and build a brand new home in it's place. I am doing this in an area of town where this is very popular so my new house won't stand out or appear odd.
I would like to tear the old house down and build a brand new house in it's place. I am not a builder, however one of my very good friends is a builder and he told me that he would build me the new house at cost plus a 10% markup. He says that I can then sell the new house and still make money by marking it up higher than the 10%.
Does anyone have any opinions on this model? Can I really make money doing this?
Thank you! I am new to this board and I am excited to hear from you!
If you're getting the home built cheap enough, it could be worth it. First, you must consider the cost of tearing down the old home, and removing all the debris. Add that to the cost of building a new home, and see if it is less then the average going price of homes in the neighborhood. If it is, then it would likely be a good investment.
Are others in the neighborhood doing this for investment, or because they want to live in the newer homes?
Don't forget all the hidden costs of tearing down a building and rebuilding.
most of the people in this neighborhood are buying the old homes and tareing them down and building new homes for themselves. However, they have to hire a buidler to do this. I am trying to find out what a typical builder's markup is on new homes when he builds it for someone to live in.
My friend is offering to build me a house at a 10% markup...and he says I can still sell the house for a profit because that is much lower than the typical builder's markup. I am hoping somone can weigh-in on this....meaning, what is the typical markup? 15%? 25%? 35%?
Thanks for your reply Pam. I appreciate your input. To demolish the old house (which includes them taking away all teh debris) the cost is pretty small. Considering we are wanting to build a $350k house the $10k to demolish it is not a huge expense.
Big time, are you tearing this down with your own money? Or are you using a Construction loan to do it? What state is it in?
Jeff - i am using a construction loan to do everything. Tear it down, and build the new house...I am in Texas.
I don't know what the typical builder markup is...but the best way to guage what you might expect to make is to look at what similar homes to the property you plan to build are selling for in the area.
Since you already know what it is going to cost to tear down, and build, you should be able to determine what your potential profit margin is from there. Don't expect your new house to sell for 50k to 100k more than other properties in the area just because it is new. I'm not saying that the property can't sell for this much more, but you have to justify the price, otherwise you can get yourself into trouble.
Be conservative about what the market can bear, and be sure to include carrying costs just in case it takes longer than you expect to sell the property once construction is complete. Sounds like a fun project, hope you make some good $$$!
so no one else can add anything to this?
I will give you the circumstances of my deal which was like yours minus tearing down the home.
In July 03 I bought about 1/2 acre for $23K, with the intention of a contractor handling all the construction steps, I'd advertise it FSBO during construction.
I had a construction loan for $130K.
The con. said he could build a house appraising at about $190K
All I could see was spend $130K, sell for $190K I make $60K in 6-8 months. Not reality!!!!!!!!!!!!!!!!!
I had to fire that con. got a new con. who could build the same house but at $147K ($10K just for his company) I just lost 17grand.
Then minus land and closing costs $26K.
Now I'm out $43K, but what I've got to gain, about $17K. (not bad for taking the risk...... I thought)
Construction finally began, the con. went over budget $7k, I lost $7K. Now only $10K left to make for me. Make sure your contract between you and the contractor states any cost above 3% of the estimate the contractor must absorb, and track it, track it, track it!!!!! A $1500.00 quote for bricks should be $1500.000 not more if so, why, but don't let them slight you by going with cheap material to make the budget, they just have to negotiate better.
TO get to the end total construction cost. $182K
But I failed to and interest. $6K worth. I've only got a $4000.00 profit on a $190,000.00 investment. But the con. got $10K.
Oh guess what, because of the Brac (Military Base Closure Inspections)or market slowed down really bad. The house DID NOT SELL. So now I'm trying to get a huge mortgage to move in myself.
The two advantages I've have going for me are the appraisal came in at $208K Thank God and the area is a pretty rapid appreciating area. After 2yrs I'm hoping to put it on the market and move on maybe try it again, but if I do, I'll build it and contract it myself. One step at a time.
After I went through all of this, my loan officer said "we see this all the time, if you would have asked us we could have told you what you should have expected what you should have done in the estimate procedure, making sure you calculate all the hidden, unexpected costs. Go see if your lender will give you this type of input.
My .02 cents that cost me $190K plus to gain.
JMinor. Thank you for sharing your experience. I learned from it, so thank you. I guess the moral is also to be sure that there is enough demand in the area that you're developing in. I hope you get the profits you seek.
In regards to the above topics. What about those investors that move or relocate the home to another piece of land, rehab the outside, prop a sign up for sale and cash in a though they built a new home. Would that save the investor on demolition costs. Just a thought, Remember reading a person who was selling there home for a $1.00 in Oakland, CA. Fine print he was selling the home not the land with it. Wanted someone to buy the home so he could contruct a new property on the land.
Today I saw the same deal, investor is pouring new slab with the house on stilts next to it waiting for the concrete to dry. I am really interested in seeing how much he sells this for.
Third home I saw this way was when I was still in College and a person had bought two parcels. Took the home from one parcel and connected it to the home on the parcel he/she decided to live on. Remodeled the outside of the building structure to look like a million dollars and than built 5 homes to equal a suburb on the parcel across from his. Reason I was curious was because a few months before he moved the home over it was damaged in a fire. The owner has not sold the home he/she lives in last time I saw they still occupied and were still adding fixtures to the home.
So, I guess is this also a way to recycle the home and yet save cost for both investors. If so is there more red-tape with the building inspector to work through. Just a thought.
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