Build SFR in Ocala, FL

[Chris Ayers]

My family owns a plot of land in Ocala Florida in Silver Spring Shores. We get letters in the mail daily about people wanting to buy it. This made me think the area is picking up and is now desirable. 

Did some research and found out that to build a modest 3/2/2 home 1600 sq ft with a builder I somewhat trust is about 135K.  Rents in the area are around 1k per month - not meeting the 1% rule which I try to follow.  

Is there any way to get these numbers to work? Should I look at this as a flipping opportunity and not a buy and hold?  

Any local advise on this situation and the area is appreciated. 

[Dave Foster]

@Chris Ayers, "they"re either buying retail to live there or they're a builder and probably making a normal 15 - 20% profit on their labor.  

That extra $20K - $30K of margin is available to you if you want to get into the retail spec construction game.  But you've got quite a few things against you - distance, no established crews or economies of scale, If you build you'll pay double or triple the tax on profit and not be able to 1031. 

New construction really isn't an easy game.  Your lot is probably worth around $10 - $15K.  A builder would buy it at 10% of construction price all other things being equal.  You can pay 15% capital gain tax on that and walk with $8500.

If you build you'll still get an allocation of say $10K for the lot plus 15% of the construction cost ($20K ish).  So you're total profit would be around $30K but you'll now pay probably as much as 35-40% of that in tax.  So you're net $18 - 20K.  And that is if the stars align.  Usually there's a hefty "rookie tax that can easily eat up 20% of cost of construction.  And when it does you're building for free.  Not to mention the time angst and opportunity cost.

If you're a builder go for it.  The area is active.  If not I'd take the modest lot profit and call it a day.  I take my own medicine.  I've developed 200 lots in the midwest and I built on one and broke even.  Since that time I'm just selling lots and am happy as a clam even though I'm leaving about $5 million in construction profit for the other guys.