Ground Up Construction - know before you build

[Samantha Chacon-Johnson]

Hello all, 

I am seeking advice about purchasing land for a ground up construction for a duplex (3 bed 2.5 bath, 2 car garage). My husband and I are considering this route as opposed to buying one. There are several reasons we are considering this, 1.) we have specific needs and can't find what we are looking for in a property (parking, garage, etc.) 2.) in our area it appears cheaper to purchase the land and do a one time construction loan as opposed to buying one, 3.) cash flow would be higher, 4.) this would be our second house hack and we plan to live in it for 3-5 years. 

If you have done this what would you have started before purchasing the land? For example: blue prints or anything else. What is something you wish you would have known before doing a ground up construction. 

Also, looking for general guidelines on how the process works, timeline, things to expect, what to ask lenders/tell lenders, rates. Or anything else that would be helpful. 

Thanks, 

Samantha 

[Chris Seveney]

Quote from @Samantha Chacon-Johnson:

Hello all, 

I am seeking advice about purchasing land for a ground up construction for a duplex (3 bed 2.5 bath, 2 car garage). My husband and I are considering this route as opposed to buying one. There are several reasons we are considering this, 1.) we have specific needs and can't find what we are looking for in a property (parking, garage, etc.) 2.) in our area it appears cheaper to purchase the land and do a one time construction loan as opposed to buying one, 3.) cash flow would be higher, 4.) this would be our second house hack and we plan to live in it for 3-5 years. 

If you have done this what would you have started before purchasing the land? For example: blue prints or anything else. What is something you wish you would have known before doing a ground up construction. 

Also, looking for general guidelines on how the process works, timeline, things to expect, what to ask lenders/tell lenders, rates. Or anything else that would be helpful. 

Thanks, 

Samantha 

Before purchasing land for ground-up construction, there are several key steps and considerations that can help ensure a smoother process. Here are the key components to focus on, drawing from experiences in the field:

Understand Your Needs Clearly: Before anything, identify your specific requirements for the duplex. This includes the size, number of bedrooms and bathrooms, and any additional features like a garage or outdoor space. Given that you're looking to house hack, think about layout options that can maximize rental income while being useful for your living. We spent more time designing our home than we did actually building it.

Get Professional Help Early: Engaging an architect early on is crucial. They can help create blueprints that meet your specific needs, ensure compliance with local building codes, and can guide you on what’s feasible on your chosen piece of land. It's essential not to skimp on experienced professionals—having a good architect can save you from significant overruns later. NOTE: Where most people miss the boat in costs is in the upfront design and soft costs - a builder quoting you to build a home is typically only 80-90% of the cost to build, you will have another 10-20% on top of that (not including the land).

Explore Entitlement and Zoning: Before making a purchase, investigate the zoning laws and whether the land is entitled for what you're planning. This process can be lengthy and varies by location. It’s wise to put the property under a purchase agreement while you investigate, which can often take four to five months.

Consider the Financial Aspects: Look into different types of financing. A construction loan is typical for ground-up projects, but be aware of the different terms and conditions. Generally, lenders look closely at construction budgets, timelines, and projected costs for building operations. Aim for lenders who specialize in such projects and understand the nuances involved. Financing for your first project may be more challenging.

Expect Delays and Budget Accordingly: Delays can arise from various factors including weather, supply chain issues, and labor shortages. A project that originally may seem simple could extend due to unforeseen circumstances. It's smart to allow extra time and budget for potential overruns. 

Plan the Construction Process: Work closely with your general contractor and ensure they have a sound plan for scheduling, managing supplies, and executing the project on time. They should also provide you with a guaranteed maximum price contract which helps limit financial exposure

In terms of a general timeline, expect to spend significant upfront time on planning and financing, followed by about 6-12 months of active construction, depending on the complexity and size of your project. 

Good luck