Vacant Lot - Build or Sell?

Question

Hello BP,

Our company has a small lot in an improving area of Decatur, GA.

Our current All-In expense is $13,000 (this was a tax lien) and we have an outstanding liability of $11K, which could increase our total all-in expense to $24K (rounding up). There is a chance this $11k liability goes away, which would be great and keep up all-in at $13k.

The houses in this area are renting between $1,000 - $1,400 (two homes listed within a half-mile). I think the rents are more like $1,000. The home sales on this street for 3 / 1 are around $150K, but houses just one street over go for $200k+.

We are buy and hold investors, we just bought this lot because it was so cheap. We also have the capital to build without having to borrow.

We've been offered $35K, which is an easy way to make a quick $11k on the deal, but this isn't our ideal strategy.

Our goal is to BRRRR our way to financial freedom. We have never built a house and our development research says you can built for all sorts of $$ / sqft and we don't have a good contractor that we can trust.

What Would Bigger Pockets Professionals Recommend?

Thanks to in advance all!

Michael Gansberg · Answer

@Ned Carey - I think that's good advice, and conservative as well, but @Rob Wilcox got into buy-and-hold and apparently has done it successfully- maybe he would do well to diversify into building from the ground up.

I've shied away from it for the reasons you mention, but dealing with 100+ units of housing, most of which was built over 100 years ago, occasionally leads me to think wistfully about new construction. Imagine if I didn't have to continually worry about things breaking! And then reality grabs me, when I realize I bought an apartment in NYC built in '08, and even that building has had its share of problems.

Rob- why not interview a few builders? See what the costs will likely be(and check references/web reviews diligently.) It sounds like you have a good idea how much rent the end product will probably fetch. If your anticipated returns(measured by cash on cash and appreciation) are similar to what you expect in buying a local property, I say go for it- if you're off by a few percent, you've learned a valuable lesson. If you're even or ahead, you've learned a valuable lesson.

And while you're at it, check into Passive House building standards(google "passivhaus standards.") If you're lucky enough to have a local builder with experience building passive houses, you may be able to build a house which requires almost zero supplementary heating and cooling, and it will have lower water bills as well. An experienced builder can make houses that way without a very large premium(construction costs rise, but HVAC costs decline to compensate somewhat.)

MG

Ned Carey · Answer

@Rob Wilcox if you haven't built before and you don't have a contractor why would you consider it? Building homes is not your business model, buy and hold is. Building homes is a very different business, not only from buy and hold but from renovating to flip or hold.

If you don't think this is your ideal strategy, do you think starting and learning a new business is? To me this is a very clear and easy choice - sell.  Take that $11K and reinvest it in what you already know and do well.