Need help with analysis on a new build on purchased land!

[Marc Estepa]

Hello BP fam!  I posted a similar post in the “Starting out” thread regarding my analysis for building a home on a 1 acre, 2 lot property near Tacoma, Washington.  

Just a bit of background.  I know nothing about new builds and I know nothing about buying land.  A coworker showed me a 1 acre lot that has been subdivided in his subdivision for $95K.  Homes in this subdivision easily sell in the $500K range, with some higher end comps selling at the $650+ range.  

We have another coworker who is currently building a 1500 square foot home for $247K.  This comes out to about $165 per square foot to build from his builder.  We used this data point as the basis on which to estimate the price to build a home on this land.  

The goal is to buy the land, build a new home on it and price it at a level that will recoup the price of the land, the excavation/power/water/sewer costs, account for closing costs, real estate commission and our own profit margins to split.

The land is in a quiet, culdesac with a nice view and near a small creek.  It’s in the back of the subdivision with no homes behind it.  It sits on challenging terrain, basically a cliff with a slope.  I suspect it is priced cheaply because of the challenge to build on that kind of terrain.

I started with what I think is a reasonable price point that I know we could sell this kind of house for in this neighborhood - $650K.  

From there,  I set a desired profit as $275K.  This would recoup our investment on the price of the land ($100K), the price to excavate, prep the land to build with power/water/sewer ($70K), 6% realtor commission on $650K ($40K), 2% closing costs ($13K) and split the remaining $52K profit.

With the price of the home set at $650k minus the desired profit $275k, we are left with a construction loan of $375K.

Using our friend’s estimate for a new build at $163 per square foot and a budget of $375K - we estimate the house to be built with this budget to be approximately 2275 sq ft.  

Anyway, just looking for some confirmation to see if I am in the ballpark or way off.  But honestly just checking to make sure I’m mathematically analyzing in the right direction.  

I’m not a smart man by any means, but what else do I need to account for in terms of costs?  What am I missing or forgetting?  Am I even in the ballpark?