Lexington MA plot of land - teardown worth it?

Question

Quick question for people familiar w Boston and Lexington real estate in particular. Have a plot of land that has a house on it, around 800k range, but would want to tear it down and build a new construction to make a few hundred K profit (as many do in this suburb). Not entirely sure if its a good investment or not.

House as it would be around 4000 for mortgage+tax, and max rent it could fetch is 3000 or so in the meantime we'd prepare to get plans, constructors etc together to build a new house on its plot.

Not sure how much tear down is, how much a decent new house build cost is, what hoops and cavaets and hiccups occur when a rookie is building a brand new home from top to bottom, without an established constructor crew. We'd estimate around 2yrs to get all of it done and sell place for 1.5-2M.

People say this suburb is one of the highest priced around boston, holds value prices well and new construction and even land is very hard to come by here. 20mins from downtown boston.

Happy to hear thoughts.

Ann Bellamy · Answer

I'm with @Jaysen Medhurst.  Find a very experienced developer who works in Lexington.  Chances are he's already seen the deal you're looking at and passed it by, but you never know.

Everything takes WAY longer than you think, (more than double), costs WAY more than you think (experienced builders are having subs who won't hold a bid longer than 4 days because of material costs skyrocketing)  and is more complex than you think.

Good contractors are booked out months in advance in this busy market, and managing contractors is challenging in the best of times.

I fund teardown/rebuild projects all the time.  There are lots of them in the high-end towns outside of Boston, Lexington among them.  And even very experienced developers get in trouble with budget overruns, material costs through the roof, and unreliable subcontractors.  I see it regularly.  It doesn't take a lot for a project to go 150-200K over budget when the building department holds you up, the gas company can't install new lines for 6 months, and your subs walk off the job.  It costs more to hire the second guy cause he has to fix the first guy's work, and because he can charge you more because you're under time constraints.

And not to mention that the high-end homes drop first when the market softens.  And it will.  We're already seeing it.

To summarize, this is not a good first project.  It may or may not be a good project, but definitely not a beginner project.  In my opinion.    Take this as a learning opportunity, don't get dollar bills in your eyes, and find someone to partner with who truly knows what they are doing.

Steve McGovern · Answer

This.   Make SURE you know everything about the zoning TODAY-- especially setbacks.  If Zoning has changed in that neighborhood, and the setbacks have become more restrictive (as many towns in this area of Middlesex County have over the years to discourage more building) then your footprint is NOT grandfathered in the case of a voluntary teardown.  Lexington's a great market, but you could be sitting on the most expensive pile of dirt, ever.

For case studies, go just North into the Silver Lake region of Wilmington, MA.   There are legitimate public safety risk homes there that can NOT be torn down because the setbacks are now too restrictive to allow a new building, even at the same size as the old one.  The only option is to repair/maintain the current structures... or wait for a hurricane/blizzard.

Usually, public safety wins in these cases, but the NIMBYs  are loud and furious and have the Zoning Administrators on speed dial for protests.  Know the entire scope of your plan, and don't let a sledgehammer touch the home until you have FULL approvals.  Finally, be prepared for the soft costs associated with your plans (Zoning, Attorneys, Architects, PEs, etc. all cost a bunch of dough.)

Good luck.

Michael Pallotta · Answer

Hi @Drew Slew,

I am very familiar with Lexington and have gone through the same process with a few clients. I also know a couple contractors/developers in Lexington that are very familiar with the zoning codes and build new construction homes frequently if you had questions or needed help from them. It sounds like a great deal and I would be happy to help you out or talk more with you about your thoughts and goals.

Charlie MacPherson · Answer

@Drew Slew In the last 6 months, excluding REOs there were 200 SFRs sold in Lexington.  The average sale price was $1.283M with an average of 31 DOM.

Drilling down, 18 were new (2018) construction.  Those averaged $2.034M with 101 DOM and were at an average of 5,015 square feet.

If you use $200/sf for construction costs, you're looking at just over $1M.  Add in demo ($50K?), carrying costs ($100K?) and closing costs ($50K?), you should have a very healthy profit left over.

Mike Hurney · Answer

@Drew Slew Yes I'm familiar with Lexington and I believe it would be worth it. I like the fact that you're estimating 2 yrs. I think it could take less than a year but folks usually think they can do this in 2-4 weeks and are disappointed;-)

I'd see what's been done similar to your project in the last two years and check with those contractors, & developers for hard numbers, then meet with the Building Department and Neighbors. Last time I dealt with Lexington officials 2003 I found them reasonable as long as I did my research and knew the zoning and building codes. They'll mess with you if you don't! (like most places) Good luck buddy!

Jaysen Medhurst · Answer

@Drew Slew, find an experienced contractor / developer to partner on this deal. There are too many ins-and-outs of a deal like this. Run those numbers hard and be very conservative. It's going to take longer than you think, with more red tape. The numbers might just not work.

To make 16% profit on a $1.5MM sale you'll have to get it all done (including holding costs) for $385K. That's $128/sq foot build price. No way you'll be able to build a house for that cost (including demo) and hit the price point you need to.

Drew Slew · Answer

Thanks a lot guys, very helpful!

Lexington MA plot of land - teardown worth it?

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