hatterasguy
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- Jul 29, 2008
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IMHO here is what I would do, I have done a couple of these.
Firstly make sure whatever you build in this market will sell, pretty fast. Since your playing with bank money I'm guessing you cannot afford to sit on it for 6-12 months.
Now lets talk margin. How much land are we talking? How many houses? At what price? You need to figure out some numbers. For example we can build a basic raised ranch for $110k, a similer sized colonial is $130k, etc. In my area we shoot for at least a $100k profit per deal, or about 30%-35%++. I have no idea if property values in your area can support this.
Now lets say you get your friends dad to agree to sell you a lot for $100k, you know through carefull market research that you can get $325k for a raised ranch on this lot, and maybe $350k for a colonial. Their are a couple of ways for you to do this without any of your own money.
First option is to partner with your friends dad, he provides the lot, you find a buyer for say a $325k raised ranch, get it under contract, build it with you doing the work, and split the profits.
The second option is if you have money you buy into the lot, and get a loan for the construction.
The third option is your friends dad provides the lot (assuming its paid for in cash), and you go and get a hard money loan for the construction.
Now you need to do some research.
Are their any surprises on the lots? This will directly affect what you can afford to pay for them! If you need to pay $75k for a lot to get your margin, and its going to take $30k to run the sewer, well the lot is worth $40k to you. We just did a lot that cost us $25k to hook up the sewer to it, and trust me they can cost a hell of a lot more than that. I looked at one with my uncle over the summer that would have cost $100k. Is their ledge on the site? Blasting is insanly expensive! Renting a machine with a hammer on it isn't cheap either, the costs will build fast! How about water? What about the water table? On some sites you cannot do basements because the water table is 36in down!
Now if your trying to sell a custom home first you need to get the lot approved, that can cost a lot. We just did a little dinky lot and it cost over $3k. You have to pay to get a survey done, their are legal fee's, and the town has some fee's to. If its a big sub division you can have $10k into it easy before any real work starts. Or before you really know what you can build.
Who will do the site work? Its expensive! Are the lots level? Can they get equipment in? We have all the equipment and do it in house to save money. But equipment is pricey, a mid sized Volvo excavator is $200k, a dump truck is $80k, etc.
You need contractors, lots of them, who will you use? Are you experianced enough to tell if they are screwing you or not? Trust me some are good, most will try to screw you.
Building a custom house involves a ton of hand holding, IMHO if you can do it build a spec house do it. However can you hold a very nervious buyers hand and make them confident in your knowledge? This is where an experianced partner comes in!
Not trying to rain on your parade, but their is a lot of work to this! Developers need to do a lot of work, and invest a bit before they see any paychecks. IMHO the best thing you can do is find an experianced partner and get them to do a deal with you.
Firstly make sure whatever you build in this market will sell, pretty fast. Since your playing with bank money I'm guessing you cannot afford to sit on it for 6-12 months.
Now lets talk margin. How much land are we talking? How many houses? At what price? You need to figure out some numbers. For example we can build a basic raised ranch for $110k, a similer sized colonial is $130k, etc. In my area we shoot for at least a $100k profit per deal, or about 30%-35%++. I have no idea if property values in your area can support this.
Now lets say you get your friends dad to agree to sell you a lot for $100k, you know through carefull market research that you can get $325k for a raised ranch on this lot, and maybe $350k for a colonial. Their are a couple of ways for you to do this without any of your own money.
First option is to partner with your friends dad, he provides the lot, you find a buyer for say a $325k raised ranch, get it under contract, build it with you doing the work, and split the profits.
The second option is if you have money you buy into the lot, and get a loan for the construction.
The third option is your friends dad provides the lot (assuming its paid for in cash), and you go and get a hard money loan for the construction.
Now you need to do some research.
Are their any surprises on the lots? This will directly affect what you can afford to pay for them! If you need to pay $75k for a lot to get your margin, and its going to take $30k to run the sewer, well the lot is worth $40k to you. We just did a lot that cost us $25k to hook up the sewer to it, and trust me they can cost a hell of a lot more than that. I looked at one with my uncle over the summer that would have cost $100k. Is their ledge on the site? Blasting is insanly expensive! Renting a machine with a hammer on it isn't cheap either, the costs will build fast! How about water? What about the water table? On some sites you cannot do basements because the water table is 36in down!
Now if your trying to sell a custom home first you need to get the lot approved, that can cost a lot. We just did a little dinky lot and it cost over $3k. You have to pay to get a survey done, their are legal fee's, and the town has some fee's to. If its a big sub division you can have $10k into it easy before any real work starts. Or before you really know what you can build.
Who will do the site work? Its expensive! Are the lots level? Can they get equipment in? We have all the equipment and do it in house to save money. But equipment is pricey, a mid sized Volvo excavator is $200k, a dump truck is $80k, etc.
You need contractors, lots of them, who will you use? Are you experianced enough to tell if they are screwing you or not? Trust me some are good, most will try to screw you.
Building a custom house involves a ton of hand holding, IMHO if you can do it build a spec house do it. However can you hold a very nervious buyers hand and make them confident in your knowledge? This is where an experianced partner comes in!
Not trying to rain on your parade, but their is a lot of work to this! Developers need to do a lot of work, and invest a bit before they see any paychecks. IMHO the best thing you can do is find an experianced partner and get them to do a deal with you.