What’s Your Biggest Challenge with New Construction?

Question

I’ve been deep in the new construction game, specifically building triplexes, and I’ve seen firsthand how it can be a game-changer for cash flow and equity. But I know a lot of investors hesitate to take the leap.

If you’re thinking about building new—what’s holding you back? Is it financing? Finding land? Dealing with contractors?

Drop your biggest challenge below—let’s talk solutions.

Brady Morgan · Answer

@Robert Shoffner:

Good question. My advice is to become familiar with pricing in your market and over time you will learn to recognize a good deal based on location, permitting requirements, and demand dynamics. In general though, I would not pay more than 20% of the finished value on the land. Around 10% and you are in a good spot. Obviously the lower you get that the better. But over 20% and it becomes quite difficult to profit, in my experience.

Robert Shoffner · Answer

Does the 10%-20% lot purchase price hold true for BOTH new development and infill?

Nakia Raleigh · Answer

Thanks for this question, I just purchased a lot with a tear down house on it but the lot is big enough for a multi family unit.  When you have new construction are you concerned with parking or do you let the tenant fend for themselves on the street?

Robert Shoffner · Answer

Biggest hold up, not knowing what to pay for the land/purchase price.

Construction costs are a little easier as I have a great, trusted builder, but one has to be able to sell the new house at a profit.  Is there a formula you recommend for buying?  Like an ARV formula, 1% rule, etc.  But some sort of way of knowing if the price makes sense.  I would like to build fairly inexpensive housing outside major metros ideally.  I am guessing you back out expenses for lot development, that sort of thing.

Jeremy England · Answer

Max lot price is relative to the market and the specific site.  For example, I'm  purchasing a parcel that I intend to divide into 3 lots and based my offer on what I was comfortable spending per lot.  However, knowing my local market I know those lots lie inside an area that requires a nutrient reducing septic system. Those cost about 11-15k each.  So you have to factor that kind of thing into the land purchase.

Robert Ellis · Answer

in our market I underwrite max 15% of after built value but national builders go higher. we try to stay around 10% but anywhere 10-15% right now is good in our market and reflective of the market. we like being right by other new builds at high prices. but lots go for up to 100k by national builders at scale in suburban markets. check out Forestar read their financial statements they sell 15k lots a year to Dr horton

What’s Your Biggest Challenge with New Construction?

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