All Forum Posts by: Jeremy England

No doubt leveraging can help scale.  I always want to be able to pay for what I borrow.  If the market goes bad and I'm left with houses to sell.  Can I pay those bills?  If I can't I don't engage.

Hard lessons learned from building pre 2008.  Until you've sold your plasma to get gas money.  You can't really get it.  
 

I only buy infill lots in suburban and urban areas.  So comps are easy to come by.  I look at the counties list of sold properties in the neighborhood (or Zillow) then get 4 comparable lots, see how much they sold for psf, then apply it to the subject property.  That's one method.  The other is to base my offer price on a % of what new construction builds go for in that neighborhood.  As a builder,  I'm looking to pay 10% of my new home value for the land.  It's not a hard rule and doesn't work in every market but I know locally that if I get the land for 10% or less I can be reasonably sure the house will be profitable.  

Once I have a base value, I start doing a little online due diligence.  Lot to be cleared? Junk on the property?  Sewer lateral? Water meter?  Power pole?  Underground utilities? Elevation changes? 

Everything I have to pay to either get or remove I am factoring into the value of the land.  

Don't get me started on flood zones and wetland mitigation.  I screen for those so I shouldnt have to worry about them.

A builder can't control the cost of land, labor, permits, or materials.  The only thing he can manipulate is his profit margin.  If he cuts it too low, well he won't be operating for long.  

How does an investor navigate it?  Establish a long term relationship with the builder.  I've heard pie in the sky pitches from would be investors about multiple projects etc etc.  You pay a premium to get the first one.  When you bring the second to me we can start talking discount.  It's a win win for a builder to find an investor that supplies him with new construction projects over and over.  

There is bulk savings to be had but before you get the savings there has to be some bulk

Check with your state or county for incentives.  Here in Pensacola there is the Escambia Home Finance Authority.  They offer interest free loans up to $150000 and up to $10,000 in closing to first time buyers.  

I'm one of the approved builders.  It's a pretty good deal for buyers.  

As a builder , when talking JV, you have to ask yourself what's in it for the builder/investor to take an equity partner?

I'll give a few scenarios from a builder perspective:

I find the lot and build the house using a combo of my money, hml, or private lender.  I pay my points and interest and keep 100% of proceeds.  All the risk was mine and all the profit.

I find the lot and build the house using a jv partner who funds the project where they take what?  That's the hang up in my opinion.  If they give all the money then they will want a pretty significant cut of that profit.  Say it's 50-50?  Then I'm not really making the kind of money that's worth it imo.  That's 6 months or more of work. The project nets me 50%  where if I just borrowed the money I could have got 100%.  

Likewise for the investor, he gives all the money and takes all the risk for half the profit?

He would have been better off just hiring me to build the project for him.  

The only time I think an equity partnership works is when the project is big enough that the builder can't simply borrow the funds to do it himself.  Like a high end project or multifamily. Then the numbers make more sense because I am unable to do the project without the investor's help.   

 Depends.  Are you a builder?  If you aren't then find one who does those projects. They will guide you.  When I build for others, I take the land from woods to the finished project.  Your builder may or may not do the same.  Just have to contact them to ask.  If the builder is giving the full service then no the project is not too complex.  

Now if you are an owner builder, it can be done.  Depends on how organized you are and how willing you are to deal with the municipalities, sub contractors, material suppliers and mistakes that will inevitably occur.  Some can be expensive mistakes, some cheap.  

Either look online or go to your county and review your municipalities land development code.  It will give you a good understanding of what you need.  

In my area when I'm screening for lots to build on I have a due diligence checklist in my pm software.  I'm constantly updating it because inevitably there will be something I miss that I need to remind myself to check next time.  

I'll give an example.  In my area, you can't just check whether the land is on septic or sewer.  You need to dig further.  What KIND of septic?  Standard systems cost about 5k while a Nitrogen reducing system takes about 15k.  Certain areas of Florida require the nitrogen reducing systems.  Learned it the hard way.

 You need a license to build in Florida unless it's your primary residence.  You may try finding a builder you can partner with to build.  If your zoning allows build a duplex then sell it.  It will sell due to the demand for small multifamily.  The terms you can expect will be in the builder's favor unless it's all your money.  Since you said you don't have much money, put the lot in the deal and get the builder to fund the project.  Your take will be proportional to what you put in.  If that is 15% then you can expect 15% profit.  Profit would be defined as after your initial investment is recouped.  So if you sell the property for 400 and it cost you 250 then you'd be taking home 22k ish.  

15% of a good deal is better than 0% of no deal.  Those numbers would be realistic for my market.  I just did a duplex that cost me 50 in land, 250 in construction and selling costs and I sold for 400.  It sold in 2 days after we put finished pics up.

Max lot price is relative to the market and the specific site.  For example, I'm  purchasing a parcel that I intend to divide into 3 lots and based my offer on what I was comfortable spending per lot.  However, knowing my local market I know those lots lie inside an area that requires a nutrient reducing septic system. Those cost about 11-15k each.  So you have to factor that kind of thing into the land purchase.  

Locally, in new construction, the affordable homes are what is selling.  Just doing a cursory search of listings and sold in the county, under 400k is what is moving.  Most in the 12-1600 sf range

I will dispose of the homes based on how the numbers work best.  If I can pull enough cash out with a dscr loan, I will rent.  If not, I'll sell and take the tax hit