Calculating New Construction in LA

Buying & Selling Real Estate
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Calculating New Construction in LA

Kwon Do Lee
Investor · Los Angeles, CA · Member since 2017 · 10 posts · 6 votes

I am currently studying to become a RE agent in LA mainly to gain experience in real estate and make connections and I tagged along with my RE agent friend to a meeting with an investor in the LA area who is looking to take down old houses, do a new construction then sell for profit.  

The investor wants my agent friend and me to bring potential deals with numbers laid out for him to look at. I get that it's not quite possible to get an accurate new construction price since it depends on his contractor's prices but I was wondering if any of you have had any experience in new construction and things to look out for when dealing with new constructions.

My goal is to bring him a potential deal with a booklet full of necessary numbers and attention to detail on a deal to try and impress him. I, however, have zero experience in any of this and my knowledge is just from podcasts and books. What are some things, as an investor, would you like to see from an agent that would impress you?

Thank you for reading and any criticism, related to this topic or not, is welcome.

- Kwon Do Lee

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  • Nick Marrs
    Specialist · Los Angeles, CA · Member since 2014 · 44 posts · 31 votes
    7y

    Kwon, I am a strutural engineer in Los Angeles so I can give you an idea on new construction costs.

    You can expect to pay $150/SF (square foot) on the low end and upwards of $400/SF+ on the high end.  Most of the cost is in your interior and exterior finishes, so it really depends on you budget and what you want to do with the finishes (standard home with cheap finishes vs custom home with high end finishes). In general, the bigger you build it the bigger the return on your investment.  Every development starts with the location, so you need to research what the property is zoned for, figure out the lot size, floor-area-ratio (ratio of buildable floor area vs lot area), and figure out how big you can build. The price per square foot mentioned above will also vary based on how big you build the home.  Overall there is a smaller profit ratio on homes than larger developments like multi-family. Good luck to you and your investor with the development!

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  • Account Closed
    Los Angeles, CA · Member since 2018 · 95 posts · 46 votes
    7y

    @Kwon Do Lee

    Hey Kwon,

    make sure first this investor has cash and experience otherwise you’ll just waste your time. There are many guys out there tire kicking talking about getting into that business, but not so many who actually do or survive that unforgiving and frustrating market.

    If he’s asking you numbers he probably doesn’t know what he is doing. I wouldn’t ask numbers to any realtor or wholesaler because they are 99.99% of the time gibberish non sense and a waste of time for everyone. A developer already know the costs beforehand. Only search informations such as lot surface, zoning, districts, price should be relevant to you and your buyer

    Anyway, good luck and pm if you guys want to connect

    3Reply
  • Kwon Do Lee
    OP
    Investor · Los Angeles, CA · Member since 2017 · 10 posts · 6 votes
    7y

    @Nick Marrs Thank you! This investor is on the higher end as he is looking at Bel-Air only. I'm not sure what kind of profit ratio he is looking for but I will take into consideration for about $400/SF as you said.

    @Account Closed Thank you for the warning. He does seem to know what he is doing and as for cash he definitely has that. I think I may have to speak to the investor more about his numbers. 

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