Have a good lot. How to get started as builder?

Question

I keep seeing how builders buy lots for $500k, build a huge 3000+sf house and then list for $800k. Its getting obvious that it does not cost a lot to build a house.

I would definitely want to minimize costs and maximize profits without being tied to the project every single day, how do builders get started?

Wayne Brooks · Answer

12 Dorothy dr. bought for 425, sold for 925.

13 raynham  bought for 412, sold for 875.

Still seems like tight numbers though, but know what you're doing.

Jason Hirko · Answer

I'd bet good money that he is losing more than $100k on that deal. You think he is buying a lot for $495k, selling for $829k, and pocketing $100k? He probably has close to $100k in closing costs, realtor commissions, financing costs, etc. So unless he can build it for $78/ft, he's in the red.

Martin S. · Answer

U telling me this guy is risking nearly 500k on the lot and building houses for 300k and pocketing $100k or under, seriously?

Martin S. · Answer

This is just one area. I can pick other spots/states and find similar examples.

Martin S. · Answer

Pretty much I saw a house in that area that the builder purchased for $495k and the new construction was 3000sf and asking price was $829k or something like that, the price was decreased twice so maybe that particular house was in an unfavorable spot or something wrong with it...  But obviously its not costing him more than $100 per/sf to build these houses.. Otherwise it wouldn't be worth the effort...

Martin S. · Answer

I will try to find the exact example I was talking about before, but here is one that is close:

12 dorothy drive syosset ny

another

13 raynham drive syosset ny

Jason Hirko · Answer

The builder in your example won't be doing that for long. The big national home builders are at $80 a foot on the very lowest end, and they have infinitely more economies of scale than you do. You'd be lucky to break even, and only if you were there every day and knew what you were doing

Wayne Brooks · Answer

You're a bit mistaken on your numbers.  Builders usually can spend no more than 25% or so of final sales price on the lot,  and they're not getting only $100/SF for buying such a lot, financing, carrying costs, building, selling, etc.  Your hard direct building cost will be around $100/SF, if you know what you're doing, and financing will be your biggest hurdle.  It will be a very hands on project.