Buying homes as tear downs.

[Elliot Lamson]

Hello friends, 
High End Tear Down.Curios to what you guys think this house was built for in LA for price per sqft? 

I'm starting to see a ton of tear down homes being built in my neighborhood.
There has to be a decent profit margin on these. 

Thanks! 

[J Scott]

Originally posted by @Elliot Lamson:

Originally posted by @J Scott:

Price per square foot?  In Santa Monica, probably $200-300 if you're experienced.  Though depending on the specific location, dealing with zoning/permits could be your biggest challenge considering the proximity to the ocean...

They originally bought the property for $975,000.
Building cost ~$250sqft $1,125,000
List Price 3,395,000
-----------------------------------
HML 80/100 11% 3pts. (18moths term)
End up Needing Gap Funding of $585,000
Projected Profit after Holding/Closing Cost ~$785,000 (split 50/50 between gap funder) 
PROFIT-$392,500 

Am i missing anything?? Besides zoning/permitting. 
Not that I'm going to try and put together a deal tomorrow. 
Just seems like there's quite a bit of money to be made. 

First, you don't know that they're going to sell for $3.4M -- that's just what it's listed for.

But, assuming that's what they sell for, then yes, they'll likely make somewhere between $500K-$1M.

Just because they did that doesn't mean that there are lots of those types of deals out there -- this might have been a needle in a haystack, or they might be partnering with the previous owner, or they may have some connections to have gotten the deal for that price.  At very least, they probably worked VERY hard to find an off-market deal.

The question is, how do you plan to find deals like this?  If you plan to go the public sale route, you're unlikely to be successful -- if this were a public listing, there's a good chance someone else would have been willing to pay more (assuming the numbers above are correct).  Or perhaps these guys came with cash in hand and were able to close in 5 days, and nobody else could.

Can you find a deal this good?  If so, how?  And if you can find it, are you going to be able to push it through zoning/permitting in a reasonable amount of time (or at all)?  Then, are you going to be able to build for $250/sf?  Have you built a house before?  Have you done any major rehabs?  Do you have a GC license?  Can you put together a project schedule, find subs and manage them?

I'm not trying to discourage you, but you don't seem to recognize that the people who are doing the project you are looking at probably didn't just make a million dollars overnight.  They worked hard to find a great deal, they worked hard to get the experience they have to get it done, and they probably took some personal financial risk along the way.

So, yes, it can certainly be done.  The question is whether YOU can do it right now (or anytime soon)?

Btw, Manolo would know the prices in that area much better than I would, so listen to him if he says it's higher than what I said...