Help Analyze this Spec Home Deal. Good enough for funding?

9 Replies

I'm an experienced builder who lost a lot of money when I invested into restaurants.  Hard lessoned learned, stick to what you know.  I'm trying to get back to my first love of custom home building.  The market I'm in, Charlotte NC, is very hot for new homes.  I have a deal in which a land owner will put up the land, interest free, even take a second position in deal, he gets paid out when the project sells.  The subdivision is very nice, a recent new build that I'm basing my comps off of sold for $300k.

Lot: $48k - free and clear- owner putting it up.

Construction Costs- $180k for a 2200 sq ft bungalow, on slab foundation, with nice upgrades

City utilities and flat fully treed lot.

Total All in including the lot $228,000

Sales price - $300,000 on the low side.

4-5 month build time.

Does this deal make sense? 

Where's the 180k coming from and how much does it cost you?  What part of Charlotte is the neighborhood?  What is the status of the subdivision? many more lots or few remaining etc  

What is the market value of the lot?

I'm trying to get the $180k funded.  Last remaining lot in upper end subdivision close to university in Charlotte.   Subdivision is 90% built out.  Market Value of Lot is $48k

is the 180k your cost to build or do you have some profit in there?

Building Costs, a little contingency funds.  No profit.

I'd say it's a bit thin, if you sell for 300k, you will net around 270k after transaction costs etc, so about a 40k gross profit prior to money cost.  So I would hesitate if you are simply borrowing the money, but if you can partner with a money person that covers your risk, then you just have to determine if making 20k thereabouts is worthwhile for your time involved.  

Yes, if I had to pay full real estate transaction fees it wouldn't be attractive.  I've thinking of heavily marketing it myself through out the build "buy direct from the builder" "pick your own finishings/colors" ect and save on all the realtor fees.

You should be able to get the 180k funded since the LTV will be so low, provided the lot seller is willing to subordinate. That being said, I agree with @Scott Patterson that this is a thin deal.  Are you splitting profits with lot seller?

No, seller just wants $48k for the lot, upon sale.  That's it, no interest.

Im not a fan of "saving realtors fees"  the savings usually show up somewhere else, but it is a bit different on a new build but I wouldn't factor in the savings in the business decision for doing the deal.  I would only treat it as icing.

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