New home development strategy
Hi Folks,
I was sending message to Rich Weese and seeking advice about new home development strategy. It might be a better idea to post it here so everyone could share and exchange ideas. Here is my message:
[/u]Hi Rich,
I am an owner of distributor company. I am thinking to do real estate investment and building new homes is one of my options.
I had been reading your excellent postings in BP and learnt a lot.
Here are my questions:
Question 1:
How did you find good deals on building lots? Your new homes investment in McAllen, Texas is very successful. Did you live there for a while and found this deal?
Question 2:
How to choose location? Your lot in McAllen is very cheap but how about schools, local employment, neighborhood etc?
Question 3:
You have projects on different locations. How do you manage to monitor each project? If you are new to the town, how did you find reputable general contractors or sub contractors without supervise them?
Thanks!
Kevin Wang
Most Popular Reply
Hi Kevin,
I'm doing new construction development so I'll jump in and help with this one.
Question 1 - Finding Good Deals
For me, this requires a lot of networking. Deals can come from a variety of sources, but mine are primarily coming from realtors and individual sellers. The term "good deal" is subjective. I'm not necessarily looking for a bargain, I'm looking for a piece of property that fits my model and budget.
Question 2: How to Choose Location
I have a variety of things that I look at when choosing my locations. For the most part, I keep my properties within a certain area of town that 1. I know well and 2. Prevents me from having to drive all over the place for management.
The ultimate driver though is the business model. I know what the land costs, I know what my build costs, I make conservative estimates of what my actual sell price will be, I know what I want my margins to be, and I know what my fire-sale price would be.
I plug those numbers into a calculation and make sure the lot works by doing a drive-by. If it works and (this is important) I like the property and would personally want to live on the lot, I make an offer.
Question 3: Managing Multiple Projects and Subs
As mentioned, I lump my projects by geography. As of this time, I haven't had to NOT do this so I can't help you with that part. I do have a plan for the day that I need help though. I keep a mental list of people that I would offer the job to if I need to.
When it comes to project managing subs, it's just part of the job. I'm constantly on-site at my projects. I ask a lot of questions and I point out things to my crews if I feel it is wrong. For me personally, I feel that keeping my good subs happy, enables me to build quality homes and keeps my projects on schedule. I have some crews that are amazingly good at what they do. I respect them and their work. This means that I don't nickel and dime them to death and I give them the time they need to do a good job. When I need someone new, I ask other folks that I know that build houses. Many builders will share this information freely.
I hope that helps,
Lynn
Hi Kevin,
I'm doing new construction development so I'll jump in and help with this one.
Question 1 - Finding Good Deals
For me, this requires a lot of networking. Deals can come from a variety of sources, but mine are primarily coming from realtors and individual sellers. The term "good deal" is subjective. I'm not necessarily looking for a bargain, I'm looking for a piece of property that fits my model and budget.
Question 2: How to Choose Location
I have a variety of things that I look at when choosing my locations. For the most part, I keep my properties within a certain area of town that 1. I know well and 2. Prevents me from having to drive all over the place for management.
The ultimate driver though is the business model. I know what the land costs, I know what my build costs, I make conservative estimates of what my actual sell price will be, I know what I want my margins to be, and I know what my fire-sale price would be.
I plug those numbers into a calculation and make sure the lot works by doing a drive-by. If it works and (this is important) I like the property and would personally want to live on the lot, I make an offer.
Question 3: Managing Multiple Projects and Subs
As mentioned, I lump my projects by geography. As of this time, I haven't had to NOT do this so I can't help you with that part. I do have a plan for the day that I need help though. I keep a mental list of people that I would offer the job to if I need to.
When it comes to project managing subs, it's just part of the job. I'm constantly on-site at my projects. I ask a lot of questions and I point out things to my crews if I feel it is wrong. For me personally, I feel that keeping my good subs happy, enables me to build quality homes and keeps my projects on schedule. I have some crews that are amazingly good at what they do. I respect them and their work. This means that I don't nickel and dime them to death and I give them the time they need to do a good job. When I need someone new, I ask other folks that I know that build houses. Many builders will share this information freely.
I hope that helps,
Lynn
- Realtor, General Contractor, and Developer
- Redding, CA
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Lynn Currie has offered some good advice. The most important thing is to KNOW your market. You won't know if a lot is a good deal, if a house is marketable, etc., unless you are up to speed with the local market, so do your homework. Find out what lots are going for, and what the price includes. Also, what are homes in the area selling for? What are your costs to build?
Also, what is your experience as far as construction, and real estate and the processes involved with each? Have you had any experience doing cost breakdowns, getting bids, scheduling sub contractors, etc.?
Being a developer and acting as your own contractor are two different beasts. Builders buy a finished lot and build a house.
Developers are the ones that go in with the raw land (before anything has been done, prepares everything for a subdivision or to get the property to a point of doing the type of project you're planning (install the utilities, put in streets, etc.) and do all of the work needed to bring it to the point of being able to build something on it. Developers have to deal with Federal, State or Local authorities for a variety of things (Environmental, Dept. of Real Estate, Planning Depts., etc.) Once all of that is done, the lot is basically ready to build on, though, you might have to bring utilities from the street, put in sidewalks, etc.
Good luck!
- Karen Margrave
Thank you so much, Lynn and Karen. There are so much info I could learn. I know Houston pretty well. I heard some investors are building big homes in desired area but lot is very expensive. If in case the house could not sell, the 3.7% property tax and interest will eat up the profit soon. Also there is no way to rent it out to cover the expenses.
So there is no exit strategy unless we can find lot with very good value.
Rich Weese did very well because he could find lot with less than 20k and building cost is less than $60 per square foot. Renting out the inventory is a good exit plan.
I do not anything about construction. Maybe it is better to do rehabs before building new homes I guess.
Thanks!
Kevin Wang
Kevin WANG
The custom home builders in Houston have a few different strategies. A lot of the ones in the heights/garden oaks/memorial ect areas are purchased as lots, listed on the MLS with approved plans and they sit until they have a buyer, then alleviating what you talked about. Some builders simply get the LISTING from the seller of the tear down house to sell the home, and market it as a new home, cutting your exposure even more.
There are plenty of builders in Houston that are building spec homes and doing quite well with it. They know that the higher end homes are going to take a while to move and the margin for this is built into the deal.
You should come on out to our networking event next week in North Houston. Would be great to meet you. There is a good mix of people coming from newbies to the seasoned investors.
forgot to link to the discussion about the networking event.
I am out of country now. I would love to meet you guys in Houston. I have some friends building new homes in West U and made a lot money few years ago. It is a great idea to buy the lot, hold it, sell it with an approved plan. The property tax and interest are not as much as new home.
"Some builders simply get the LISTING from the seller of the tear down house to sell the home, and market it as a new home, cutting your exposure even more." My question is that the listing should be been sold quickly if it has good value, am I right?
My broker in law bought quite a few foreclosure SFH in North West Houston, south of 290. Cash follow is pretty good and houses are quite new. ROI is more than 10%. But it might be too safe to play if someone has capital compared with building new homes. Also I do not think the price of these house will be much higher in the near future because there are so much land to be developed, same situation in Katy.
Thanks!
Kevin Wang
#2 Off Topic Contributor
- Real Estate Investor
- the villages, FL
Hi Kevin – I'm glad to see you moved your post into a general thread here on bigger pockets for all to view. Sorry it has taken a little while for me to reply. Now to your specific questions to me.
1. I would say very few of my lots have been brought to me by a realtor. I have found most of them myself and that is the situation in South Texas. I actually moved to South Texas to purchase single-family residences, most of them on the courthouse steps in foreclosure. Once I got to that area, I did quite a bit of research looking for a project there could be successful. I think somewhere here on bigger pockets I have the information as to the subdivision I bought in Weslaco Texas. I was able to build value into the subdivision from the beginning. This was a 64 lots subdivision with only three finished homes when I became involved. I was able to make an offer, and receive a certain amount of time to do some due diligence with the city. I received tentative approval to turn the subdivision into a gated community and instantly built double value into the lots. Lots that I purchased for approximately 12,000 apiece instantly became worth 23,000+.
I did live there for two years but moved away 3 1/2 years ago. I do have a general contractor I am comfortable with as well as a hand-picked and trained property manager. I'm also looking at a couple of projects in my current area of southern Utah to purchase and turn into a gated community.
2. Weslaco sits between McAllen and Brownsville Texas with the town of Reynosa, Mexico just across the border with over 1 million people. There are many Hispanics looking to invest their funds in the United States and I believe seven bridges run from this part of Mexico into the United States. The Rio Grande Valley where my subdivision sits, has an additional approximately 1,000,000 people. This provides a good basis of potential customers for my properties. I have also developed the homes to be turnkey opportunities for investors as well as owner occupants. The rents are very good compared to the cost to build. The schools are excellent for this area of South Texas and probably one of the top-rated elementary schools anywhere in the area. The employment is an interesting scenario with many people working across the border in Mexico in many of our manufacturing plants that have gone that direction. This is also a heavily visited area by Winter Texans of which many end up purchasing a second home in that area providing the price is reasonable. There is a decent amount of commercial and also growth for this particular area. The big factory outlet store does more income per square foot than any others of the same developer in the United States. Much of that is due to the customers from South of the border.
I've mentioned before that I am also building homes in the southern Utah area and these are targeted for a particular buyer – upscale, in the $300,000 range of which many are a second home. I posted a thread the other day of my most recent home that went pending after only three days on the MLS at full price. I acquired another lot today that I had to pay a little more for but it seems like the market is going up quicker than the lot prices at present time. I have another lot which I purchased approximately one year ago that we have just finished our plan and anticipate starting sometime in February. This is a killer plan with a fantastic view and the floor plan takes advantage of every direction.
3. My general contractor in South Texas was located while I lived there. He became a good friend and I trust him explicitly to do a good job building for me. He finds all the subcontractors and I pay him strictly a cost-plus percentage. Here in Utah, one of my sons is actually a general contractor and I have many of the same subcontractors that I used when I built homes here between 1988 and 2002. I do have managers over all of my properties in Arizona, Texas, Florida and Utah. I also have a personal assistant that oversees all of my managers from my property in Florida.
I think this gives some basic answers to your specific questions and if you have other questions feel free to reply. I do feel you've received great information from those that have already responded to your request. Rich
Thanks Lynn for helping me too! My questions are also lying in your answer. We should go for deals after repeated research and references.