Best way to have immediate equity in a new build

Land & New Construction
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Best way to have immediate equity in a new build

Nik Kov
Member since 2024 · 12 posts · 2 votes

So I'm new to this, bear with me here.

I'm trying to understand how to think about equity in a new construction. I've seen folks say things to me like, we spent 400k to build and then the house was appraised at 550k upon completion. How does that happen? Is it as simple as: "most houses in the area sell/appraise for X, figure out how to build a house for X-20%" and there's your 20% immediate equity in a new build? 

Furthermore, I could've sworn appraisals are done when you have some level of construction documents so that a bank can loan you appropriately. If that's the case, at what point can you save money on the build? Do you do change orders to cheapen out on certain materials? I'm pretty confused here about the whole thing. 

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Robert EllisBusiness Member
Developer · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
2y
Quote from @Nik Kov:

So I'm new to this, bear with me here.

I'm trying to understand how to think about equity in a new construction. I've seen folks say things to me like, we spent 400k to build and then the house was appraised at 550k upon completion. How does that happen? Is it as simple as: "most houses in the area sell/appraise for X, figure out how to build a house for X-20%" and there's your 20% immediate equity in a new build? 

Furthermore, I could've sworn appraisals are done when you have some level of construction documents so that a bank can loan you appropriately. If that's the case, at what point can you save money on the build? Do you do change orders to cheapen out on certain materials? I'm pretty confused here about the whole thing. 


 We do this exact model in Columbus OH for multifamily. Land cost right now is approx 50k for an infill lot. We rezone it for 5k. 5k permit set / construction docs. 350k build. exit price is approx 510k, full return of capital on a refinance within 8 months. super simple. we build around 174 a sq ft and the exit price downtown is approx $250 - $300 depending on neighborhood, size, etc. 

[email protected]786-494-6766
Section 8 Launch52 Reviews
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  • Jacob Sherman
    12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes
    2y

    Your average hard money lender won't want to be more than 65% of the after rehab value .

    0Reply
  • Andrew Sundseth
    Rental Property Investor · Member since 2020 · 11 posts · 2 votes
    2y

    Your equity will be the appraised value minus the cost to build. For example, if it costs you $50k to build, and the house appraises for $100k then you will have $50k or 50% equity. Once you get a mortgage you can leave 20% equity and cash out $30K or sell for $50k gross profit.

    Build cost includes ALL costs. 

    Taxes can be high depending on what you do with the property after it's built. 

    0Reply
  • Robert EllisBusiness Member
    Developer · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
    2y
    Quote from @Nik Kov:

    So I'm new to this, bear with me here.

    I'm trying to understand how to think about equity in a new construction. I've seen folks say things to me like, we spent 400k to build and then the house was appraised at 550k upon completion. How does that happen? Is it as simple as: "most houses in the area sell/appraise for X, figure out how to build a house for X-20%" and there's your 20% immediate equity in a new build? 

    Furthermore, I could've sworn appraisals are done when you have some level of construction documents so that a bank can loan you appropriately. If that's the case, at what point can you save money on the build? Do you do change orders to cheapen out on certain materials? I'm pretty confused here about the whole thing. 


     We do this exact model in Columbus OH for multifamily. Land cost right now is approx 50k for an infill lot. We rezone it for 5k. 5k permit set / construction docs. 350k build. exit price is approx 510k, full return of capital on a refinance within 8 months. super simple. we build around 174 a sq ft and the exit price downtown is approx $250 - $300 depending on neighborhood, size, etc. 

    [email protected]786-494-6766
    Section 8 Launch52 Reviews
    WebsiteView Page
    1Reply
  • Andrew Sundseth
    Rental Property Investor · Member since 2020 · 11 posts · 2 votes
    2y
    Quote from @Robert Ellis:
    Quote from @Nik Kov:

    So I'm new to this, bear with me here.

    I'm trying to understand how to think about equity in a new construction. I've seen folks say things to me like, we spent 400k to build and then the house was appraised at 550k upon completion. How does that happen? Is it as simple as: "most houses in the area sell/appraise for X, figure out how to build a house for X-20%" and there's your 20% immediate equity in a new build? 

    Furthermore, I could've sworn appraisals are done when you have some level of construction documents so that a bank can loan you appropriately. If that's the case, at what point can you save money on the build? Do you do change orders to cheapen out on certain materials? I'm pretty confused here about the whole thing. 


     We do this exact model in Columbus OH for multifamily. Land cost right now is approx 50k for an infill lot. We rezone it for 5k. 5k permit set / construction docs. 350k build. exit price is approx 510k, full return of capital on a refinance within 8 months. super simple. we build around 174 a sq ft and the exit price downtown is approx $250 - $300 depending on neighborhood, size, etc. 


    This is very interesting to me. How hard is it to rezone a lot? I have a lot that is zoned A-1A or Agricultural District (minimum building site of 1 acre). I would love to be able to subdivide it into two 1/2 acre lots.

    0Reply
  • Robert EllisBusiness Member
    Developer · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
    2y
    Quote from @Andrew Sundseth:
    Quote from @Robert Ellis:
    Quote from @Nik Kov:

    So I'm new to this, bear with me here.

    I'm trying to understand how to think about equity in a new construction. I've seen folks say things to me like, we spent 400k to build and then the house was appraised at 550k upon completion. How does that happen? Is it as simple as: "most houses in the area sell/appraise for X, figure out how to build a house for X-20%" and there's your 20% immediate equity in a new build? 

    Furthermore, I could've sworn appraisals are done when you have some level of construction documents so that a bank can loan you appropriately. If that's the case, at what point can you save money on the build? Do you do change orders to cheapen out on certain materials? I'm pretty confused here about the whole thing. 


     We do this exact model in Columbus OH for multifamily. Land cost right now is approx 50k for an infill lot. We rezone it for 5k. 5k permit set / construction docs. 350k build. exit price is approx 510k, full return of capital on a refinance within 8 months. super simple. we build around 174 a sq ft and the exit price downtown is approx $250 - $300 depending on neighborhood, size, etc. 


    This is very interesting to me. How hard is it to rezone a lot? I have a lot that is zoned A-1A or Agricultural District (minimum building site of 1 acre). I would love to be able to subdivide it into two 1/2 acre lots.


     I don't ever look at land to subdivide just entitle it to the max. add units, etc. or buy land smarter. it's not hard. you can handle all of it yourself but you need a good architect or overseas drafter who knows their stuff. 

    [email protected]786-494-6766
    Section 8 Launch52 Reviews
    WebsiteView Page
    0Reply
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