I want to have a home constructed on Plot of land

Washington, District of Columbia
Land & New Construction
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I want to have a home constructed on Plot of land

Adonis Williams
Member since 2022 · 19 posts · 4 votes

Hey BiggerPockets Community ! 

I have about $180k in equity in one of my investment properties and I have a nice amount of cash on hand and I have an idea that I would like your thoughts on.  I want to build a home on a plot of land and I need your advice to confirm the process.

1. Find a purchase plot of land 

2. Get approved for construction loan (This is normally a loan at an 80% LTV, right)

3. Hire land use attorney to confirm what home type I can build 

4. Obtain permits and approval from neighbors to build 

5.Hire GC to build home 

6. Obtain certificate of occupancy to sell home (from county or city)

7. Refi loan from construction to owner occupied loan (preferably conventional)

8. Sell home on MLS

My logic is that that price at which I will construct the home will be considerably less than the price at which I will sell, thereby giving me nice profit margin . I plan to do this in D.C or in a suburb of D.C. Is my logic/approach here correct?

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Prashanth MahakaliPro Member
Architect · Chicago, IL · Member since 2015 · 93 posts · 130 votes
2y

Save the money and don’t do it. Development is the notorious part of real estate which looks really clean on paper and process but is seldom profitable when you need it to be. Invest your money elsewhere and go at it when you have enough money to control a neighborhood and the comps. 
BTW, 100 homes built in 8 years.

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  • Prashanth MahakaliPro Member
    Architect · Chicago, IL · Member since 2015 · 93 posts · 130 votes
    2y

    Save the money and don’t do it. Development is the notorious part of real estate which looks really clean on paper and process but is seldom profitable when you need it to be. Invest your money elsewhere and go at it when you have enough money to control a neighborhood and the comps. 
    BTW, 100 homes built in 8 years.

    3Reply
  • Bryant Brislin
    Title Representative · Irvine, CA · Member since 2017 · 874 posts · 519 votes
    2y

    What Prashanth said above is true, development sucks (I've been a land broker who sells to builders for 15 years). But if you are able to risk the money without damaging yourself financially and it's truly your passion, then sure.  Every jurisdiction is different, but in general it's usually a civil engineer and/or architect and/or general contractor who can give you an idea of what is feasible.  Land Use attorneys are usually engaged for large, complex developments (although, again, maybe that's the norm in your market; I'm in California). But you'd always want to talk to the city right away (or county) and find out the development standards for the zoning that the lot is in (what are the setbacks, height limit, min lot size, etc). Permits usually come from the city/county (not neighbors) and a good civil engineer and/or architect can usually help with that. I've never heard of someone refinancing to an owner-occupied loan, especially since how could you occupy if you are marketing it and trying to show the home? Maybe I'm wrong.

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    2y

    More or less right in the process.

    But you will hire someone with a home builder license, not a GC.

    Also important to understand the costs. All the soft costs plus impact taxes. 

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  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y

    We develop and the returns are great but your exposure is significant.  I wouldn’t do this unless you plan to go into development.  

    Recommend you work backwards.  1.  What is the retail value of the house you would sell?  Deduct all sales and income tax costs.  2.  What would be the cost to build, insure, property taxes, construction insurance, etc.  3.   What is your profit?  


    If your cash proceeds is $50,000 or less definitely don't do. Based on your asset statements let's say a $400,000 all in cost build at say 7%. $28,000 for one full year. Your cost will be spread out over 2 years minimum. So let's use the $28,000. I would not take that risk for an additional $50,000. There are other REI or non REI strategies with less risk that can earn that much.

    1Reply
  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    2y

    I'd echo others above @Adonis Williams - New construction/Development seems and sounds sexy, but it is ridiculously hard!

    I developed a $1M+ house here in Chicago, and it was painful. The deal wouldn't have worked if I had not owned the land.

    Also, before you find a plot of land to purchase, I'd check the zoning to understand what you can build, NOT after purchasing.  That's what I did, and it cost me an unnecessary $20k.

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    • Adonis Williams
      OP
      Member since 2022 · 19 posts · 4 votes
      3mo
      Quote from @Jonathan Klemm:

      I'd echo others above @Adonis Williams - New construction/Development seems and sounds sexy, but it is ridiculously hard!

      I developed a $1M+ house here in Chicago, and it was painful. The deal wouldn't have worked if I had not owned the land.

      Also, before you find a plot of land to purchase, I'd check the zoning to understand what you can build, NOT after purchasing.  That's what I did, and it cost me an unnecessary $20k.


       Do you do development projects outside of Illinois?

      1Reply
  • Jared W SmithBusiness Member
    Architect · Westchester County, NY · Member since 2018 · 682 posts · 476 votes
    2y
    Quote from @Adonis Williams:

    Hey BiggerPockets Community ! 

    I have about $180k in equity in one of my investment properties and I have a nice amount of cash on hand and I have an idea that I would like your thoughts on.  I want to build a home on a plot of land and I need your advice to confirm the process.

    1. Find a purchase plot of land 

    2. Get approved for construction loan (This is normally a loan at an 80% LTV, right)

    3. Hire land use attorney to confirm what home type I can build 

    4. Obtain permits and approval from neighbors to build 

    5.Hire GC to build home 

    6. Obtain certificate of occupancy to sell home (from county or city)

    7. Refi loan from construction to owner occupied loan (preferably conventional)

    8. Sell home on MLS

    My logic is that that price at which I will construct the home will be considerably less than the price at which I will sell, thereby giving me nice profit margin . I plan to do this in D.C or in a suburb of D.C. Is my logic/approach here correct?


    NOTE: Typically you won't get #2 without #4 being completed prior. Traditional Construction loans want to know in detail what you are building and pinpoint the value of it when it is complete. Usually requiring a full set of plans, details and specification of the build. Some want it approved by the AHJ (Authority having Jurisdiction). This is the soft cost of building which you/someone will likely have to front before the loan is approved.  

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  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    2y

    @Adonis Williams I think you can do better buying a property for rent or to flip than with new construction.

    In my area it’s very hard to get a construction loan and you would need more than 20% down for one.

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3mo

    Most of the prime lots in the dc area are acquired by home builders - so you most likely need to find something off market. You may also want to look at some tear downs as well vs just vacant land as you will find a lot more potential tear downs than just vacant land 

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    • Adonis Williams
      OP
      Member since 2022 · 19 posts · 4 votes
      3mo
      Quote from @Chris Seveney:

      Most of the prime lots in the dc area are acquired by home builders - so you most likely need to find something off market. You may also want to look at some tear downs as well vs just vacant land as you will find a lot more potential tear downs than just vacant land 


       thank you for this insight! 

      1Reply
  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    3mo

    Hey @Adonis Williams 

    - Not yet, we currently only work in Chicago and the surrounding suburbs.

    Also, we are less focused on development and more focused on renovations. Renovations are definitely more challenging, so our strategy might be to our detriment, but if we can continue to crack the code, we'll be one of the largest nationwide renovation contractors.

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  • Ken Turner
    Realtor · Eden, UT · Member since 2026 · 4 posts · 2 votes
    2mo

    Jonathan and Bryant already touched on checking zoning and buildable use before purchasing, which is exactly right. I'd add a few more land-level items worth checking at the same stage: soil conditions, easements, and utility connectivity. These don't always show up in a zoning check but can affect what a parcel can actually support just as much. Much of the risk with a project like this is tied to the land acquisition phase, and issues at that level are far harder to work around later, so it's worth confirming all of this before buying, not after.

    1Reply
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