Investing in New Construction

Interested in New Construction

I inquired about some vacant land today close to a pretty popular area in town.  It is very important that when you purchase vacant land that it is actually vacant and there is not a structure already on it that you need to tear down.

If you have a situation where there is a structure that needs to be torn down before you start building there may be issues with asbestos, which is a very, very big deal so you need to be real careful about that.  It could cost anywhere from $10,000 to $20,000 to tear down a structure if it has asbestos on it.  

If you are interested in a property that has a structure already on it, it is probably to your advantage to have the seller go ahead and tear the building down before you purchase it; have it as a contingency in the contract.

We want to start by buying the property without the structure on there.  I ran into a piece of property today; it’s a fairly big lot.  We could probably fit two duplexes on it.  So that’s four units total.  Our real estate agent said that we possibly could get it for $6,000.  They’re asking $12,000 but, of course, we always offer half of what the asking price is.  

He said that he knows the situation and he very well could take $6,000 for the property. So if we could get the property in the city for $6,000, it’s an excellent deal.

Before we proceed with that I would like to meet with our contractor to get exact numbers and exact figures on what it would cost to build two duplexes on that piece of property.  I’m thinking it’s in the $80-$100,000 range, but these would be brand new units, we could rent them for $700 or $800 a month.  Our cap rate would be in the double digits again and that’s where we want to be.

We are looking at a lot and we’ll see what happens.  I actually talked to the agent about representing us when we are ready to inquire about vacant land around town that’s actually not for sale.  It’s a little bit more difficult – not impossible, but it takes more time to find vacant lots. 

After meeting with a few contractors and having them tell us it is cheaper to build than to remodel an old structure,  we are changing our game plan somewhat.  

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