Potential New Construction in LA

[Gene Maltsev]

Hello BP!

I'm new to this forum and RE investing in general so please bear with me, especially if my questions seem a bit rudimentary. 

I just moved out to LA and currently living in an up and coming area within 10mi of downtown LA and 5mi of Pasadena. 

I've been reading and learning from some of the posts here as much as I can and an investment idea came to me which I haven't been able to fully hash out and therefore I was hoping that some of you could perhaps shed some light on:

There are quite a number of vacant lots in the area I'm in that are selling for $25-80k. Some of these lots are located in an underdeveloped area, which means that utilities (water, sewer, elect and gas) haven't fully been connected yet, although the listings say they're "close by." Others (on the higher end of the pricing spec), are connected but the land is on a slope. In fact, most or all of these lots are located on a slope. The land is zoned for residential and allows for construction of a fairly large unit (in terms of sq ft). One lot I looked at is quite large and even allows for a building.

So, assuming that the cost of grading and excavating runs around $10k, the X factor in this becomes the cost of running utilities (power, gas, sewer) to the lot.

I like to be conservative and estimate that the cost of land is $50k. So now we're up to $60k (with excavation and grading). Cost to build is (conservatively) $150/sq-ft. and we build a 1200 sqft home which comes out to $180k. 

What am I missing in this equation? Does anyone know what the cost of connecting sewer, water, gas and elect might run?

It seems like there is enough room for profit, but then again, I'm a newbie and I'm sure that there's stuff I've missed here. Plus, I wouldn't want to take on a project of this magnitude by myself.

I would just like to ask if some of you could perhaps go over the numbers with me and tell me what I'm not seeing. Clearly, if there was a potential to make money here, I would think that others would long have jumped in.

Thank you kindly!

[Ernest Bovenizer]

As an engineering geologist and realtor working within the hillside areas of Los Angeles I can tell you that there are many pitfalls which you may only become aware of as you get into the project.  What lurks below the surface can really crush a project.  Slope instabilities (landslides, mudflows, adverse geology, etc.), governmental regulations (mansionization ordinance, coastal commission requirements, etc.), and septic system limitations.  Any one or all of these things can make it impossible to develop a property.  If you are looking at a specific property reach out to me and I can give you additional info that you won't get from any other realtor.