Quote from @Mike Wood:
@Vanessa Hammonds I think trying to start spec building right now is at the worst times in history. Labor shortages have caused crazy increases in subcontractor costs. Materials cost have increase 15+% in the last year.
Based on your post, it sounds like your "mentor" is not doing a good job. If your mentor/consultant has been telling you the things that you noted in your post, please run away from them. They are telling you very, very bad information.
To put things into perspective, I doubt there is anywhere you can sell new construction at $190/ft2 ($400k @ 2100ft) and the land would only be $50k (infill lot). More likely your looking at +$100k for the lot. I also agree with others that there is no way to build new construction anywhere near where your costs are. More likely in the $125-150/ft2. That will reduce your potential profit to almost nothing (if not negative).
While I current have a new build in process right now, I am only building now because I have to. I have another piece of vacant land that I will not be starting construction anytime soon.
Hi! thanks for the input. I'm most nervous about the construction cost & time. Not necessarily what the home could sell for. Fairly confident in the price that I could acquire the land for since I've spoken with owners and know what they will sell for (most above $50K and below $90K hence where I said max $70K), would like to see about auctions as well though.
The very small area I'm looking in...new construction sales this year were $331K, $559K, $435K, $585K, $420K, $412K, $579K, $585K, $585K, $362K, $565K (I did not look at sales under $300K because those homes tend to be in bad shape purchased with the intention to flip or tear down). The prices in 2021 averaged lower but still averaged over $400K. Of the homes sold this year I could only find the sales prices for 2 for the land they were built on, which were $55K & $69K for the land - when I dug further back into 2021, I found purchase prices of land that new construction homes were built on at $60K, $44K, $39K, $48K, $45K and $25K. I only pulled the sales price of land for homes in which a new construction home was built and sold for reference. I didn't pull these numbers out of thin air, they are the numbers in the specific area I am interested in.
I am clearly new, but, if every single new construction home I pulled sold that sold this year sold between $218-$256/SF - I am assuming it can be built for less, but I'm very unfamiliar with this part so thats a variable I'm trying to research on my own. Most of the homes built in 2021 in this area were smaller and most sold between $180-$200/SF.
For example, one 2,100 sf home sold for $365K at $174/SF - the land was acquired for $45,000
Another home - 1,940 sf sold for $375K at $193/SF - land was acquired for $48K
Another sold for $505K, land acquired for $26K
Another sold for $350K, land $44K
Another sold for $370K, land $60K - another $435K/$69K, $331/$55K
So I'm literally seeing land purchased under $70,000 and then homes built and sold $350K-500K+ so I figured if it is constantly being done, I could do so as well. But whomever said I'd be lucky to build for $250/SF...if that were true...then every single home in this area would cost significantly more to build than what it sold for and that doesn't seem right at all.
My mentor/consultant (not really sure what to call him, he's invested in real estate for 20 years and built a number of homes above and below my range) said he would walk me through it for a percentage of my profits, he's nearing retirement and has done pretty well and I think he has the time and really enjoys mentoring me, which thus far has been mostly on the realtor side of the industry not the investment side. He knows me, knows I'm eager and was fairly impressed with what I did with my home in Houston.
I selected a specific area in Houston, bought a crap house for $75K when EVERYONE told me it was a bad deal and my interest was double digits (which sucked but I didn't plan at all and my only option was owner financing), did as much of the Reno I could myself (around $25K or so, stopped at HVAC, roof, foundation, etc) rented it out for 5 years, made over $100K doing so, and then I was ready to put another $60K into it to quadruple the purchase price but my health deteriorated and I sold it (for double what I paid). Had I put the $75K I could have sold for $300K. It's worth around $350 now.
We haven't even met to discuss specifics, I just remember him mention his budget for a house over double the size so I took half of that to get started. I have to start somewhere. If the realistic construction budget is $200k or something else then that is what it is. I'm sure if he actually heard me say a ridiculous number he would let me know. I remembered someone saying they found Bigger Pockets really helpful and that I should join it so I thought I'd seek some feedback here. I have plenty of time to learn, tweak, adjust etc. I highly prefer to build rather than flip, and want to explore that before giving up on the idea. Thanks for taking the time to read.
