How long do you hold lots before building starts?

Question

Ok, this is a newbie question but here goes:

Do builders carry an inventory of vacant lots and how long do they hold them before building starts? If not, who do they get the lots from when they are building spec houses?

I come across a number of below market value lots while looking for other opportunities and am wondering who would be the most interested in them.

Thanks!

Roy

Karen Margrave · Answer

Builders look at a lot of different criteria when they are considering building spec houses. What is the local real estate market like? Are the lots located in an area with high demand? What are the comps for the area for completed homes? How much inventory is there already on the market in the neighborhood? What are rents in the area? (high or low) Can lots be purchased for a price where it makes sense financially to build? If a developer/builder finds lots that make sense, they'll buy them, if they don't, they won't. If you're coming across a bunch of lots below market value, that probably means there's not a demand for housing yet and builders are waiting for the market to tighten. Somewhere in between is where they want to buy the lots!

Jay Hinrichs · Answer

@Keith Bloemendaal you guys are spoiled... takes us 1 to 2 years minimum start to finish from farmers field to shovel ready lots... permits take 30 to 60 days min.

Keith Bloemendaal · Answer

This can be different from builder to builder. It also depends if the builder is a developer or just buys developed lots. It also can depend on cash flow and their specific business plan. At my previous job, we were developers and builders. At one time we had over 150 lots developed, and another 60 acres or more that we owned but hadn't developed yet. Me personally, just starting out, I just bought 3 lots here adjacent to one another. I close on them in a couple of weeks and will be able to start immediately. My homes will be spec, and I will stagger the start of them (30-60 days apart), when the first one goes under contract, I will purchase another lot. My goal is to always have a home ready to buy, I may need to increase to 4-6 lots in order to do so, we'll see how 2015 rides out. In my Town it takes 2 weeks or less to get building permits, maybe it helps that I sit on the Planning and Zoning Board, but we are a small beach town. Permits to create a subdivision is a whole other ball game, 6-12mos depending on the size/scope.

John Blackman · Answer

@Karen Margrave The city is currently averaging 4-5 weeks from permit drop off to permit in hand. That assumes one round of comments that can be successfully addressed. If there are any hiccups at all (Historic, multiple rounds of comments, City changes their requirements) this can go up to 6, 8 weeks. Our worst has been 1 year of permitting before we could start.

Roy Oliphant · Answer

@Karen Margrave undefinedWe buy at multiple tax sales every month and there are many vacant lots that go un-sold in all areas of Texas. Typically these lots are two years from development due to title policy issues. Trying to figure out if it makes sense to buy and hold these. You have given me much to start that research.THANKS! @John Blackman Sounds like you only buy the lot when you are ready to begin the process. How do you source them?Thanks for the information.

Roy Oliphant · Answer

Bill Gulley These lots are mostly in established neighborhoods and either left overs or tear downs from disaster or neglect. Texas has very few areas where there are geological or topographical issues; flat spaces everywhere. Of course, we do have many areas with soil issues (clay or loam) and directional drilling seems to be causing measurable seismic activity but no damage.Thanks, again!

Keith Bloemendaal · Answer

The lots are developed by the city and one family owns most of them, I just go to them when I am ready and make offers. So, yes, the infrastructure is there and I just buy, survey, and clear.

Danny Day · Answer

This is a great strategy. Keep your homes rolling so you always finish one and hopefully have a buyer lined up at time of completion. Are you buying turn key developed lots?

Joseph R. · Answer

its crazy hearing some of the wait times to get a shovel in the ground! In CT its only a couple weeks provided there are no issues at hand

Keith Bloemendaal · Answer

@Jay Hinrichs that really is a shame, who knows what could happen in 1-2yrs with the market? I'm scared of 6-12 mos! LOL