Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
This is just an update to a previous thread. Here are the results on the first home completed and sold. The property referred to on the Golf Course has closed. Lot was actually bought for $39,145. The sales price was $319,000 and we had to do some additional itemsfor buyer. Fireplace, some additional granite in laundry room, pet door etc.
I used a private lender who charged 9% and 2 points. I could've paid cash, but wanted to show ANYONE could've done the same deal with under $40,000. The net after ALL costs, including interest, and commission was $84,000. The "net" was just under $45,000 in 6 months on a total investment of 39K. This is an annualized return of 200% on total investment of 39K. (if I calculated correctly) I still think there are other areas where this is possible.
The Parade home referred to is NOT sold yet and return will be less, due to holding time. March 1, I started a 3rd home in St George to be priced at $299,000 for 2300 sq ft- very nice home on a 50K lot. It is also financed with same lender.
As the rehab or wholesale margins are shrinking, you might consider this option in your area. Rich
Investor · Orlando, FL · Member since 2012 · 431 posts · 106 votes
14y
@ Rich - Good numbers on these. I've always wondered how feasible it was to build spec in different areas and still regret not setting up a second base in New Orleans post Katrina. Sounds like it's completely feasible if you have the right contractor relationship.
@ Tod - 10% is way too high. What I do is go to an online site like eplans.com and find a few options that I generally like. From there you can either buy the plans online and have them tailored or once you have a pretty good idea of what you want you can hire your own draftsman as Rich mentioned. 1% is about right. Ideally you want to pick a house that you can have a few different exterior elevation options yet the interior remains basically the same. This will allow you to easily forecast your future build costs.
It's probably worth doing an entirely separate post but how you spend your money completing a spec can have significant financial impact on your end result. I used to hang around my houses as a customer throughout the parade of homes every year just to hear the unvarnished comments of potential buyers. The items that jumped out at them were usually a lot different than what I thought were the important items. I'd recommend going on any parade of homes that you can and just listen to what features people really comment on - usually it's the cheap and easy stuff.
Rental Property Investor · Baltimore, MD · Member since 2009 · 624 posts · 559 votes
14y
Rich,
WOW... what's not to like about that deal?
I just got back from touring the oil patch in North Dakota, via the Bigger Pockets conference, and investory, absorbtion rates, and price points all support every builders dream.
Entire developments are getting sold out in 6 months or less and raw land (farm land in ND) selling in excess of $25K an acre. Crazy times for sure.
But as Bruce Norris suggested... it is all about timing.
Great meeting you and your lovely wife Janet at the conference and I look forward to many more discussions in the near future.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
14y
Rich,
Spec building is certainly very profitable and retruns can often be higher than that compared to rehab flip opportunities, the porblem in most areas of the country is this: Cost to build is much more thna cost to buy existing and rehab, hence the reason I switched from spec building and land development to rehab flipping.
With that said, there are a few ares in the country I am aware of that can offer spec builders some profits, one of them being Utah, the other being parts of TX (mostly south TX & Austin), and I am begining to learn that ND also offers such opportunities. The trouble for many is that if they do not live in these areas and/or have not spec built before, it may be very difficult to manage such a project without being close by. I say this only as a word of caution to anyone considering such a project. You of all people know this and quite frankly, have the ability to up and move to the area that makes sense to invest in, most do not afford the same opportunities.
Congrats on your deal, if you are considering more, I would love to get involved, spec building is one of my strengths and I am greatly interested in opportunities that pencil.
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
14y
Peter and Will- I agree with everything stated. There are SOME areas where this will work. Obviously, if existing inventory can be bought for less, it makes it tougher. From the conversations at Seminar, it seems ALL areas are becoming more difficult to find goos rehab returns, %wise. Not impossible, just more difficult.
Will- I'll keep your interest in mind. Someone is suggesting AZ, but I haven't seen the opportunities here, yet. Rich
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
14y
Congrats!
We'd love to be building, but as Will said, there are only a few markets where that will work these days and Atlanta just isn't one of them (unless you're a big builder still holding paid-for land from 5+ years ago).
Maybe I can convince the wifey to move back to Utah...
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
14y
Originally posted by Rich Weese:
Will- I'll keep your interest in mind. Someone is suggesting AZ, but I haven't seen the opportunities here, yet. Rich
Yeah, I am just not seeing that Rich, that market is packed with rehab opps and buy and hold, spec building not so much. They have too high of an inventory for spec building to make sense, it is usually a supply and demand issue along with a cost issue.
My cousin completed a spec build in Utah last year and did real well, I am curious if you are anywhere close to where he completed his deal.
Tacoma, WA · Member since 2010 · 203 posts · 93 votes
14y
Originally posted by Rich Weese:
The net after ALL costs, including interest, and commission was $84,000. The "net" was just under $45,000 in 6 months on a total investment of 39K.
I'm sorry I'm having trouble understanding what you mean here. Maybe I'm parsing the language wrong.
You bought a lot for 39k
Financed construction with a private lender
Sold the new house for 319k
Profits of either 84k or 45k???
Many experienced investors in my area (Western WA) are moving back into building so threads like this are interesting to me.
I've been looking pretty hard at it, but haven't pulled the trigger yet because I'm not sure the return over time frame and effort supports building over rehabbing.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
14y
I don't see how one can go wrong with building in certain areas of Austin now. We have several projects going and I am working on some small developments. Returns like what Rich is citing are pretty standard for most of the deals I am working on and other BP members are in some of these deals. The ULI meeting this week sold out weeks in advance and our housing inventory is down to around 4.5 months.
Small banks are still being hamstrung by their regulators so you have to source new deals with a new lender if you use a construction loan. Private money would be nice to use too, but the bank money is cheaper.
Real Estate Investor · Las Vegas, NV · Member since 2011 · 117 posts · 28 votes
14y
The deal sounds pretty awesome! Like J and Will, houses are too cheap to build in Vegas. Though I am starting to see some builders getting into action as opposed to last year. Then again, maybe traveling 100 miles north isn't too far.
Residential Real Estate Broker · Grand Blanc, MI · Member since 2008 · 885 posts · 316 votes
14y
The rehab deals on the MLS are drying up in this area. Some of the rehabbers I know are considering the spec home method. In my opinion, the timing still isn't right for this area to get back to building spec homes. It is still more profitable to buy, rehab and flip a house.
Maybe they're perceiving the market getting better since the good flip inventory is not on the MLS...
Investor · Orlando, FL · Member since 2012 · 431 posts · 106 votes
14y
Was this done in your home town where you oversaw the project or from a distance through a trusted contractor?
I'd like to get back in to spec building as that is what i know the best, but like many others have stated the local market just isn't supporting it.
Would love to be building and living in Austin but wouldn't be able to convince the better half to move there without her landing a good job in her field beforehand.
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
14y
Steve K - I assume this is to me. My answer is ,,,,,,,,,BOTH. I'm actually building in 2 States. So UT and SO TX. The UT home referred to was a GC, with my supervision. The TX home is a trusted GC that has built approx 30 homes in my same subdivision. I do compare his costs from time to time- and am doing that currently, before I start another. I have one closing there within a couple weeks. $175K +- in SO TX and 300K plus in UT. Rich
p.s. Leon- Once you see EVERYBODY building in Vegas, you'll be too late.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
14y
Rich, what were your per sq. ft. building costs on the $319k exit price home, how many sq. ft was that home, and what was your dirt cost? Was this one in Ogden?
For the St. George project, will your per sq. ft. building costs be the same?
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
14y
Will- All the Utah homes are in St George. Lot was $39,145. Home was single level 2457 sq ft. Const costs were $196,000. I'll be posting HUD later today or tomorrow. After commissions, Interest, and concessions the Escrow check was $88,344.58 or $49,000 profit after all costs on the total investment of $39,145 in 6 months. I think this answers everything. Rich
p.s. I also have an earnest money on the Parade home as of today. I need to close before April 5 or I owe another 1/2 point to extend loan.
Commercial Real Estate Lender / Syndicator · Dallas, TX · Member since 2011 · 888 posts · 309 votes
14y
I should have paid closer attention in my little 14 sq mile town. We had a few small developments go up a few years ago. Town homes starting around $200k and homes starting in the low $500s. Then it all stopped. Until recently. Now there are 3 developments going up starting around $500-600k. There's a large area around a lake that will be coming on line soon. Billingsley and some other big boys locked up the land a few years ago.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
14y
Thanks for posting that Rich.
Your COC looks awesome due to the leverage.
Without leverage, it would look like this:
$236k cash invested, $97k profit (larger due to elimination of loan costs $13k) 41.1% COC in 6 months (82% annualized). That is a great return.
Also, $236k all-in with $319k exit equals 74%. I strive for 75% or better so you hit that mark! Nicely done.
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
14y
Hi Tod- hope all is well with you after the Summit. Great time and great fun.
My wife and I design these based on the lot, area, etc. I do have a combination draftsman/engineer that does the formal plan and the structural engineering combined. Wifey gives it a Womans' touch and I'm more concerned about other things. We've designed over 50 homes. My Draftsman costs are less than 1%. Rich
Investor · Orlando, FL · Member since 2012 · 431 posts · 106 votes
14y
@ Rich - Good numbers on these. I've always wondered how feasible it was to build spec in different areas and still regret not setting up a second base in New Orleans post Katrina. Sounds like it's completely feasible if you have the right contractor relationship.
@ Tod - 10% is way too high. What I do is go to an online site like eplans.com and find a few options that I generally like. From there you can either buy the plans online and have them tailored or once you have a pretty good idea of what you want you can hire your own draftsman as Rich mentioned. 1% is about right. Ideally you want to pick a house that you can have a few different exterior elevation options yet the interior remains basically the same. This will allow you to easily forecast your future build costs.
It's probably worth doing an entirely separate post but how you spend your money completing a spec can have significant financial impact on your end result. I used to hang around my houses as a customer throughout the parade of homes every year just to hear the unvarnished comments of potential buyers. The items that jumped out at them were usually a lot different than what I thought were the important items. I'd recommend going on any parade of homes that you can and just listen to what features people really comment on - usually it's the cheap and easy stuff.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
14y
We pay $2psf for our drawings and plans for completely customized houses. Austin has some weird ordinances that you have to comply with and the city is a general PITA to deal with.
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
14y
I didn't want to blow anyone away- my rate is $.50 per sq ft and includes architectural and engineering plans . Currently constructing 2300 sq ft- $1150 total for both. Rich
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
14y
Rich Weese - I remember a year or year and a half ago you stating that you did not prefer to invest in rehab projects like mine here in CA because of the price points. I believe you stated that investing $250k or more into one house was putting a lot of eggs in one basket (I am paraphrasing). I think you were doing FL flips and using no more than $100k.
With that said, it appears you have now moved into the higher price points on these spec builds and your returns on an all-cash invested deal are actually lower than what I get here simply because I am in and out in 3-4 months where the spec build takes 5-7 months.
Just for some healthy debate here and on topic for your thread title, here are a few of my numbers:
$220k purchase, $30k rehab, all-in for $250k, sold price $339,900 with $7k seller concessions (so exit was actually $333,000. Gross spread of $83k, selling costs/holding costs were $24k, leaving $59k profit on a $250k investment which is a 23.6% return and total hold time was 106 days (3.5 months) which is an annualized return of 80.95%. Since I can do 3.5 of these deals in a year whereas your deal can only produce 2 per year, my annual returns are better in this scenario. I use an all-cash example so we can compare apples to apples. I did in fact use leverage and borrow from one of my private lenders $200k so my actual COC for $50k invested and $52k profit ($7k in loan interest) was 96.2% which is an annualized return of 327%