Best way to have immediate equity in a new build

[Nik Kov]

So I'm new to this, bear with me here.

I'm trying to understand how to think about equity in a new construction. I've seen folks say things to me like, we spent 400k to build and then the house was appraised at 550k upon completion. How does that happen? Is it as simple as: "most houses in the area sell/appraise for X, figure out how to build a house for X-20%" and there's your 20% immediate equity in a new build? 

Furthermore, I could've sworn appraisals are done when you have some level of construction documents so that a bank can loan you appropriately. If that's the case, at what point can you save money on the build? Do you do change orders to cheapen out on certain materials? I'm pretty confused here about the whole thing. 

[Robert Ellis]

Quote from @Nik Kov:

So I'm new to this, bear with me here.

I'm trying to understand how to think about equity in a new construction. I've seen folks say things to me like, we spent 400k to build and then the house was appraised at 550k upon completion. How does that happen? Is it as simple as: "most houses in the area sell/appraise for X, figure out how to build a house for X-20%" and there's your 20% immediate equity in a new build? 

Furthermore, I could've sworn appraisals are done when you have some level of construction documents so that a bank can loan you appropriately. If that's the case, at what point can you save money on the build? Do you do change orders to cheapen out on certain materials? I'm pretty confused here about the whole thing. 

 We do this exact model in Columbus OH for multifamily. Land cost right now is approx 50k for an infill lot. We rezone it for 5k. 5k permit set / construction docs. 350k build. exit price is approx 510k, full return of capital on a refinance within 8 months. super simple. we build around 174 a sq ft and the exit price downtown is approx $250 - $300 depending on neighborhood, size, etc.