Mass development of neighborhood - Invesment? Good or bad?

4 Replies

I'd like to talk a scenario out and get some advice on next steps.

We have a great rising market in the Texas hill country - specifically Johnson City. There's hardly anything available and when there is it is very highly priced and in poor/old condition. I'm talking about a 900 sq ft 2/1 built on 1950s selling for $280k

We have lived here for 7 years and have watched this happen.

There are several new city lots that have come available - some investors created a small neighborhood (paved roads, city water and sewer) and are selling 7500 sq st lots for $32k. There's 11 available.  They are on the east side of town so in a lower-income area.  

I would like to buy these lots - all of them, hopefully get them for $29k or so - and build basic 3/2 stick homes. Slightly above builder grade (level 1 granite counters, laminate wood floors, tiled showers, etc), but the idea being that they are universally easy to sell. They would sell for about $250k. I think, with the volume of work (building all at the same time) we could build for an average of $120k each (1600 sq ft). This is "starter home" price in this town. Also with building so many we kind of create our own comps and market.

I have enough cash to put down 20% down payment on the lots and construction.

Thoughts? Next steps?

Yep, it can be a great start in residential subdivision construction for you. As long as you have funds to cover holding costs in the inevitable case of delays. Next steps, form an LLC, submit an LOI to the developer. Build in your contingency for permit or zoning approvals. Hire an architect and away you go!

You are on the right track of thinking. The first thing you need to do is to really get a good solid grasp on what your building & holding costs are going to be and dont forget soft costs. This is what is going to make or break you bc so many people don't get these numbers right. 

I dont know your area at all but can you really build a house for $75/sf??? That seems extremely low to me. I would think in TX that $100-115/sf would be more realistic. My build cost for a duplex is coming in at just shy of $170/sf. I know my area is more expensive than TX but not over twice the amount. Also, since I'm talking about price per sf you need to start running numbers so you know what your project cost will be per house not your build cost. So many people think the the build cost is all they will have to pay and its is a very different number. i.e. my build cost is ~$170/sf while my project cost is closer to $200/sf. So you can see how someone new going in and only looking at the build cost will be very surprised when then get to the end of the project and make very little money...and sometimes even loose money. 

Very risky project in my opinion and I would not do it. Johnson City is a rural city and jobs are leaving rural cities to major cities. Historically, Johnson City did grow 4.24% from 200 to 2017 and has a population of 2,051. The growth isn't impressive due to being a very small city.

Future job growth, predictions by McKinsey Global Institute, projected 10-15% net job growth from 2017 to 2030 in Blanco County. I was very surprised, due to all the cities in Blanco County is rural. Maybe due being near to Austin and San Antonio. Not even 1 Walmart exists in the county. Due to the population of the county being only 11,464 in 2016, that growth job is not impressive. 

If you still plan to continue with the project.....My next steps would be 

1. Determine how many families are in the city?  How many families are moving into the city (short-term or long-term)? What are the biggest employers that are attracting these families? 

2. How many housing units are in the city including houses, apartments, mobile home parks, hotels/motels, and RV parks. Subtract housing units by the number of families in the city. If the number is negative, then it may be a good idea to build new housing units. How many new housing units were built in the past 20 years? 

3. Who is your competition and are they increasing housing units? I would network with them and find out their plans. You do not want to overbuild in the city. 

4. What income levels of families are coming in and what percentage of them are buying/renting whatever type of housing? Are the majority of them buying single-family houses or renting? If they are renting, are they renting a single-family house or apartments? What prices are they buying or renting the housing units at? 

Calculate the demand and supply in Johnson City, TX and it will give you a good idea to build or not.