Spec Home - High Level Analysis

[Emilio Ramirez]

Hello BP'ers,

I've been having high level discussions with a colleague about a single family home spec build. We have our own equity that we would put into the project plus a couple of investors who have shown interest in our project. Here's what I have numbers wise. We would design the project ourselves and manage the construction.

Land - $100,000

Design/Entitlement - $25,000

Cost per sf - $180 ($150+$30 contingency)

SF - 2250

Build Cost - $405,000

Sitework - $25,000

Total Cost - $555,000

Cost/SF - $247

Median List Price in Neighborhood - $471/SF

Our list price - $345/SF

List Price - $777,000

Sales expenses $77,700

Gross Margin $144,300

ROI 26%

Average DOM = 187

Exit strategy would be to sell asap. Investors would be guaranteed 10% return before we were paid a dime.

Exit strategy II - If market stagnates and we cannot sell. We can rent for $50-$60k a year. Which would provide some cashflow for investors until sale.

Land is wildcard. We can get city sewer and water at $100,000 and up or well and septic starting at $50k. More rural lots could decrease sales and rental value.

I think it pencils out and is worth researching further. What do you think?

Any ideas on cost of builders risk and general liability for this project?

My biggest concern is this property is in Colorado which has heated up quite a bit over the past couple of years and seems to be cooling a little right now. Not sure if the timing is right.

[Anson Young]

Is this infill development? I know you mention rural, but I've been looking for scrapes and land recently and if you can find infill for $100k for a lot, go for it. Especially in the hot areas, we are looking closer to $200+, up to $350k for the lot if we can build a side by side duplex on it (zoning currently supports it).

Your build costs seem high as well, with a huge 'contingency' swing, prepare for the worst I guess.