Maximize profit on spec home and other questions

[John Hartman]

I am just getting involved in real estate investing and think I found some land that could be very profitable to build a spec home on. I am in Virginia and found a development with several lots selling for around 5-15k. I am currently waiting to hear from my real estate agent but I think a new construction home around 1400 - 1600 sq ft should sell somewhere between 300 and 350k, there was a recent comp that was 1600 sq ft that sold for 335k.

I am still working on figuring out costs to build the house but I think/ am hoping for somewhere around 235-260k. 

Now for the questions, what can I do to minimize costs and maximize value? What upgrades are worth doing? My initial thoughts are to spend money upgrading the kitchen and master bath; granite countertops, tile backsplash, maybe a pot filler over range, tile shower, extra windows?, higher end appliances?. And to not spend too much on things that don't matter too much; thinking flooring or at least carpet to a degree don't want to go too cheap on that, exterior things like siding not sure if there is much money to save there, any other areas to save money?

How much value and cost do things like basements and garages add? 

Any tips on finding a builder to build a spec home, most builders I have talked to, albeit few, are custom home builders looking for 230-250 a sq ft which is way too much to turn a profit

[Robert Ellis]

talk to an agent but in columbus we've got 3 Floorplans we build. one is 720 sq ft 2 bed 1 bath for affordable housing in our city school district, we have a 3 bed 2 bath 1 car garage all attached floorplan about 1200 sq ft, and we have a 4 bed, 3 bath, 2 car garage for 1730 sq ft. we upgrade countertops, front elevations. I've been an agent for 10 years. we also do 3 story triplex on infill lots in columbus and that's been a very popular and of interest of people. 

[Christopher M Conner]

@Robert Ellis, sorry to hijack a thread, but I'm working on my second rental property, my first was the first house I bought 20 years ago, so it just takes care of itself, so this portion is new to me.  I'm really interested in just having properties that break even and grow in value until I retire in 20 years.  When you talked about the floorplans in Columbus, it made me want to go check as I hear Columbus a bunch and I'm 3 hours away which isn't too bad.  I found a bunch of new builds of 1100 sq ft homes around what Zillow says is Fairgrounds?  Just curious if you have any insight in that area, if you don't mind my asking?

[Robert Ellis]

Quote from @Christopher M Conner:

@Robert Ellis, sorry to hijack a thread, but I'm working on my second rental property, my first was the first house I bought 20 years ago, so it just takes care of itself, so this portion is new to me.  I'm really interested in just having properties that break even and grow in value until I retire in 20 years.  When you talked about the floorplans in Columbus, it made me want to go check as I hear Columbus a bunch and I'm 3 hours away which isn't too bad.  I found a bunch of new builds of 1100 sq ft homes around what Zillow says is Fairgrounds?  Just curious if you have any insight in that area, if you don't mind my asking?

 I'll shoot you a PM. what you are looking at is probably south linden. That is healthy homes initiative. they sell ground leases not new builds. they lose money on the build but amortize it and hold the land until a certain period of time. that's a super soft market way better areas I can show you. I have a 100 page packet and every zip code with more than 5 new builds in our market I have 15 years of new construction data on. 

[Leilah Davis]

Quote from @John Hartman:

I am just getting involved in real estate investing and think I found some land that could be very profitable to build a spec home on. I am in Virginia and found a development with several lots selling for around 5-15k. I am currently waiting to hear from my real estate agent but I think a new construction home around 1400 - 1600 sq ft should sell somewhere between 300 and 350k, there was a recent comp that was 1600 sq ft that sold for 335k.

I am still working on figuring out costs to build the house but I think/ am hoping for somewhere around 235-260k. 

Now for the questions, what can I do to minimize costs and maximize value? What upgrades are worth doing? My initial thoughts are to spend money upgrading the kitchen and master bath; granite countertops, tile backsplash, maybe a pot filler over range, tile shower, extra windows?, higher end appliances?. And to not spend too much on things that don't matter too much; thinking flooring or at least carpet to a degree don't want to go too cheap on that, exterior things like siding not sure if there is much money to save there, any other areas to save money?

How much value and cost do things like basements and garages add? 

Any tips on finding a builder to build a spec home, most builders I have talked to, albeit few, are custom home builders looking for 230-250 a sq ft which is way too much to turn a profit

Hey there, builder here. 

Where are you getting the $235k - $260k build cost if builders in your area have quoted you $230 - $250 / sq ft, which would be $345k for a 1500 sq ft house?? What you're aiming for is around $160 / sq ft (FYI it's so much easier if you either stick to sq ft numbers OR total cost numbers, but bouncing around like that makes it a bit difficult to follow, especially when you're talking in ranges.) $160 / sq ft seems reasonable IF you were GC'ing the project yourself, but it doesn't seem like there could possibly be much room in there for a GC to make a decent profit. I also have no way of knowing what the hard costs for construction are in your area. Labor is the biggest cost of construction and it heavily varies by location.

My husband and I have only done spec homes thus far, but we're getting into doing custom homes now. I don't know about other builders, but I would charge an investor who doesn't have a design and doesn't know how to run a jobsite the exact same as I would a homeowner. It seems like you think that because you're an investor you should be getting a better deal than a typical homeowner, but what you're asking for literally is a custom home. You're looking for a builder to design and build a home for you. There's nothing different about your situation.

All of your questions about how to minimize cost and maximize value are great, but you're kind of jumping the gun until you can confirm that there's actually a path forward on this. That's like step 20, and you're on step 3. I'm a licensed agent as well, and happy to help with some of those questions if / when you get a little further down the path with this. 

You said the land is in a development ... who subdivided the land and built the rest of that development? Try and find out more about that. Why are they selling the vacant lots (and for such a low price) and not just developing themselves? Off the bat that sounds like a red flag to me (in other words, it seems like they could be offloading the lots because it just doesn't make sense to build there right now, due to a stagnant market or high construction costs, who knows). Of course there are plenty of explanations, but it could be a red flag.