Current Margins in New Builds?

[Art Vandelay]

Hi all,

First time poster here. Appreciate the community, the knowledge, and all the helping that goes on here.

In short, I'm trying to understand the margins on new builds people are seeing in these days given market conditions. 

Background: I'm from the DC metro area, and just spent some time apprenticing as a developer and builder with an uncle who lives out in Australia. I developed and built 4 homes in my time there, and understand the economics of that market, but coming back home to the US, wanted to get a feel for things. In Australia, was getting 100% CoC, strategy of buying single lots and subdividing out to build 2 - 4 one story units. Approx 5 month build time from foundation to finish.

I know margins can vary considerably across markets in the US, but just want to have a general sense of things and have some data points.

Appreciate any insight.

Thank you!

[Russell Brazil]

[Sara Frank]

Quote from @Art Vandelay:

Hi all,

First time poster here. Appreciate the community, the knowledge, and all the helping that goes on here.

In short, I'm trying to understand the margins on new builds people are seeing in these days given market conditions. 

Background: I'm from the DC metro area, and just spent some time apprenticing as a developer and builder with an uncle who lives out in Australia. I developed and built 4 homes in my time there, and understand the economics of that market, but coming back home to the US, wanted to get a feel for things. In Australia, was getting 100% CoC, strategy of buying single lots and subdividing out to build 2 - 4 one story units. Approx 5 month build time from foundation to finish.

I know margins can vary considerably across markets in the US, but just want to have a general sense of things and have some data points.

Appreciate any insight.

Thank you!

Land is not cheap in the DMV, BUT new home builders are definitely the strongest segment right now because we are so pinched for supply of homes and only builders can really produce new supply. I don't know enough about the margins to advise you either which way, but maybe try to find a similar apprenticeship somewhere over here? 

[Chris Seveney]

@Art Vandelay

I used to work for EYA and I believe they may be hiring. Also check some local builders as well to see if they are hiring.

That’s best way to learn and find out.

[Mike Smith]

Not familar with the DC market at all, but most residential builders target 20% gross margins and 10% net margins.  These numbers can go up/down 5%ish depending on local market conditions.  Due to interest rates, the market is not great is most areas of the United States, so the downside is most likely.

Your 100% COC return in 5 months is not achievable in the US, except in some very small niche markets. You might do better by moving back to Austrailia and joining your uncle...

[Jack Seiden]

Quote from @Art Vandelay:

Hi all,

First time poster here. Appreciate the community, the knowledge, and all the helping that goes on here.

In short, I'm trying to understand the margins on new builds people are seeing in these days given market conditions. 

Background: I'm from the DC metro area, and just spent some time apprenticing as a developer and builder with an uncle who lives out in Australia. I developed and built 4 homes in my time there, and understand the economics of that market, but coming back home to the US, wanted to get a feel for things. In Australia, was getting 100% CoC, strategy of buying single lots and subdividing out to build 2 - 4 one story units. Approx 5 month build time from foundation to finish.

I know margins can vary considerably across markets in the US, but just want to have a general sense of things and have some data points.

Appreciate any insight.

Thank you!

While I’m certainly no expert on home building I do flip which has some similar dynamics (one thing about the dmv that is an issue is finding developable land one of the reasons there’s so much rehab activity here.) Basically a flip or new construction has 5 parts to it 1. Cost to buy land/property (that’s up huge in the last few years easily 20-30%) 2. Cost of labor (that’s also up huge I would guess 50% now a big developer might be able to pay a little less since they do volume but still an issue.) 3. Cost of materials (they have come back to earth a little lumber especially but are still significantly higher than pre pandemic) 4. Holding costs have more than doubled, especially a problem if your project needs to go through any zoning changes and isn’t shovel ready. 5. What can a buyer pay (in our market prices are up 20-30% since pre Covid at least in our suburbs but that’s not necessarily enough to make up for all the other costs I mentioned above especially since we’ve seen continued wage pressures in the last year and half while prices are basically flat since June 2022.)  So while I’m not a new construction expert I’d imagine It would be tough. One interesting strategy is adu’s that could potentially be an avenue to basically do smaller new construction and get an effective multi family though at least in most jurisdictions you need to owner occupy to be allowed to rent than adu, though that could change in the future.

[Jay Chang]

Although investing in new construction can be profitable, it's important to understand the margin-affecting elements. First, the location is crucial. Higher upfront expenses are sometimes associated with high-demand areas, but they can also provide superior profits. Search for rising communities and conduct a thorough market analysis. The price of the construction is important. The cost of labor and materials can change, which can have an impact on your bottom line. It's a good idea to request several estimates from contractors and to have a thorough budget in place. Think about your financial possibilities. Interest rates can reduce profits, so compare mortgage rates or look into other funding options. Consider establishing a contingency reserve because unanticipated building delays or problems may arise. Plan your exit strategy last. Building with the intention of renting it out or selling it quickly? Each offers a unique set of benefits and drawbacks.

A smart strategy is to start small and gain knowledge from each project. Investment in real estate may be rewarding but tough. Continue your education, adjust to market changes, and don't let early failures get you down. You can succeed as an investor if you work hard and persevere.