Vacant Lot, Experienced Builders, need advise

5 Replies

Greetings BP

I just picked a a huge 9,000 sq ft vacant lot in the city of Orange, near Santiago Community College, its a very nice part of the city, in the canyons, a lot of beautiful and expensive homes along the hills.

I have been wholesaling for about 3 yrs, and just started rehabbing last year, I wholesaled the house next to the lot, and it just so happen the same seller owned the lot next door, so he calls me a month later, tells me he is leaving Ca for good...he 85 years old and just wants to sail.....and so he sells me the lot for 125k....unbelievable. 

So i put this lot out to my buyers at 225k.....I had the most insane response ever, emails, calls, text, these guys are acting like wild animals, my #1 buyer offered to buy me a redhead and a brunette at his expense...LOL this tells me i might be sitting on an opportunity...Now my question is should i keep this thing and attempt to build on it, or take this fast money?

Whats the process in building? Where do i go next? Should i offer this as a joint venture? Is it worth it in todays market? Would i be in over my head?

My brothers a broker, and i have decent reserves, and great credit, so getting a construction loan wont be may be a challenge but not difficult

3 closest comps, 799k, 865k, 878k and none of these properties were rehabbed all of them needed full gut..

I know theres so much in between but just looking at the surface to start with

Advice from some builders....

Thanks in advance

According to the National Home Builders Association the cost or construction for a new 2,390 +/- sq ft house with lot preparation is approximately $318,000 You can search their website for the 2011 home builder survey. It has a itemization breakdown of the lot and home building costs. As a long time NB resident and a Mater Dei family we've had friends and our kids classmates in the area of your lot. It's a great area and when combined with the excellent buy you got on the land it maybe an opportunity to hit one out of the park. If I were in your shoes I would quickly find several builders to gather some intel in rough costs and timing. Then take that info to a lender of your choice to establish the preliminary financing structure. Knowing how you would fund the project is paramount to the next steps. After you've determined a preliminary funding scenario then meet with an architect. Let them know you would like to have a site plan constructed laying out several potential home designs. Select the design that s/he and you feel is most appropriate for the marketplace. The next step would be to have the architect produce a set or working plans to get bids for construction from builders. I'm not a residential developer but I've done a lot of the above in commercial projects. If I were in your shoes is tap into your network to find referrals to architects and builders. You can obviously search Google, but a method I've used before in addition to my network is to visit construction suppliers (companies like ORCO Block) who supply builders with construction materials. Call the locatin manager and tell him what you're looking to do and that you're looking for referrals to builders. Vet each party in the process carefully. Architect, engineers, and builders. Ask for referrals and call them. Go physically see the work they've produced that is relevant to your project. Make sure they've build single stand alone homes. Good luck!

@Brett Synicky  thanks for the @mention! @Jason Farmer  that's a tough one. 

First off, did you advertise it for a specific price and now you're having second thoughts?  

Send me more information on the lot so that I can look it up on Google Earth, and look at some comps for the area, then I'll tell you what I think your best option is. 

When it comes to development, the zoning, topography of the land, the city it is located in, the neighborhood, etc. play a big part in the cost to develop it, and marketability. 

A joint venture of some type may be a possibility. 

@Jason Farmer, I think @Karen Margrave would be a perfect resource for you. She is a developer with a wealth of experience and located in Orange County. She is also well versed in structuring JV's if the opportunity has potential.

Once you have a development and construction budget, I would be happy to provide some financing options for the ground up construction. I am a direct, private hard money lender and we have specialized in these type of projects. We are based in San Diego and available as a resource. Good luck!

As @Karen Margrave mentioned, there's a ton of details related to the zoning and topography - principally whether the lot is level and graded yet or not, as well as whether there's water meter(s) and such already in place - that have big impacts on your costs and hold time.  I'm down the road in SD and not familiar with the specifics of city of Orange ordinances, but I'm working on a lot split and new construction project right now.

A couple things to note:

1. Zoning and ordinances change over time - don't assume what your neighbors have will be approved for the new construction.

2. You would dramatically increase your risk (and potential reward) by holding and building.  Interest rates, market fluctuation, local factors ... once you start, you're committed to a multi 100k project and there's no turning back - it's hard to know where all those things will be 12 months out.

3. Don't underestimate city fees.  They will be 10's of thousands, but on the plus side, you'll know the exact amount prior to committing construction funds.

4. Don't let any of this persuade you from going for it - from what you've described, this sounds like a project with ample room for profit.  You'll learn a ton that will open up new opportunities you don't consider today.  

5. Accept the fact that your first new build won't be as efficient as your subsequent ones. :)

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