interest rate for closing final loan? 7-8%.
Development like this is the most risky part of real estate. Plenty of good people loose plenty of money doing this. I'd like to see you do 20 flips before you move on to development, including a couple of big hairy projects. Dont try this for your 1st or 2nd home unless you have a ton of contacts, experience, worked for a builder, own a construction company, know 6 subs very well in each of the trades, etc.
You've seen the builders cancelling contracts? It's because they contracted at the wrong price and couldn't sell them to the buyer at the price contracted. They're scum for cancelling contracts, but maybe got out alive due to rising market. I think at this point material prices are still in flux, labor availability still a ?, and where demand and interest rates will be 12-18-24 months. https://www.google.com/search?...
oof! 2 years to build! That's unfortunate, sorry to hear that :-(
I'd agree, new construction is risky. I've been told on a few occasions traditional banks will not lend in an LLC, for an investment property to purchase land AND fund new construction - is that not true? I believed that to be true, I personally bank with a credit union and they gave me a flat out NO lol! I had kind of crossed that off the list but I can circle back to that option! And I don't have an endless amount of reserves. Hence the private investor purchasing the land. I'd like to still have funds to fall back on in case everything falls apart or the world shuts down again or something else unpredictable happens lol!
You've seen the builders cancelling contracts? It's because they contracted at the wrong price and couldn't sell them to the buyer at the price contracted. They're scum for cancelling contracts
Not necessarily. It is one thing to stick to your word, but another when due to no fault of your own, costs skyrocket after you have signed a contract and there was really no way to foresee this. A local GC had to cancel a new home contract because by the time the land was ready to build, his costs had gone up $100,000. Remember, this was not due to anything he did. So is he supposed to eat the $100k and go out of business, and ruin his families financial position for a decade or more?
No. The proper thing for the customer to do is to man up and renegotiate with the GC to create a new contract that is fair to both parties.
So unfortunate for everyone involved :-( But you have a point, can't shoot your foot to spare your face - or whatever that saying is!?
I have multiple buyers under contract for new construction homes and this is everyone's worst nightmare. hasn't happened to any of my clients...hoping it doesn't!
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
@Vanessa Hammonds My guesstimate on SF was based on decades of building in SoCal so it is probably higher than you will pay in Dallas.....I actually lowered my initial guess because of that. But in today's world I really don't see you getting it built for much less, even in TX. You NEED to know this number as it is most critical to your success...the land cost is minimal. I would get with a real Licensed General Contractor and have him give you a real number. Otherwise you are just wasting your time.
@Vanessa Hammonds My guesstimate on SF was based on decades of building in SoCal so it is probably higher than you will pay in Dallas.....I actually lowered my initial guess because of that. But in today's world I really don't see you getting it built for much less, even in TX. You NEED to know this number as it is most critical to your success...the land cost is minimal. I would get with a real Licensed General Contractor and have him give you a real number. Otherwise you are just wasting your time.
Oh hey, I was born in Northern California, most of my family has moved to Texas now though lol! Texas isn't as cheap as it was but still cheaper! Agreed, I'd say it's the single most important number...although, I just made up my mind 2 weeks ago this was something I wanted to do, just reached out to people last week I believe...I haven't finalized anything...I did pull some all nighters brainstorming and researching what I can. Was hoping to hear more about people's first time doing a new construction or how anyone went about it as their first gig. Now it's time to fill in the gaps and see what works and what is possible. I'm compiling things for my next meeting and going to the next auction (mostly for research unless a miracle happens in which no one bids on something!) in the meantime. I'll keep you guys posted on how it goes from time to time!
Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
4y
@Vanessa Hammonds Based on your post, I will suggest you look for a local developer that you can learn from and maybe workout a simple compensation agreement for him.
Building a spec home is not as simple as many people think.
There is a lot of unforeseen issues that will likely drive your cost about your budget and drastically reduce your profit margin/equity in the property.
BTW, I like your positive energy to get this done.
Rental Property Investor · Phoenix, AZ · Member since 2019 · 34 posts · 19 votes
4y
@Vanessa Hammonds
Hey Vanessa, I’m no expert, but I did venture into new construction on my 2nd ever deal, which I am nearing completion on. However, it wasn’t all new construction. I am located in Phoenix, bought a property September 2021 that had a 1924 2-bedroom house (not livable at all), and a casita that was entirely burned out, nothing left to be saved except the brick exterior.
The property is zoned for multi-family with some restrictions on size of structures and number of dwellings, but this is what intrigued me. A full renovation on the existing two structures was maybe break even at best. I had my contractor give me numbers on turning the casita into a duplex in the back of the property. I mean, we already had to re-run the plumbing to the city, bring in the electrical, and the gas, so if the hardest part was already being done, I thought why not just double the casita size and turn it into a duplex?
Bottom line, it took about 3-4 months to get my plans approved, I used a designer/architect to manage all the plans/approvals (about $7k), and my contractor gave me an estimate at $167k for everything, totally re-doing the main house, I mean everything, and then tearing down the casita, minus the brick walls, and then expanding it and building a duplex (350 sq Ft per unit, so small) including an entire new roof for both units. We are just about done, maybe two weeks left, I’m already marketing it for rent, and the final cost came out to $201k for the whole project, the increase was due to inflation and the cost of materials sky rocketing during the project such as lumber and concrete (new driveway and brick fences). I just wanted to provide some numbers and details for you. It’s totally doable, but you really need to know the cost of the build before getting started. I never would have bought the property if I didn’t have those estimates and a relationship with my contractor from a previous project.
Rental Property Investor · Carthage, NY · Member since 2019 · 72 posts · 47 votes
4y
In Dallas, the current average cost to build per square ft is $172 (including the land which your # is accurate on). x2100=$361,000
In Dallas, the current average sale price per square foot sold is $240. x2100=$504,000
You clearly spend some time and effort doing your own averaging. I prefer to just google a few reliable source averages, then adjustments from those.
I think most all beginning real estate investors are Not in the business of New Home Construction, or Development. Because they know nothing about it, nor have experience in, that specific highly specialized area, a competitive area against very large developers with economies of scale and market positioning. Respectfully, crazy to face them head on.
Well, it's finally happening! I dipped my toes in a project a few years back but I'm diving all in now :-)
In a nutshell I'm looking to...
-Purchase land (0.15+ acres) -Build a new construction home (2100sf, 4bed, 3 ba, 1 story)
-I have a private lender on board to provide funds for land purchase, no payments/interest, lump sum due in a year -I have a hard money lender willing to fund the project pending my application (just did LLC last night so not finished!) -Most importantly I have a real estate investor that will serve as a mentor/consultant start to finish (20+ years w/ wide variety of homes)
I've ran comps for a billion times for the specific areas I'm interested in that would be similar to what I want to build - yet I've never truly done a fix n flip and obviously haven't built a house and that makes me nervous. Has anyone just dived in like this or have any tips? I'm meeting with the private lender tomorrow to finalize paperwork, then the investor and should have application off to hard money lender by next week!
I am a little nervous about acquiring a vacant lot and how long that could take. Ideally I'd like to spend less than $50,000 (max $70k) for the land, and $160,000 for construction and sell around $375K-$420K - and according to recent sales in the areas of Dallas I'm looking in it really seems doable!!!
TIA
To be blunt, as someone very well versed in flipping, developing, Spec. homes, I would NEVER do a deal like this, or ever be involved in any way other then telling the investors attempting to do it to keep me in the loop for when it goes bust and I will buy them out to mitigate there losses a bit, maybe $0.50 on the dollar.
Using a HML for Spec. is insane, that right there is the Red Flag of all Red Flags that it's not viable.
With land owned, there should be 0 trouble getting regularized development finance, from a standard lending entity at a fraction of HML costs. If it can't get that financing, there is a reason for it, and I would not ignore that insight and knowledge.
And it's not investing, it's speculation, hence the term a Spec Build. So many things can happen that make things turn, inflate costs, wipe out planned exit strategy. Having HML financing, yeowzers, that will get very ugly if things don't perfectly work out. And they NEVER perfectly work out.
Forgive the way this sounds ... 0.15 acre is a postage stamp. Unless you expect your home owner to pass the neighbor the Grey Poupon through an open window, run the numbers again. Remember to allow for set-backs and other code requirements. I grew up in a 740 sq ft cape cod on a 60 x 120 lot (7200 sq ft, 0.165 acre) in suburban Chicago Metro. Small lots can have some challenging limitations.
I'm sorry to be like that. I've explored new construction here in my area (Kendall County, IL) and while it is possible - investors are doing it - it seems very risky for someone just starting out, even if you have an exceptional relationship with a lender.
While the current market is somewhat favorable to new construction - the housing shortage goes on - the lending environment is getting a bit dodgy between interest rates and buyers being able to qualify.
Realtor · Bucks County, PA · Member since 2020 · 21 posts · 16 votes
4y
@Vanessa Hammonds is the land already equipped with plumbing, electrical, etc? Are there any trees or land that needs to be cleared before the foundation is laid? Have you spoken to and received a quote from a general contractor who’s experienced in new construction?
Permits for before construction of the house even begins can take months. Designs can take weeks to months and are costly. Designs have to be done before permits can be obtained. You could be looking at 18 months to 2 years from purchasing of land to selling the property. Your current comps could be entirely out the window.
If you’re sitting on a hard money loan that entire time the cost will rack up quickly.
@Vanessa Hammonds is the land already equipped with plumbing, electrical, etc? Are there any trees or land that needs to be cleared before the foundation is laid? Have you spoken to and received a quote from a general contractor who’s experienced in new construction?
Permits for before construction of the house even begins can take months. Designs can take weeks to months and are costly. Designs have to be done before permits can be obtained. You could be looking at 18 months to 2 years from purchasing of land to selling the property. Your current comps could be entirely out the window.
If you’re sitting on a hard money loan that entire time the cost will rack up quickly.
This is smart thinking and you should take it seriously. Your whole post indicates to (a lot) of us that you are walking into a minefield. Hate to see anyone get in a hole like this....
Forgive the way this sounds ... 0.15 acre is a postage stamp. Unless you expect your home owner to pass the neighbor the Grey Poupon through an open window, run the numbers again. Remember to allow for set-backs and other code requirements. I grew up in a 740 sq ft cape cod on a 60 x 120 lot (7200 sq ft, 0.165 acre) in suburban Chicago Metro. Small lots can have some challenging limitations.
I'm sorry to be like that. I've explored new construction here in my area (Kendall County, IL) and while it is possible - investors are doing it - it seems very risky for someone just starting out, even if you have an exceptional relationship with a lender.
While the current market is somewhat favorable to new construction - the housing shortage goes on - the lending environment is getting a bit dodgy between interest rates and buyers being able to qualify.
My $0.02 ...
We are building 2 houses on 0.17 acres in Nashville lol. Need that increased density with current demand!
Scottsdale, AZ · Member since 2019 · 434 posts · 248 votes
4y
New construction for your first home transaction, yes I think that is putting the cart before the horse. They are more complicated than they seem, and they already seem complicated
Investor · Chicago, IL · Member since 2018 · 352 posts · 176 votes
4y
@Vanessa Hammonds Meet contractors and architects now. Get a few quotes with plans for the build before you go about buying any land. Know that vacant lots will cost more to get water and sewers hooked up. Overestimate your costs like crazy. Prepare a massive war chest in case of delays and market shifts. If you go forward with this you are braver than me. I own a few buildings and have done some rehabs but see lots of risks that I can't control if I were to build new. Personally, I would suggest buying a real beater house and fixing it up before trying to build new. You might find that the ROI is similar or even better. Find the cheapest thing on the market that can be salvaged and take your shot. Best of luck!
