Buying vacant lot and building a new home vs. buying & rehabbing

[Roi C.]

Hey,

I'm looking to purchase a property in Houston, TX in a transitioning area that I believe will appreciate significantly in value. I might still be able to find some deals on old properties for around $160k-180k in these areas (and some of them might require a significant rehab). After running the numbers, it looks like the monthly cash-flow on these properties will be close to 0 after rehab is done and properties are rented. I estimate that these houses will be worth much more in 4-5 years, and I don't have an issue with waiting that time.

This got me thinking, why would I want to own a property and deal with tenants and constant repairs just to get some value in several years?! I might be able to purchase a vacant lot for about 50k, pay the property taxes on it, and when the time is right I can build a nice modern house on that lot.

I've never purchased a vacant lot, or dealt with new construction before. I did however read the eBook BiggerPockets wrote with J. Scott about his new construction diary, which was a very interesting read, and made me think about this seriously.

Does anyone here have any experience with buying land, holding it for several years and then developing on it? What are the pros and cons of this approach? Do you see any major pitfalls with this approach?

Are these any expenses other than property tax, and maybe mowing the grass, that I need to take into account when holding a vacant lot?

In a city like Houston where we don't have city zoning laws, I assume it should be easier to get permits and get a construction project going. What other issues should I look out for? The last thing I want is to purchase a piece of land that will be "unbuildable" or will have too many restrictions on it.

Thanks a lot!

[Jason Hsiao]

The thing w/ raw land is you're not generating rent when you just hold onto it or during the time you're building. Texas is easier to build but let's say it takes a year, that's a year of rent you can have to catch up. Every case might vary, but let's say monthly rent is $2,000/mo and you can get an extra $200/mo for a new build that's 10 years before you catch up to the rent you might've gotten. *I simplified the math... repairs and other expenses would be lower for a new build.