Selling A Property to A Building Company
Dean LittlefieldPro Member
Member since 2025 · 5 posts · 2 votesI am considering buying a property in my hometown that is prime location for new luxury construction. This neighborhood already has many new builds going on and a new project starts every month. I believe I can get a property for a very low downpayment and quickly sell the home to a builder. I've never sold or even engaged in conversation with a building company regarding selling a property, so I am posting to the BP community for advice on the topic. Anything helps, thanks!
I assume it’s not listed for sale anywhere? (Otherwise the builders would have already bought it if they liked the price?)
If you sell within in a year, or always intend for it to be a flip. (Never rent it out or live in it.) It’s going to be considered a flip and you’ll owe regular income tax plus 15% self employment tax.
Have you looked up the previous new build lots to see how much the builders paid? (If they were empty lots figure a lot with a building to be worth $20-$50k less to a builder?)
As long as you’d be happy to own the property for 3-5 years if no builder is excited about your lot or your price. You’re ok with the big tax hit,. And you’re sure you’re buying significantly below what they’ll pay, go for it. A learning experience if nothing else. Help out the home town even if it costs you some money.
@Dean Littlefield I'm a land broker who sells land to homebuilders for a living. You didn't really give an ideal of scope/scale as far as if you are talking about one lot for a custom home, or if you are talking about a piece of land for a potential tract of multiple homes. Be very careful of what you buy, sometimes there are lots/parcels that have latent development constraints that are very expensive to overcome, or sometimes they can prove to be a fatal flaw. For example, people often come to me with parcels they bought at tax sale that they thought they got for a steal, but it turns out the previous owner essentially was able to successfully abandon the property via not paying the tax bill for a few years. Zoning, drainage/hydrology, environmental, topography, utilities, irregular parcel shape, access, easements/encroachments, etc can be issues. But let's say you are buying a parcel that is perfectly buildable and you want to essentially flip it to a local builder who does custom homes in that area. I'm not sure if you are in a "disclosure" state meaning that it's public record as to what you paid for the land, but sometimes there is a psychological hurdle where if the builder/buyer knows you got it at a good price, they aren't excited about helping you make a quick/fat profit, not that there's anything wrong with that, but some of those local custom homebuilders are very territorial about certain neighborhoods and thus a bit entitled. But if you invest a little, i.e. 5k-10k into getting a survey, maybe soils report, conceptual site plan, etc and add value in a way, then that may help.
@Dean Littlefield How big is the parcel? Is it large enough for multiple units or a single home? My suggestion would be to conduct as much Due Diligence as possible before submitting an offer to the Seller. You need to research the zoning to understand what land use is allowed and at what density you could build, i.e. residential with 4 dwelling units per acre (du/acre). I would also highly recommend driving over to the site and do a visual analysis of the site as much as possible from the street as well as an aerial view from Google Maps. Are there existing structures, topography, vegetation, water bodies, streams, irrigation ditch, etc. These can all greatly increase the cost to develop and will in term affect your sale price. All of this can be done on your own time and costs zero. If the site looks like it could be developed with minimal work, then I would proceed to the next step which is submitting your LOI to the Seller. If anything looks off or the zoning is not compatible I would reconsider moving forward.
Also, if it is a larger deal where multiple lots could be created, you may want t consider having the Seller carry until your entitlements are completed. You can also have an assignment clause in the purchase agreement that allows you to assign to a builder before closing, and you take an assignment fee. This way you never close on the property, the builder does, and you collect the upside.
Hope this helps and good luck.