Houston lots as an investment

13 Replies

Is it possible as an investment, to buy a lot in Houston and build a house(or townhouse...)  by hiring a builder and still make decent profit or are prices already too tight? Any ideas, examples or references?

Thanks!

@Begona Miron It depends on what price you buy the lot for, your build price per sq. ft. and how close your sale price comes in to your ARV estimate. In general though, I would have to say yes just by looking at what's going on inside the loop especially in the Wards in areas that didn't flood. If it wasn't profitable, then those townhome developers/builders wouldn't be buying up anything they can get their hands on.

@Begona Miron I think this might be more of a mindset/strategy question rather than a feasibility question. Here’s what I mean.

Infill new construction in Houston is a very competitive market played by people who, by and large, have a lot of money and a successful business model. If your goal is to compete with them and build a single family home on a single lot and sell it for profit, then yes, it’s very possible the sale price gets eaten up by construction costs, debt service, realtor commission, and capital gains taxes putting it out of reach of many solo investors.

However, if you build a duplex/triplex using an FHA construction to permanent loan, you start playing a different version of the same game. You would have to live in it for a year to satisfy the owner occupancy FHA loan requirements but you essentially are doing a new build house hack and the benefits of that have been thoroughly documented here. This strategy sets you apart from the developers because you have the benefit of time where they have the benefit of large access to amounts of capital. FHA loans are cheap due to the 30 year amortization schedule back by the government whereas private money/hard money used to develop is expensive and on a much shorter (1-2 years max) amortization backed by other investors looking for a higher return.

So now if you take your advantage one step further and live there for 2 years while renting out the other unit(s) and then sell it for a healthy profit, guess what? Those taxable short term capital gains you would have paid selling the property once completed 2 years ago now become tax free profits off the sale of a primary residence.

That’s my view on the situation, so take it with a grain of salt, but try not to look at any opportunity in a binary (can/can’t work) framework but rather a “how can I make this work for me” framing.

I keep thinking about selling this house I live in now, which has some equity, and doing a new loan to build a triplex or quadplex. No idea where to even begin with this. It is a bit too big to rent, so not sure it makes sense to hang onto it - but I do have a VA loan so that might be useful, if I can reuse that for the 4-plex.

Wife-unit will not be wild about this plan either - although, she does get the whole tax aspect of it. I might could approach it from that angle... We'd be living for free, or close to it, and we could refi out of it and get another SFR in a couple years.

@Mark Sewell you can use a VA loan to build a quad plex. SIngle family lending goes up to 4 units as long as you live in 1 of them. I think you would have to sell the house you have now with a VA loan or refinance out of it in order to get a new VA loan. I don't think you can have more than 1 in your name at once due to the primary residence/owner occupied requirements.

@Begona Miron I have to respectively disagree with Adam comment. I am solo investor myself but have little more experience than new comer. I was able to buy a lot and construct townhome SFH and sell it last September and made some profit. Yes, there is opportunity available and you are not fighting with any big timers. You just have to pick the right location, right lot and right builder to partner. BTW, I am not doing in anything inside loop. That's different game all together. Check out my post regarding my experience,

https://www.biggerpockets.com/forums/756/topics/763623-what-do-i-like-flip-or-new-construction

Originally posted by @Adam D Rinehart :

@Mark Sewell you can use a VA loan to build a quad plex. SIngle family lending goes up to 4 units as long as you live in 1 of them. I think you would have to sell the house you have now with a VA loan or refinance out of it in order to get a new VA loan. I don't think you can have more than 1 in your name at once due to the primary residence/owner occupied requirements.

Yeah I am aware of that. I've talked to my VA loan originator guy in fact about re-using it. What I don't have a grasp on is using a VA loan to build new. Interesting to consider. Just seems like it would be a challenge to get the financing lined up.

Probably would try to just sell this place, capture as much of the equity as I can, and plow that into some little SFR that would make a good rental candidate (using conventional and not VA). Make it a live-in remodel (so my wife won't bail on me) with the goal of renting it out later. I guess we'd need to live there for 2 years or so in order to not pay capital gains (somebody correct me on that if I'm confused). Then we can start working on getting reapproved for the VA loan to do the tri/quad flex.

Of course, you still have to figure out the debt/income ratios and qualify for all that... that's the part I'm fuzzy on.  I mean, it's basically project finance - you haven't built anything yet, how do you demonstrate that you'll have rental income.

Originally posted by @Juan Abreu :

@Mark Sewell

I spoke to my VA loan officer a couple of weeks ago and he said I could not use my VA loan to build a multifamily, only a SFR. He also said you can't use to add units, it has to be for a home built from zero.


Ask your VA loan offer again - specifically ask him about 2 - 4 units, are they considered multifamily? Pretty sure only 5 units and up are considered MF. Maybe some lending professionals will chime in on that.

  

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