A development idea for a novice?

Question

Hello All,

I have learned quite a bit about raw land investing from my family, large ranching land sales, and from many investors who own their own apartment complexes and sfus. However, I have a burning desire to learn the development game!!!

I have a dream of building small homes that are energy efficient and that the working class, that does too well for govt assistance but still have a hard time getting a down payment saved up, can buy and be proud of. I got the idea from the website cottagecompany.com on the west coast. Their homes are very nice and expensive, but I think that here in east Texas, the premise could be used to build affordable housing on cheaper lands that are not being utilized to their fullest.

After looking at the website, do you think that this is a viable idea?

Thank you for any of your thoughts or time,
Trevor

Bill Gulley · Answer

Hi, Brian has a very good point, but we still have new construction here, even specs are growing. Several points. If you own the land or can acquire it, you can partner with many groups that would be interested in your vision. Another point is that you need to be careful building a row of small affordable hojmes, these areas usually turn into undesirable areas real quick, you really need to consider a mix of sizes and styles, the more the better. I'd suggest, being in Texas and probably on a slab, you consider adaptable homes for accessibilty and that the "small/modest" homes be designed to be expanded for additional living space without messing up the functionality of the existing starter home.
The new Home Star program might be a boost here as well. Check into your Housing Development Authority for bond money, not only is there end loan financing but also construction loans. You'll need to connect with an established developer as this is no game for a novice. Streets, curbs, gutters, utilities, etc cost big bucks and you'll need someone who can catty it through. You can contribute as a partner from the land ownership. Try that first. Good luck, Bill

Brian Levredge · Answer

Anything is possible when the market conditions are right.  Having said that, right now probably isn't the best time to try something like this.  Development by its nature is a few years behind the current times.  This is why you are seeing such a huge drop in housing starts right now.  In most parts of the country existing homes are cheaper than new construction.  When that's the case, it doesn't make sense to try development.

Rich Weese · Answer

Trevor- location location location! There are areas that are way ahead of the curve for new const. Here in FL, no way because of all the inventory.
    I picked up a 64 lot subdivision in so TX 18 months ago. (with only 3 homes built) after learning the sellers' motivation. I turned it into a gated community, doubled the lot prices and built 9 homes for long term. I've byilt 2 more homes which have sold and have 5 more lots in escrow. There seems to be a lot of action now. 
     These are bread and butter 4/2/2 homes in excellent schools. I expect to sell 1-2 amonth for the rest of  2010. If I was YOUNGER, I'd probably be looking for more. I think I have posts or blogs explaining this acquisition here on BP. Good luck. This stuff does work. Rich

Bill Gulley · Answer

Hi, the McMansion plans are great! Smaller homes with somewhat luxury amenities is a great markey for the fastest growing segment, boomers down sizing and retirees. They can also be done inexpensively for firt timers and improved later. Great concept.

The Homestar program just passed and it will be providing tax credits at the point of sale. Instead of taking the credit off your taxes you get a discount based on the price at the register, the store turns it in for reimbursement. Much better this way (as long as the retailers don't raise prices to offset some of the discount to the buyer). Materials and appliances with the energy star label qualify.

Low/mod housing is usually done one the cheap and crowded in for an economical land usage. But  a small home does not mean low quality or undesirable. Bill

Trevor Probandt · Answer

Bill,
  I have contacted two of my mentors who have done some relatively large developments with the whole McMansion craze a few years back. They made a lot of money, but now is not the time for much of that. However, they have both told me that they are willing to listen to what I have planned.

How does the HOME STAR program allocate funds? I have been to the efficiency first website and listened to some of the webinars. Just curious how it is allocated? Local? State? Federal?

I will keep doing the research just curious of your thoughts???

PS I totally understand that development is a big boys game. I have no problems paying my dues, just want to get to be a big boy eventually. ha ha ha

Ron Czecholinski · Answer

Babble all you want Trevor. I always enjoy hearing someone speak from their heart.

Trevor Probandt · Answer

Thanks Ron, I appreciate the support! Thanks yet again for not telling me that I am out of my mind...as many have. Things are starting to come together, and with enough support, a quality product, and a fantastic job of setting up and selling of the concept, success is guranteed! Just not sure on what time line it will be on. Ha ha ha

One day in the future I am going to be able to BBQ with my buyers in our garden area and bring banking/investing folks, college recruiters, health professionals, etc to help the working class work their way up. I know and understand that you can't help those that don't want to be helped. But to be able to build close knit neighborhoods that actually give a damn about "their own house" that "their kids" can grow up in...that my friend is what I believe the Lord himself put me here for. When I can bring pride to folks and improve their quality of life, that is when I'll never "work" another day in my life.

Sorry, I just spoke with some folks in a low income area who live in some poor conditions....got a little excited at the prospect is all. Did not mean to babble.

Ron Czecholinski · Answer

I am glad you are continuing to pursue your dream Trevor. I would like to add a couple comments to the mix.
          
          I think this concept is the way of the future - I have been following the Cottage Company for years and their influence on zoning in the Seattle area is catching on in many areas. Adding affordability (along with quality green built features) probably makes this the most sustainable concept in building.
          
          Good luck Trevor and keep me posted on your progress

Pam R. · Answer

Hi Trevor,

I think your idea is excellent.  I have acquired huge parcels of land in Texas and recently sold several hundred to a developer with a very similar idea.  I also think that Texas is a great place for this because there are huge parcels of land and it's easy to acquire.  I have several hundred acres now and have quite a few people interested in several of the ranches for smaller developments too.  The current trend will change again and it takes time to develop raw land.  With that in mind if you start now you will probably be on the forefront of things when the change comes.   Good Luck.

Trevor Probandt · Answer

Thanks Bill, I will continue to keep kicking over rocks and learn what I need to about the new program.

Tod, you are correct. Land is cheap, especially in west Texas! However, even smaller towns have under utilized areas that I believe can be used to help fill their need for affordable housing. With several of these areas having downtowns or older areas that have seen a downward spiral due to the moving of Walmarts, Buffalo Wild Wings, malls, and nice big homes on the outskirts of town in the past few years. However, I have spoken with some of the city council members and housing authority head folks and it seems as though people are starting to realize they are letting their historic buildings and areas go to seed. I hope to see/help bring about a change to that. Heck, I might have just talked myself out of affordable housing...maybe I need to focus on warehouse-to-lofts conversions. ha ha ha

A development idea for a novice?

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