New and Frustrated Investor. Should I Consider Land and Build?

Question

Hi there,

I'm in the Metro Atlanta area. I've been looking to pull the trigger on an investment property for two years. At first, I was going to buy my parents a house near me but it's too expensive and competitive in this "good school district" and it would eat up my entire wad on a down payment so we could basically break even on mortgage payments.

So I'm switching gears for now and looking to spin my small amount of capital on a vacation rental.

I'm only approved for 220k for a commercial loan via my LLC I started. I'm looking at the Georgia / North Carolina mountains for a vacation rental. It seems impossible to compete with seasoned investors and those with the cash to put down over asking price.

I'm looking at unrestricted land to build something small to start. Does it make sense for a newbie with no rentals yet to buy land as a first investment? Are there  agents who work with land specifically?

Thanks!

Lori Lloyd · Answer

The material costs, supply chain issues and labor shortages are still big issues in the building industry right now.  I'd say str and co-sign for them would be not only a quicker solution but would still leave you the room you need to be able to flip your str if the market bears a fast roi on it.

Nicolas Biangel · Answer

@April L. I know there are diverse ways to invest, but considering the finite amount of funds, have you considered BRRRR a property in less expensive areas in GA? I'm in GA and invest in GA as well.  There might be an easier way to start investing while learning at the same time the process.

Chris Mills · Answer

@April L. I would connect with contractors in the areas you're strongly considering and ask that question. I've done both myself. Last time I bought land and built from the ground up was 2017, and from what I'm gathering now it would cost me almost double what I paid then. You're going to want to be up to speed on what building costs and buy+rehab costs are in those areas, and once you are, that may answer the question for you.

Randy Gutierrez · Answer

"Only the strong can help the weak". I think if you put yourself in a position where you can be of help without it being a detriment to yourself, that is the best route. I don't know all the details of your situation but if your parents can withhold retiring for another 2-5 years while you invest in yourself and your business. You in turn can provide them a rental unit to live in for free in the future or be in a better position to subsidize their living.

I have a friend who purchased a triplex, rents the top floor, lives in the main floor, and has his parents living in the basement for free. He is obviously not making money on this property but can cover the mortgage easier with the rental income. The parents help in matters that you can't really put a price on such as babysitting, cooking, cleaning, being available 24/7 etc. He was able to achieve this by investing in himself early on which later put him in a position to purchase a triplex.

In theory if you had purchased a property 2 years ago like you were originally thinking, that property would have soared in value today. You could have easily refinanced today and use that cash out refinance to buy them a home. Your indecision is costing money but more importantly time. However it is never too late, start today!

Bruce Woodruff · Answer

I would not do a new build for your first venture....too many moving parts and waaay too much to go wrong. Just find the nicest house, in the nicest area, that you can afford and get started.

I wouldn't even start a new build in these crazy times and I'm a builder.....

Sabine French · Answer

Hey, April, Looks like you are doing a remarkable job of resilient pivoting after the last few years dealt you lots of uncertainty. I have some flipping experience but am embarking on my own land/new build adventure right now. You’ve already got your LLC commercial pre-approval; you are doing the foundational layers. I’d encourage you to consider the info shared here and then trust your gut. I would like to point out that NC real estate is quite high right now, but just over the border in Southwest Virginia can be incredibly affordable by comparison. Best of luck to you. I sense you will win. (Ack! Just discovering that I never hit “send”! Sorry).

April L. · Answer

@Nicolas Biangel Yes, I'm looking in North Georgia and North Carolina. Maybe Tennessee as well.

April L. · Answer

Thank you Randy for your words of encouragement. My indecision during the past two years is a result of divorce, 2 kids and being laid off during a pandemic having to find a new job. I agree that you can't wait around, but I'm going to try and focus on what I can do today and not kick myself down over what I COULD have done had other factors been in my favor.

So, back to what I can do for today.

Does anyone have an opinion on buying land and building real estate vs buying an existing structure? Buying land seems like a less competitive option right now. Land is something I can afford to buy. I would just need a construction loan instead of mortgage loan.

April L. · Answer

I do have a lot I'm trying to achieve. There are two main things:

1) Buy my first rental property as an investment and put 40k to work. CON: Must use commercial loan of 220k for 20% downPRO: I could get a bigger ROI with a tiny home / pre-fab / cabin with a short-term rental in a vacation spot in the mountains

2) Find my parents a house to buy and be a co-signer.

My mom qualifies for 360k for a first-time home buyer. My parents currently rent a house near me. (They do not have much for a down payment). It makes sense that my parents pay me instead of paying someone else. This option would help everyone by keeping the property as an investment, stabilizing a "rent" payment with a 30-year mortgage, and potentially, if we could find a unicorn property with a basement or in-law suite, off-setting the cost of the mortgage with a short-term rental. Yes, I'd put my parents to work with an Airbnb.

I thought I could do these two things as part of one goal. I'm just trying to help my parents out as they near retirement. But what I'm finding is, I can't afford to help my parents out without blowing my wad on a downpayment in this area. They need to be near me.

CON: Payment for a 300k home would not help either of us since it would be likely higher than their rent payment and I would loose my small capital on a down payment.

PRO: The only pro I can think of would be if we could find a REAL DEAL -something below market value. Which is not likely in this market.

This is why I've opted for option 1. Just use my 40k for an investment not tied to location. That's why I'm looking in the mountains at smaller towns in Georgia and North Carolina.

Greg Scott · Answer

You said you want to be a real estate investor but also buy your parents a house, near you, in a good school district.  huh?

It is no surprise you are having trouble finding a good property.  You are trying to accomplish too many conflicting goals at one time.  What really is your goal?

New and Frustrated Investor. Should I Consider Land and Build?

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