Housing Developer - Investment Opportunities?

Question

I just so happen to start looking more and more into the benefits of investing through real estate.  As I continue to build my learning arsenal, I was struck with an idea in regards to housing development.  I look at house that are on the market and many are cookie cutter type homes...what is the likelihood of becoming a housing developer?  What connections within your network would I need?  I'm assuming and architect, investor, and some form of up front equity...thoughts?

Devon Garbus · Answer

Run a diary on the project, whether it's a go or not!

Jack Macioce · Answer

He has completed several single-family homes, and two duplexes.  Again, he hasn't asked for any monetary investment, just some assistance in analyzing what to do with the project.

To get an understanding of the construction costs, I think that the first step would be to obtain a couple bids from contractors.  There are already some preliminary drawings.  I know there are other things to consider, but right now, I'm just focusing on the construction aspect of the project.

Devon Garbus · Answer

Hi Josh - Contact me and I can get you started, everything from finding off market lots to finding money.

Jac- I just don't want to see you fail! Please make sure you take everything constructively rather than negative and pessimistic. By a 'few'houses do you mean 5 or do you mean 20? What was his construction background before he started spec houses?My broker is partnering with one of my clients for a TH project right now, he's done commercial for 20+ years and residential for 'only' 2. With us and his architect supervising everything from a marketability/salability standpoint and him overseeing the costs/project management it's still a great fit.Bring in someone with construction experience!

Jack Macioce · Answer

There seems to be a lot involved with new construction.  I was recently asked to assist with a development project.  Based upon my discussions, this project started back in 2007-2008.  For obvious reasons, after the site was acquired and preliminary work was performed, the project was "postponed".  Now, in 2015, this developer wishes to start the project back up, or at the very least, analyze their options.  This "developer" is an individual investor, who has developed a few houses on his own.

The original plans were for the construction of either apartments or condos, and I think the developer's intent is to come up with new, realistic numbers (hard & soft), and determine if the market supports the margins.

Currently, I work with a real estate development, management company and have been primarily involved in the accounting sides of things.  Although I prepare budgets and proformas, I do not estimate construction costs (I rely on our engineers/construction guys).  When I was originally asked to assist with this project, my understanding was that I would help with the numbers, projections, etc.  However, the developer has asked me to assist with preparing a realistic development budget (i.e., new construction costs).  The developer has a civil engineering background, so I'm not sure exactly how I would be able to help estimate new construction costs.

I would like to help this developer, as I think it would be good experience, but its starting to look like my lack of experience may prevent me from my assistance.  At the very least, I plan to research the market to determine the price points for either apartments or condos, and then maybe back into the costs with an assumed return to see if it's even feasible.

I'm thinking the options for this project are:

- Continue with the project as is (construct and sell apartments/condos)

- JV with another developer

- Sell the property as is

How should I proceed with this project?  I should also note that at no point was I asked to help fund the project further.

I believe any response to this would at the very least answer some of @Joshua Chambliss questions above.  Seems like the best approach to investing in development projects would be to work with someone who already has a few projects under their belt.

Joshua Jackson · Answer

I just signed up to this site literally less than an hour ago to gather as much info as I can on building spec housing.  I am not new to construction but I am new to investing and this is the first post I opened.  My main concern is funding and I needed avenues to find inventors (I'm also in the Tampa region).

This is pretty cool.

One of the first connections you will need is a civil engineer with good connections to the community that you are looking to develop in.  If your civil engineer is well known in the community that will make a huge difference in the preliminary leg work that it takes to design a functional area for you to build on.  The red tape and hoops that you have to deal with can be a nightmare and cause months of delay before you even touch a tree much less break ground.

Also I agree with Devon, some architects do not live in reality (as a building contractor I live with it all to much) so it is important that you have a product to produce that you can not only sell in your market, but you can tweak and add value engineering to as you learn to construct your product, this can be equated to time or material, and is in my opinion the number one reason you would consider recreating a building multiple times and only change the façade.  Which makes your selection of builder that much more important, you will have to connect with them on a more personal level to achieve your overall goal.  Unless your goal is to just fund these projects, of coarse.

I'm curious also, how much up front equity and what would be key points to spark the interest of investors?

Devon Garbus · Answer

Do you want to fund housing construction? If so I can help you be a JV partner for builders here in Tampa.

If you want to be the principle of your own company... Interview a lot of builders and bring them on board under your umbrella. Do *not* randomly hire an architect and start building homes. Lots of architect plans I see are costly to build and unmarketable.