Building SFR and relisting?

[Jesse Davis]

I’m about to close on a 1/3 acre lot that I acquired from cold calling. I got it quite cheap and my original plan was to flip it for 10-15k profit. After looking at the area I found a small new construction home listed on a 1/3 acre down the street from my subject lot. The property is listed for $224k. This got me thinking about squeezing as much as I can out of this deal and building 1400-1500sqft home on this lot. The subject lot has utilities (there was actually a small frame house on the lot at one time until termites took the house).

My question is: How do investors go about building new homes? It seems like all the builders in my area are for retails buyers. The price per sqft is too high.

Thanks.

[Merle Sauvola]

You say that you cold called your way into a lot that you could make 10-15k.  With a home price point in that neighborhood of 225k (yep, price just went up since you posted 2 hours ago lol).  If this is true, you can get about 35-45k for that lot.  If you’re still in the profit with that number, I would flip the lot to the builder down the street, and start cold calling on more property.

Find a handful of builder that you can flip easily dividable property to (road frontage).  Talk to a civil engineer about how many lots that you can divide without getting into major subdivision standards.

Keep flipping land.  I’m not trying to be negative Nancy, but If you don’t have the experience in building right now, building a spec will eat your lunch.  The reason I say this...

Building a house as a GC is not hard at all once you have the process (I hired someone 3.5 months ago that didn’t know anything, and he’s currently running 10 houses that are on schedule, and homeowners are singing his praises)..  The hard part is getting, and keeping a list of great subcontractors that will get you on budget (but you need to know what budget you’re shooting for to sell 1400-1500sf for 225k.  Believe me, I know this price point is a tight budget, because that sounds very similar to our S Carolina market).  

When we started this building company, it took 6-8 months to line up a list of solid subs that would get us on budget.  I knew what we were looking for because I have many friends that build, and used to build houses before the housing crash.  But with no experience, I would expect you to break even on your lot, and house for the first few specs.

So, back to flipping land.  A builder needs to spend 15-20% of the sale price of the new home on a building lot.  If it’s steep, less (10-15%).  If it’s a clear, flat field, more (20-25%).  If you can keep some small builders (up to 25 houses per year) fed with lots that meet this criteria, then you can do well.  I just bought a 6 lot road frontage piece where the wholesaler made 80k on the flip.  I overpaid a bit on that one because we were running out of lots, but that’s not a bad deal for my friend, the wholesaler...  sounds like you have that skill, and possibly the time to cold call on land?