Thoughts on building from the ground up.

[Joseph Beilke]

So I have been on BP reading many books and the forums, and listing to many many Pod Cast for close to a year. In my town of Palm Coast, FL it seems that there really is nothing in the ROI of 5% or better. The big money guy over bid on auction home just to increase there volume and little ole me can't see making this kinda investment when my money sitting in mutual funds have been preforming very well. So I decided to look another direction, I'm looking to buy a lot and build from the ground up. Being a Real Estate Agent I would list it for sale and keep my own commission. I feel like if price and built right I could get a 12-15% on the first house and hopefully build a second and so one with better pricing from subs to increase my returns to 20-25% over the next 3-5 years.

I have GC and he has all the subs and architect to modify the plans I have chosen to meet the local reqiurements , so that pretty much puts me getting ready to pull the trigger on a lot, after I ref my own house. So my questions today are how would you buy the lot, should I buy it in an LLC? Would you cash out your mutual funds to pay for the build or look for hard money? Let start with these and if anyone has gone this route any advice is greatly appreciated.

[Nik Moushon]

The biggest mistake 90% of ppl make when doing their first build is not estimating their build costs and soft cost correctly. Go over your number 3 or 4 times. So many people underestimate or plain out forget to add so many soft cost numbers and end up not having the cash needed to even start, even if they have the construction loan in place. 

As for how to purchase...you can do an LLC but that could limit or put extra burdens for getting loans that could stretch your time line. Until you are an established builder you are probably safe without using a LLC to buy the land. Just get the proper insurance to cover the construction. You are not holding onto the house for rental purposes so it not a big a deal. I would just buy the land under my name, since its easier to get a loan, then build and sell. If you really want that extra wall of privacy a LLC gives you can always transfer the property once you have it. But really you are not holding that property that long anyways. Ideally you should have all the paper work and construction documents to submit for permit the day you sign on the property. Then you get to wait up to a couple months for the city review (SFH usually doesn take that long), hopefully there are no delays, then 3-6 months to build (again pending no delays), then a month to sell and a month to close. Perfect world you would have a buyer before you even finish but thats not always true and shouldnt be considered in your budget (unless your local market is just that crazy). So from signing to signing could be 9-12 months...is that really worth the LLC...maybe. Its up to you.