My family owns a plot of land in Ocala Florida in Silver Spring Shores. We get letters in the mail daily about people wanting to buy it. This made me think the area is picking up and is now desirable. 

Did some research and found out that to build a modest 3/2/2 home 1600 sq ft with a builder I somewhat trust is about 135K.  Rents in the area are around 1k per month - not meeting the 1% rule which I try to follow.  

Is there any way to get these numbers to work? Should I look at this as a flipping opportunity and not a buy and hold?  

Any local advise on this situation and the area is appreciated. 

What can you sell the land for?  Have you thought about selling it and putting the $ into down payments on a couple of good buys that are producing cash flow in the area?

Originally posted by @Mary K. :

What can you sell the land for?  Have you thought about selling it and putting the $ into down payments on a couple of good buys that are producing cash flow in the area?

Hi Mary, 

People are offering low ball offers of 3K so I don't know how much it's really worth.  My WAG is 8-12K. 

The land is not actually mine it's my mom and uncle's so they would make money on the deal and not me. I did convince them to let me build on it so that's why I was trying to make it work. 

What it is 1600 sq ft house worth?

Originally posted by @Nelson Hernandez :

What it is 1600 sq ft house worth?

Not sure. Having trouble finding a true ARV. Asked one local realtor and he said 135k but when I research on the words "brand new" within the square footage it's showing it much higher.

Values at 135k nor 155k seem appetizing to invest in. Why would you spend 135k to build with a lot worth 5k, puts you at a total cost of 140k plus any unforeseen costs that come along the way. Doesn’t even come close to making sense.

Originally posted by @Nelson Hernandez :

Values at 135k nor 155k seem appetizing to invest in. Why would you spend 135k to build with a lot worth 5k, puts you at a total cost of 140k plus any unforeseen costs that come along the way. Doesn’t even come close to making sense.

Correct and that's my question.  How are these other people making it work?  Could they build for a lot less?  Are they throwing up cheap crappy homes? 

@Chris Ayers , "they"re either buying retail to live there or they're a builder and probably making a normal 15 - 20% profit on their labor.  

That extra $20K - $30K of margin is available to you if you want to get into the retail spec construction game.  But you've got quite a few things against you - distance, no established crews or economies of scale, If you build you'll pay double or triple the tax on profit and not be able to 1031. 

New construction really isn't an easy game.  Your lot is probably worth around $10 - $15K.  A builder would buy it at 10% of construction price all other things being equal.  You can pay 15% capital gain tax on that and walk with $8500.

If you build you'll still get an allocation of say $10K for the lot plus 15% of the construction cost ($20K ish).  So you're total profit would be around $30K but you'll now pay probably as much as 35-40% of that in tax.  So you're net $18 - 20K.  And that is if the stars align.  Usually there's a hefty "rookie tax that can easily eat up 20% of cost of construction.  And when it does you're building for free.  Not to mention the time angst and opportunity cost.

If you're a builder go for it.  The area is active.  If not I'd take the modest lot profit and call it a day.  I take my own medicine.  I've developed 200 lots in the midwest and I built on one and broke even.  Since that time I'm just selling lots and am happy as a clam even though I'm leaving about $5 million in construction profit for the other guys.

@Dave Foster Thanks for the response. Makes sense. 

Guess I'll carry on with my 15% CoC in my other areas.

@Chris Ayers exactamundo - there's no inherent glory in swinging a hammer!  I can make enough of a mess in my back yard for free.

Residential real estate is picking up in the shores and you are right....the mailings are for people who have a plan ie either a builder or a wholesaler. One option, if your mom is tired of it, would be to list it, depending on location, thede lots are changing hands.......no idea what she paid but now might be the time to take the gain or loss....

You might be able to make a deal with a builder where you team up, the lot as equity in a spec construction loan, and you split the profits on the house sale. When I was building a lot, we did that several times and it worked out good for our partners. What builder are you thinking of? Or what Chris said is good. Just sell it. Are there plenty of lots for sale there? I have not checked the listings in that area lately.

135k to build 1600sq feet seems very low 

Originally posted by @Michael Plante :

135k to build 1600sq feet seems very low 

 A lot were in the 150K range.