What margins are you targeting on ground-up builds right now?
Member since 2021 · 95 posts · 23 votes
For those doing new construction, what kind of margins are you targeting in today’s market to make a deal worth it? With construction costs and holding costs where they are, I’m curious what numbers people are using to decide whether to move forward.
Are you still seeing deals hit your targets, or getting more selective?
The rule I use: back it out from your target exit price in thirds. One-third land/property acquisition, one-third all-in construction (permitting, engineering, teardown, new construction, stormwater management if required), one-third gross profit.
If you're using a construction loan, that leverage works in your favor — you're not tying up your own capital in the construction third, so your actual cash-on-cash return on the deal improves. Just make sure your exit price assumption is realistic for that specific submarket before you back anything out.
The rule I use: back it out from your target exit price in thirds. One-third land/property acquisition, one-third all-in construction (permitting, engineering, teardown, new construction, stormwater management if required), one-third gross profit.
If you're using a construction loan, that leverage works in your favor — you're not tying up your own capital in the construction third, so your actual cash-on-cash return on the deal improves. Just make sure your exit price assumption is realistic for that specific submarket before you back anything out.
That thirds framework is a solid way to keep things disciplined, especially backing into the deal from a realistic exit. When you’re underwriting, are you still seeing enough deals pencil out cleanly with that structure, or has it gotten tighter lately? It feels like that margin gets squeezed pretty quickly if the exit price is even slightly off.
George's thirds framework is solid. I'd add one thing that's changed how I think about margins on ground-up deals:
The margin conversation is only useful AFTER you've confirmed what the dirt actually allows. I've seen builders in Atlanta target 30%+ gross margins on paper, then lose months and tens of thousands when they hit zoning surprises, overlay restrictions, or environmental flags they didn't catch upfront.
So my process is: before I even model margins, I run a quick buildability pass on every lot. Base zoning, allowed density, setbacks vs. actual lot dimensions, flood/environmental overlays, and any special design standards. Takes about 20 seconds if you have the right data pulled together.
That one step has two effects on margins:
1. It kills bad deals before I spend money on surveys, engineering, or architecture - which protects margin on a portfolio level.
2. It sometimes reveals upside I wouldn't have modeled - like a lot that allows more units than I assumed, or an ADU overlay that adds a rentable unit I didn't expect.
To directly answer your question: I'm targeting 25-30% gross on infill builds, but I'm getting more selective on WHICH lots I'll pursue. Higher selectivity on the front end (buildability screening) means I waste less capital on deals that never close, which improves my effective margin across all deals, not just the ones that work out.
What part of Atlanta are you building in? Some submarkets have significantly more overlay complexity than others.
George's thirds framework is solid. I'd add one thing that's changed how I think about margins on ground-up deals:
The margin conversation is only useful AFTER you've confirmed what the dirt actually allows. I've seen builders in Atlanta target 30%+ gross margins on paper, then lose months and tens of thousands when they hit zoning surprises, overlay restrictions, or environmental flags they didn't catch upfront.
So my process is: before I even model margins, I run a quick buildability pass on every lot. Base zoning, allowed density, setbacks vs. actual lot dimensions, flood/environmental overlays, and any special design standards. Takes about 20 seconds if you have the right data pulled together.
That one step has two effects on margins:
1. It kills bad deals before I spend money on surveys, engineering, or architecture - which protects margin on a portfolio level.
2. It sometimes reveals upside I wouldn't have modeled - like a lot that allows more units than I assumed, or an ADU overlay that adds a rentable unit I didn't expect.
To directly answer your question: I'm targeting 25-30% gross on infill builds, but I'm getting more selective on WHICH lots I'll pursue. Higher selectivity on the front end (buildability screening) means I waste less capital on deals that never close, which improves my effective margin across all deals, not just the ones that work out.
What part of Atlanta are you building in? Some submarkets have significantly more overlay complexity than others.
@Landon Reid
That’s a great point on buildability first, I’ve seen how missing something upfront can completely throw off the numbers. When you’re running that quick pass, are you doing it in-house or pulling from a specific data source? Being more selective on the front end definitely seems like the only way to protect margins right now.
Brooke — to your first question: I do a mix. The initial zoning and overlay check I can do in under a minute using publicly available GIS data and a few tools I've built for myself. The deeper stuff (pre-app meetings, exact development charges, utility capacity) still requires phone calls to the municipality. But the point is I never make those calls until the 60-second check passes.
On margins tightening — 100%. That's exactly why the buildability filter matters more now than it did 2 years ago. When margins were 25-30%, you could absorb a surprise (longer permitting, unexpected site work, value engineering). At 15-20%, there's no room for error. One missed overlay or setback issue can eat your entire profit.
The way I think about it: in a tight margin environment, your edge isn't finding better deals. It's eliminating bad ones faster so you can focus all your time and capital on the ones that actually have a clean path to completion.
The builders I know who are still doing well right now aren't the ones finding secret deals — they're the ones who say "no" to 95 out of 100 lots and go deep on the 5 that have zero buildability surprises.
Brooke — to your first question: I do a mix. The initial zoning and overlay check I can do in under a minute using publicly available GIS data and a few tools I've built for myself. The deeper stuff (pre-app meetings, exact development charges, utility capacity) still requires phone calls to the municipality. But the point is I never make those calls until the 60-second check passes.
On margins tightening — 100%. That's exactly why the buildability filter matters more now than it did 2 years ago. When margins were 25-30%, you could absorb a surprise (longer permitting, unexpected site work, value engineering). At 15-20%, there's no room for error. One missed overlay or setback issue can eat your entire profit.
The way I think about it: in a tight margin environment, your edge isn't finding better deals. It's eliminating bad ones faster so you can focus all your time and capital on the ones that actually have a clean path to completion.
The builders I know who are still doing well right now aren't the ones finding secret deals — they're the ones who say "no" to 95 out of 100 lots and go deep on the 5 that have zero buildability surprises.
That makes a lot of sense, especially with how tight things are now. Sounds like it really comes down to being way more selective upfront and not forcing deals.
I’ve been hearing margins are getting squeezed. Are you adjusting your buy price or just passing more often? Either way, saying no that often probably saves a lot more than people realize.
I am not seeing the thirds framework referenced above work here. If you had 33% of the build ARV in land costs you would have an uphill battle. And 33% of ARV in total hard and soft costs tells me that either you are much better at this than we are, or your finished prices are very high to drive down that percentage.
I am not seeing the thirds framework referenced above work here. If you had 33% of the build ARV in land costs you would have an uphill battle. And 33% of ARV in total hard and soft costs tells me that either you are much better at this than we are, or your finished prices are very high to drive down that percentage.
Yeah, that makes sense, and I think the “thirds” idea gets misunderstood a lot as a hard rule when it’s really just a rough stress-test starting point, not a market-specific underwriting model. In tighter or slower-growth markets, I’ve seen land need to be significantly lower than that to pencil, especially once you layer in today’s financing and holding costs. And even the construction side can compress or expand depending on product type and exit price strategy.
Curious what your current target breakdown looks like in Cleveland/Akron right now, are you still finding deals that work for you at all, or has it shifted more into selective infill/value-add opportunities?
For one, we don't consider anything where the dirt is more than 20% of the ARV, and preferably lower. I advise clients of the same, but will build whatever they like.
Our build costs are the lion share of the breakdown, as our ARVs aren't as high as other markets (being MCOL). So it is even more critical for the dirt to be inline, to protect minimum profit levels.
I was just communicating with a guy in TX yesterday who is building at half the cost of what we are, and he isn't a seasoned builder.
Target margins go out the window when the house sits on the market.
we started two this past year with targets of 20%. Ended up at 12%.
What went wrong? Couple small ish bumps in costs due to requirement for a Nitrogen reducing septic system instead of a standard septic system. The former cost about 10k each while the latter cost about 6k. Those were the only cost overruns we had. The homes finished near target as far as hard costs. Then they sat for 4 months and we paid interest and dropped our price. I thought the area would sell better than it did. This was infill, close to downtown, but it was too close to a commercial/industrial area that turned buyers off. Plus there were some neighbors who didn't take very good care of their property. Anyway, live and learn. Fight another day.
Target margins go out the window when the house sits on the market.
we started two this past year with targets of 20%. Ended up at 12%.
What went wrong? Couple small ish bumps in costs due to requirement for a Nitrogen reducing septic system instead of a standard septic system. The former cost about 10k each while the latter cost about 6k. Those were the only cost overruns we had. The homes finished near target as far as hard costs. Then they sat for 4 months and we paid interest and dropped our price. I thought the area would sell better than it did. This was infill, close to downtown, but it was too close to a commercial/industrial area that turned buyers off. Plus there were some neighbors who didn't take very good care of their property. Anyway, live and learn. Fight another day.
Appreciate you sharing this, Jeremy, really good real-world example of how quickly the market + holding time can change the outcome even when build costs are on target. Definitely a tough lesson. Thanks for the breakdown.