Fully Developed Lots, Build New Homes?

Question

Hi, Folks,

In searching Zillow yesterday, I came up with some lots in an unfinished subdivision. I drove out there last evening and yes, the utilities are in and the lots are fully developed - paved streets, street lights, the whole thing.

Does anyone have any experience buying up lots like that and building new?

I have contacts in my investing group who are connected to manufacturers of modular homes - not "manufactured" (trailers), modular: homes are stick-built in pieces in a factory, the pieces are shipped to the home site on flat bed trucks and assembled onto the foundation. If you didn't see it get put together in a matter of days, you wouldn't know it wasn't stick-built on site.

Most anything from a SFR to a 6-flat can be assembled on a prepared site in under a week. Once the site is ready, a structure can literally be put up in a little over the time it takes the concrete to cure.

Anyway, any experiences with new construction would be helpful.

Thanx in advance...

Jay Hinrichs · Answer

@David Dachtera  first course of action is to simply and I say very simply.. go to the county or city .. talk with the planning department.. and make sure the lots were recorded as final plats.. and are legal lots of record. just because utls are in does not mean the plat was recorded.

then see if there are any other red flags..

then go to public works ask the same questions.

then go to the building department and make sure they don't have them flagged.

Once you get that done then you can make an offer SUBJECT TOO receiving approved building permits from the country or city or whoever the jurisdiction is.

This is what I do in Charleston these days when you have BAR review and other impediments I make my offers subject to actual permits being obtained.. Now of course being a developer I risk the building plans and other cost Usually 5 to 10k per home. but that's just the cost of doing business and we pretty much hit 99% success. but there are instances were we lose money because permits are not going to be issued.. but again just little hiccup and easily eaten.

When I am doing my larger developments.. 20 to 50 lots.. I won't close on the dirt until I have approved engineering plans that I can start to move dirt.. these plans usually cost me 75 to 150k upfront. and if I don't get them I lose that money as well. It has happened to me but not often.. I lsot 80k on one deal I Corvallis a few years back.. ( Oregon State).. but heck that's what being a developer builder is all about.. big risk big reward.

Jay Hinrichs · Answer

@J Scott  HOA s  are an important part of the due diligence.

what I have personally encountered since the melt down.. is that the HOA's were never really formed other than the CCR's recorded.. developer ran out of money.. home owners never had a turn over meeting.. so its a rudderless ship.

I built some homes over on the Oregon coast that was like that.. there was and or is a HOA but no one is running it.. so no one to talk to about design criteria.. and out our way .  The city won't enforce HOA.. so we just built what we wanted.

And on my subdivisions I am currently building I do not record CCR's or create a HOA.. its only mandatory if we do a PUD... since I am building all the homes and ( praise the LORD almightly ) they all pre sold we are in and out of 27 homes in one year.. and I just leave the folks to self govern themselves.. there are actually a lot of buyers ( at least at these price points starter homes here  350 to 400k) that prefer NO HOA .  :)  But very valid points you raise

J Scott · Answer

The one big thing I'd add to what Jay says above is to review the HOA covenants.  If it's a higher-end subdivision, there are likely some very specific requirements for what you can (and what you must) build.  For example, properties are likely to be required to be a certain size, using certain exterior materials, etc.  It's possible that the configuration of the lots makes it difficult or undesirable to build what the HOA requires on those lots -- or is difficult to adhere to HOA covenants while still adhering to zoning rules.

That could be one reason why the lots were never built on.

Also, if it's a high-end subdivision, it's quite possible that the covenants won't allow you to build what is generally available with modular home designs.  They may have mandates that essentially require stick-built houses, which would be more expensive, and may make the lots financially unfeasible.

That could be another reason why the lots were never built on.

Lastly, consider that if it's a package deal, some of the lots may be buildable and some may not be (or may be more difficult, less profitable).  If that's the case, you're going to need to assess each lot individually and determine if the average profit per lot is high enough for the profitable lots to outweigh the unprofitable lots.

J Scott · Answer

I've done it.  Happy to answer any specific questions, but in general, it's definitely doable.

You should try to determine why a particular site wasn't built-out originally?  5-8 years ago, you could pick up these lots because developers went out of business before completing the subdivision, but these days, if a developer isn't developing a particular lot, there's probably additional reasons (didn't perc, slope/shape is bad, utilities are tricky, etc).

David Dachtera · Answer

@Yadira Gutierrez,

Your manufacturer should have pictures of house modules being assembled inside their plant, being delivered to the site, put into place by cranes. If not, check the other mfr's websites and "borrow" pictures from them.

The necessary documentation should also be available directly from them.

Yadira Gutierrez · Answer

@David Dachtera

I have looked into modular homes before and the confusion is huge. Even the manufacturer's websites do not provide a clear explanation or distinction.

Do you have any literature from your contact that could be used to present it to the departments? Something that would provide the specs or have the technical language to talk with the higher powers?

David Dachtera · Answer

I'm thinking the modular home manufacturers would probably know what you can expect. You need to stress to the building departments, etc. that modular homes ARE stick-built, just not on-site. They are built in sections ("modules") in a factory in controlled conditions (no rain, sleet, wind, sun, etc.). The modules are then trucked to the home site and assembled onto the prepared foundation / basment, usually in under two days.

Yadira Gutierrez · Answer

Hello BP Community,

I too found some lots mostly in moderate to low-income neighborhoods. They are not sold together; they are empty lots between houses in different areas within the same zip code. They are advertised as follows; Cleared lot in residential neighborhood. City water and sewer are available.

No HOA.

If there is no HOA, which city department (if any) could tell me if the modular homes are allowed?

I am looking to build and sale.

Thanks!

David Dachtera · Answer

@J Scott and @Jay Hinrichs,

That's kind of what I was thinking as well - just wanted some confirmation and further insights.

I still have to get the modular home builders on board. I'll need to work up a LOT of numbers on this, and theirs will be important, also.

Thanx much!

I do have someone to work with locally, as well. One of my group leaders is part of a team which has acquired some partially improved lots - the developer ran out of money much earlier in that project. So, I can "coat-tail" on some of their learning, and perhaps contribute some of my own.

Thanx again...

David Dachtera · Answer

@J Scott,

The lots are listed for sale in a "package" of 13 lots, non-contiguous. I'll have to look a again to see who the seller is.

I did visit the site and there is no visible issue with the lots. They simply weren't built. The streets all dead-end. One of them into what looks like it should have been more lots, but instead leads into grass and huge piles of earth which have since grown over. The longest street simply dead-ends into a cul-de-sac. Genuinely looks like the developer ran out of money.

It *IS* an upscale subdivision, though: the home look like 4-5 bed, possibly 2.5 or more baths, easily 3000+ sq ft.

I'm thinking it was just bad timing. I'll have to check when the existing homes were built and see if that correlates to the crash.

It is possible, though, based on the sub-division where Iive, the geology may have been unexpected. In Phase I here, the homes with basements have the "ground floor" well above grade because the bedrock depth is so shallow over there. So, that's a possibility.

Fully Developed Lots, Build New Homes?

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