Need advice on new construction vs flipping

[Shayla Collins]

I’ve done two rehabs and am considering doing a new construction single family home in the spring. My rehabs were both pretty touch. One should’ve been a tear down as we had to rebuild the foundation and replace most of the framing.

What do I need to take into account before venturing into new construction? In what not so obvious ways does it differ from rehabs. I want to make sure it’s a profitable venture. I’d love to hear from investors who’ve successfully navigated this sector of real estate. Please shoot it to me straight. I’d rather be discouraged away from doing it than getting in over my head.

Thanks!

[Lamont Chen]

@Shayla Collins

I'm working on a new construction at the moment in NJ and there are a good amount of new challenges I have run into:

1. Zoning - Ensuring what you are trying to build is compliant with the zoning for the lot. With my other property which was to renovate and rent out I did not really have to worry about this. Typically your realtor should know the zoning for the town or can connect you with an architect who is familiar with what can be done without a variance which is a toss up.

2. Demolition - If you bought a plot of land you do not really need to worry but if there is an existing structure... disconnecting water, electric, and gas from the service providers takes a while and requires permits from town. You would also have to consider demolition costs into your numbers.

3. Loans - You can check with a local loan provider but a construction loan would be different and I believe higher interest than a renovation loan. If you buy the property with a mortgage then getting a construction loan on top would require additional assessment.

4. Build - Similar to large renovations you want to choose a reputable builder which may be difficult. Depending on the area you are in you are in there may be challenges to building when the ground is frozen w.r.t. the foundation.

Good luck!

[Patrick Orefice]

@Shayla Collins

Most flippers know pretty well what their building costs will be, but with new builds it adds in a greater site cost and soft costs.

Zoning can be issue as already mentioned here, but you also need to look into city fees. There are fees for water and sewer taps into the city’s utilities or increased costs for well/septic. You’ll also have to provide the infrastructure from the meter to the house. Often grading comes in to play and costs for paving/driveway.

You’ll also need to look at hiring an architect and structural engineer. Jurisdictions require stamped drawing for permitting. Because of this the holding time can be much longer before construction begins.

Not trying to scare you away, and as long as all the numbers work new builds can be very profitable.

[Shayla Collins]

@Patrick Orefice thank you. Great feedback!

[Shayla Collins]

@Lamont Chen Very very helpful. Thank you!