Help evaluating this wholesale deal for a builder/developer

[Spencer Bowen]

Howdy! I'm just getting started, and this is the first builder/development contract I've hit upon through my marketing. Is this a good deal? Here are the details: Contract is $280k for a view property (lake and territorial), with Lake Washington beach access on the title. It's on Goat Hill in Kirkland. The job requires replacing the entire existing structure. Building a 4/4 3200 sf house at $125/sf (plus permits, plans, holding and laying foundation) and selling at $345/sf would yield $134k profit with a hard money loan at 4 points and 12% (assuming holding 8 months for permits and 8 months construction). Known issues: 1. The existing structure sits near the property line and cannot utilize the existing foundation with current side/back distances. 2. The lot is on a hill, with about a 50 ft grade from one end to the other. This is what gets the property it's view. 3. There is a stream on the adjacent property, about 25 ft from the property line, that could potentially require obtaining a reasonable use exception with the city of Kirkland (it depends on the type of stream, which is determined through testing). Kirkland permit office estimates 8 months to receive a reasonable use exception, if it's needed. They would need a stream biology report, soil report, foundation and rainwater plans, and full design drawings. To address this, I have factored in 8 months to obtain permits and $100k for plans, permits, holding costs and laying foundation. Even with these costs, assuming $345/sf, a hard money loan would yield around $134k with 66% cash-on-cash in the worse-case scenario of carrying the acquisition loan for 8 months before starting construction. What do you think? Is the juice worth the squeeze? It's a lot of leverage and a decent amount of risk for $134k, but profits could be a lot more as well if the exception isn't needed (saving $20k in holding costs). I think the market is strong, with some houses topping $400/sf, and over the course of 8 months the value is going up. Thanks for your thoughts and feedback, I really appreciate it! Spencer