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jj

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Reply with quote  #1 

Does anyone know what it would cost to build a standard home. I understand there are many different options that would add/subtract from the cost per square foot.

 

Some details - Location is in Ventura County CA.

                    1800 Sq. Ft. 3bed/2bath

                    Quality equal to a standard tract home stucco exterior

                    Average carpet, tile, windows ect.

 

 

tour

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Reply with quote  #2 

Construction costs are now running $125 - $175 per s.f.  depending on the amount of plumbing and the condition of the lot.  I would estimate $150 per s.f. for a typical house.  Remolding is running around $200 per s.f. 

 

The costs of materials have really increased the costs of construction recently.

rlc

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Reply with quote  #3 

didn't Bush say there wasn't any inflation?

Paul

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Reply with quote  #4 
Many construction costs are down as it's now a buyer's market for sub contractors. Lumber prices are at mid 2003 levels.

Quoting square foot prices is pretty meaningless as there are a lot of variables to consider. If you're serious, check out being an owner builder. If you do it right, you'll be able to build a better house at a better price than any general contractor would do for you.

BTW, be sure to do your homework on energy efficiency as it's becoming extremely important in home construction, especially if you plan on living in the house, as opposed to it being a spec home.
jj

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Reply with quote  #5 

Quote:
Originally Posted by Paul
Many construction costs are down as it's now a buyer's market for sub contractors. Lumber prices are at mid 2003 levels.

Quoting square foot prices is pretty meaningless as there are a lot of variables to consider. If you're serious, check out being an owner builder. If you do it right, you'll be able to build a better house at a better price than any general contractor would do for you.

BTW, be sure to do your homework on energy efficiency as it's becoming extremely important in home construction, especially if you plan on living in the house, as opposed to it being a spec home.

 

I understand that price per sq. ft. can have a wide range depending on window, flooring and so on, but I would think that one can estimate the building cost per sq. ft. based on average building materials (not real custom, but not low end).

 

I was approached to invest in a lot and have a home built and then sell it for a profit. I was told that the home can be built for $70 per sq. ft., I find this hard to believe. I just started researching this today.

 

Any thoughts are appreciated.  

Paul

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Reply with quote  #6 
jj, I think $70 sq foot is very challenging in the last 4 years. But the variables are important. Consider:
1) Your local building fees can vary greatly, that is, school fees, water and sewer and building permit fees...depends upon the area.
2) Are you building on a flat lot, down sloping, up sloping? Is the excavation simple dirt removal or are you challenged by having to break rock? If you're moving a lot of dirt, how far do you have to export it. A good rate for a 10 wheel dump truck that holds 11 cubic yards of dirt is $70 an hour. That meter can run real fast!
3) Are you building economy, custom, luxury?
4) Just your choice or cabinets, countertops and windows can influence the sq ft price tremendously.

I could go on and on. But I seriously doubt that you can build a a house for $70 a sq foot as I think better manufactured homes are priced beyond that these days.

I'm building my third house right now and my budget is $140 sq foot, including pool, elevator and many luxury items. The energy science I am applying to the project wouldn't be considered by a general contractor.

Look into owner building and you might find a whole new area of real estate investing that might interest you. Just a side note: The best real estate deals I have ever done as far as appreciation is concerned is buying lots. I built houses on  two of the lots but the appreciation was staggering on the dirt alone.
RonaldStarr

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Reply with quote  #7 

Paul-----------

 

“The best real estate deals I have ever done as far as appreciation is concerned is buying lots. I built houses on  two of the lots but the appreciation was staggering on the dirt alone.”

 

When there is price volitility in a real estate market the vacant lots almost always gyrate both up and down more than do homes.  So, it would be expected that the vacant lots you bought went up more than the structures.

 

Good Investing and Good Posting********Ron Starr***********

 

BenJones

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Reply with quote  #8 

In Ventura County the permits alone will run you around $15/sf.  Add in Arch., Eng., carry costs, misc. fees, etc. and your "soft costs" will be in the range of $30/sf.  The house itself if built on a flat, smallish lot to low-end custom spec.'s will run a minimum of $100/ft.  Figure $150/ft.  Whoever says $70 - get it in writing.  It'll never happen.  He's selling you the land, right?

 

Paul

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Reply with quote  #9 
Quote:
Originally Posted by RonaldStarr

Paul-----------

“The best real estate deals I have ever done as far as appreciation is concerned is buying lots. I built houses on two of the lots but the appreciation was staggering on the dirt alone.”

When there is price volitility in a real estate market the vacant lots almost always gyrate both up and down more than do homes. So, it would be expected that the vacant lots you bought went up more than the structures.

Good Investing and Good Posting********Ron Starr***********



Actually what happened Ron was that I bought lots in a unique area of So Cal, where in the face of very decent overall appreciation the lots were a very rapidly diminishing investment...there just weren't many remaining to be had. The built out homes, over the same time frame, did well, but the lots, one of which was lake front, became very valuable because there was just a good old fashioned shortage.
jj

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Reply with quote  #10 

Quote:
Originally Posted by Paul
jj, I think $70 sq foot is very challenging in the last 4 years. But the variables are important. Consider:
1) Your local building fees can vary greatly, that is, school fees, water and sewer and building permit fees...depends upon the area.
2) Are you building on a flat lot, down sloping, up sloping? Is the excavation simple dirt removal or are you challenged by having to break rock? If you're moving a lot of dirt, how far do you have to export it. A good rate for a 10 wheel dump truck that holds 11 cubic yards of dirt is $70 an hour. That meter can run real fast!
3) Are you building economy, custom, luxury?
4) Just your choice or cabinets, countertops and windows can influence the sq ft price tremendously.

I could go on and on. But I seriously doubt that you can build a a house for $70 a sq foot as I think better manufactured homes are priced beyond that these days.

I'm building my third house right now and my budget is $140 sq foot, including pool, elevator and many luxury items. The energy science I am applying to the project wouldn't be considered by a general contractor.

Look into owner building and you might find a whole new area of real estate investing that might interest you. Just a side note: The best real estate deals I have ever done as far as appreciation is concerned is buying lots. I built houses on  two of the lots but the appreciation was staggering on the dirt alone.

 

Paul -

 

Thank you very much for your input. Where would I start, if I wanted to learn about owner building?

jj

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Reply with quote  #11 
Quote:
Originally Posted by BenJones

In Ventura County the permits alone will run you around $15/sf.  Add in Arch., Eng., carry costs, misc. fees, etc. and your "soft costs" will be in the range of $30/sf.  The house itself if built on a flat, smallish lot to low-end custom spec.'s will run a minimum of $100/ft.  Figure $150/ft.  Whoever says $70 - get it in writing.  It'll never happen.  He's selling you the land, right?

 

No, he is not selling me the land. It happens to be to people I know, they already own the land and need money to build. One guy owns the lot and the other guy is a general contractor. They need cash to down to get financing to fund the project, that is what I am considering. I just learned about this yesterday and have not yet received and written projections or costs, other than him telling me what he purchased the lot for and what he expects the cost to build ($70 sq. ft.)

 

I will post additional information as I receive it, and would be interested in any input or thoughts.

 

Thank you

BenJones

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Reply with quote  #12 

Something is not right with this deal.  If they own the land outright then no further investment would be needed for a construction loan.  If they put the minimum down on the land, then an additional down payment maximum of 25% would be needed for the construction loan. 

 

1,800sf x $70/sf x 25% = $31,500.

 

They need to give a cut to an outside investor for measely $31k?

 

These are not seasoned professionals here.  Either that, or they are in fact seasoned at taking "investment" dollars from others.

RobertCampbell

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Reply with quote  #13 

 

JJ,

 

Where would I start, if I wanted to learn about owner building?

 

As a builder/developer for 10 years - 2nd generation, actually - one thing I can tell you is that the contracts you use (the wording) to hire subcontractors is very important.

 

During the 10 years I was developing (homes and apartment buildings), I continually changed my subcontractor contracts to the point where they were fair, clear, complete, and minimized any misunderstandings about what I expected when I accepted their bid.

 

One thing that is extremely important is the interaction between one subcontractor and the next (natural enemies, BTW) as to where one trade's jobs ends and the other begins.

 

Subcontractors are notorious for saying "that's the other subcontractor's responsibility, not mine."  A good contract avoids this problem of subjectivity because everything is spelled out crystal-clear. 

 

Bottom line is that good contracts are a necessary ingredient - but still not sufficient - to make money as a spec builder.   Also important is knowing the quality standards that are reasonable for the trades - and holding the the subcontracts to those quality standards.  This should also be spelled out in the subcontractor contract.

 

Of course, you learn all this from experience.

 

Even though I don't develop anymore, I think I still have copies of those subcontractor contracts in my files.  Each contract is tailored to each individual trade, of course.   In seeking out the best contracts, one size doesn't fit all.  Common sense, right? 

 

I'll look for them.  If I find them, for those who are interested, I'll post the discovery on this thread.  These contracts have made and saved me a lot of money.  A real asset.

 

Robert Campbell

 

PS:  If you are really interested in developing, I would not pay too much attention to people who "think" they know what costs are and other relevant matters.  You should be talking to the players that are actually building and developing right now (which isn't me) and get the real story.   Even with my experience, this is what I would do before I jumped back into the fire again. 

 

Building is a tough and risky business.  The uninitiated have no idea what surprises and risks can surface.  Guess how I know this?  (grin)

jj

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Reply with quote  #14 
Quote:
Originally Posted by BenJones

Something is not right with this deal.  If they own the land outright then no further investment would be needed for a construction loan.  If they put the minimum down on the land, then an additional down payment maximum of 25% would be needed for the construction loan. 

 

1,800sf x $70/sf x 25% = $31,500.

 

They need to give a cut to an outside investor for measely $31k?

 

These are not seasoned professionals here.  Either that, or they are in fact seasoned at taking "investment" dollars from others.

No, they do not own the land outright, they just closed on the lot with very little down. They need about 1/3 down for the construction loan (I do not have all the details yet, they are putting a projection together for me).

 

No they are not seasoned professionals, this is their first deal. I will post the projection numbers as I get them.

 

 

jj

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Reply with quote  #15 
Quote:
Originally Posted by RobertCampbell

 

JJ,

 

Where would I start, if I wanted to learn about owner building?

 

As a builder/developer for 10 years - 2nd generation, actually - one thing I can tell you is that the contracts you use (the wording) to hire subcontractors is very important.

 

During the 10 years I was developing (homes and apartment buildings), I continually changed my subcontractor contracts to the point where they were fair, clear, complete, and minimized any misunderstandings about what I expected when I accepted their bid.

 

One thing that is extremely important is the interaction between one subcontractor and the next (natural enemies, BTW) as to where one trade's jobs ends and the other begins.

 

Subcontractors are notorious for saying "that's the other subcontractor's responsibility, not mine."  A good contract avoids this problem of subjectivity because everything is spelled out crystal-clear. 

 

Bottom line is that good contracts are a necessary ingredient - but still not sufficient - to make money as a spec builder.   Also important is knowing the quality standards that are reasonable for the trades - and holding the the subcontracts to those quality standards.  This should also be spelled out in the subcontractor contract.

 

Of course, you learn all this from experience.

 

Even though I don't develop anymore, I think I still have copies of those subcontractor contracts in my files.  Each contract is tailored to each individual trade, of course.   In seeking out the best contracts, one size doesn't fit all.  Common sense, right? 

 

I'll look for them.  If I find them, for those who are interested, I'll post the discovery on this thread.  These contracts have made and saved me a lot of money.  A real asset.

 

Robert Campbell

 

PS:  If you are really interested in developing, I would pay too much attention to people who "think" they know what costs are and other relevant matters.  You should be talking to the players that are actually building and developing right now (which isn't me) and get the real story.   Even with my experience, this is what I would do before I jumped back into the fire.

 

Building is a tough and risky business.  The uninitiated have no idea what surprises and risks can surface.  Guess how I know this?  (grin)

 

Robert Campbell -

 

Thank you for your thoughts and knowledge. Are there any questions I should ask about the lot. What would be a reasonable build time (4 - 6 -8 months)

 

Thank you again

RobertCampbell

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Reply with quote  #16 

 

JJ,

 

If you know what you are doing - namely, you know how to schedule subcontractors and run a job - you can build a home or small apartment building (up to 16 units, lets say) in 3 to 4 months. 

 

If you don't know what you're doing, it can take years.

 

Good luck.

 

Robert Campbell

RonaldStarr

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Reply with quote  #17 

Robert Campbell--CA------------

 

Gee, maybe you could make your contracts a centerpiece for your next book.  It would probably be mainly a CA-oriented book.  But a good book on the topic might sell to non-CA investors also.

 

Good Investing and Good Posting*********Ron Starr**********

 

RobertCampbell

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Reply with quote  #18 

Hi Ron,

 

Thanks for the idea.  I appreciate it.

 

I may not write a book on homebuilding and the way to write subcontractor agreements, but I may write up a Private Report on that subject for the benefit of rehabbers.

 

All related to market timing, of course. 

 

Best wishes,

 

Robert Campbell

 

 

julienne

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Reply with quote  #19 
I would pay for a copy of that, julienne
jj

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Reply with quote  #20 

Here are the details -

 

The lot (5300 sq. ft.) was just purchased for $300,000 with 10% down and 7.25% interest only loan. They already have the plans to build a 1500 sq. ft 3 bed/2 bath single story home with a 2 car garage and stucco exterior. The plans have been submitted to the cit y for review. The utilities are already tied into the lot.  

 

The lot is in an established area with homes on each side and behind it. All of the home around the lot are 40 years old, some have been upgraded.

 

Recent comparables -

 

date sold     bed   bath   home sq.ft.   lot sq.ft.   year built   price

7/14/06       3      1.5     1080            5225        1965         565,000

5/26/06       2       1       850             5069        1963         530,000

5/23/06       2      1.5      960             4323        1964        525,000

4/11/06       2       1       856             5247        1959         515,000

4/3/06        3       1.5     1056            5210       1963         500,000

3/30/06       2      1.5     1050            5400        1963         529,000

2/24/06      2       1.5     952             4800        1963         480,000

2/13/06       3      1.5      1080           4804        1965         490,000

 

 

They feel the project will cost $100,000 - $150,000 to build and will take 4 months to complete and will be listed for sale around Jan 2007 for $600,000.

 

After chatting with different people and getting their thoughts, I believe the cost will be in the $150,000 - $170,000 range and will take closer to 6 months to complete. The million dollar questions is, what will the property be worth when it is completed in early 2007? How do you price a brand new house in a 40 year old neighbor?

 

These guys are looking for $100,000 loan secured by the property (which is just a lot with $30,000 equity) and they will pay 20% interest only until the property sells and then return 100% of the principle loan amount.

 

 

Here are my numbers (please correct where you see errors) -

 

Cost of the lot                                        $300,000

Cost of construction                                 $150,000

8 months (5 to build/3 to sell) carry costs    $26,000

Cost to sell @ $600,000 (3%comm/1.5 close)$27,000

 

Does this make sense to invest $100,000 into?

 

 

 

 

Jeff

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Reply with quote  #21 
Quote:
Originally Posted by jj

Does anyone know what it would cost to build a standard home. I understand there are many different options that would add/subtract from the cost per square foot.

 

Some details - Location is in Ventura County CA.

                    1800 Sq. Ft. 3bed/2bath

                    Quality equal to a standard tract home stucco exterior

                    Average carpet, tile, windows ect.

 

 

After the CA fires here in my area, a group of neighbors banded together and got a builder to come in and rebuild all of their homes.  The group discount gave them about a $120 sf price.  The neighbors you didn't like the limited floorplans, or upgrades, or the builder, opted to hire their own contractor.  These people often paid ~$200 sf or more!  Neither the $120 sf price OR the $200 sf price included the land (of course).

 

In contrast, when I was buying homes last year in El Paso, brand new homes from the builder were selling at $64 a square foot!  Guess what--that included the land!

 

 


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Jeff

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Reply with quote  #22 
Quote:
Originally Posted by jj

Here are the details -

 

The lot (5300 sq. ft.) was just purchased for $300,000 with 10% down and 7.25% interest only loan. They already have the plans to build a 1500 sq. ft 3 bed/2 bath single story home with a 2 car garage and stucco exterior. The plans have been submitted to the cit y for review. The utilities are already tied into the lot.  

 

The lot is in an established area with homes on each side and behind it. All of the home around the lot are 40 years old, some have been upgraded.

 

Recent comparables -

 

date sold     bed   bath   home sq.ft.   lot sq.ft.   year built   price

7/14/06       3      1.5     1080            5225        1965         565,000

5/26/06       2       1       850             5069        1963         530,000

5/23/06       2      1.5      960             4323        1964        525,000

4/11/06       2       1       856             5247        1959         515,000

4/3/06        3       1.5     1056            5210       1963         500,000

3/30/06       2      1.5     1050            5400        1963         529,000

2/24/06      2       1.5     952             4800        1963         480,000

2/13/06       3      1.5      1080           4804        1965         490,000

 

 

They feel the project will cost $100,000 - $150,000 to build and will take 4 months to complete and will be listed for sale around Jan 2007 for $600,000.

 

After chatting with different people and getting their thoughts, I believe the cost will be in the $150,000 - $170,000 range and will take closer to 6 months to complete. The million dollar questions is, what will the property be worth when it is completed in early 2007? How do you price a brand new house in a 40 year old neighbor?

 

These guys are looking for $100,000 loan secured by the property (which is just a lot with $30,000 equity) and they will pay 20% interest only until the property sells and then return 100% of the principle loan amount.

 

 

Here are my numbers (please correct where you see errors) -

 

Cost of the lot                                        $300,000

Cost of construction                                 $150,000

8 months (5 to build/3 to sell) carry costs    $26,000

Cost to sell @ $600,000 (3%comm/1.5 close)$27,000

 

Does this make sense to invest $100,000 into?

 

If I understand correctly, and I may not being new to this, 20% is a pretty good return on a "safe" investment.

 

But to me, as a beginner, this investment doesn't seem too "safe."  In fact, it is virtually an "unsecured" investment.  Consider this, let's say your "partners" have a fight (or one of them dies, or takes the money to Mexico?) and the deal completely stalls.  You have to foreclose, and to sell quickly you have to sell at a 10% discount.  Where is your equity?  If they only own 10% of the property, and you sell at a discount, after paying off the bank you will have...nothing?

 

Do you trust these people enough to give them an "unsecured" loan for 100k?  If so, I have heard that "unsecured" loans have rates above 20%...(or maybe you deserve a cut of the profit?)

 

Is there a way of holding "your" 100k in a title company or equivalent, and only doling out money according to a completion schedule to minimize your risk?  This would, at least, make the possibility of a "Mexico run" less likely...

 

If, after further research, you determine that this investment's risk is "low," and you have no better use for the money, I say go for it.

 

On the other hand, if you determine that the risk is "high," or worse, that your principal is at risk, I say run the other way... 


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rlc

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Reply with quote  #23 

I would have a hard time with this investment when one of the players is a contractor and he quotes $70/sq.ft. development. Something is wrong. If the construction costs are really around $140, then my question is: How good is this contractor/partner?

 

 

jj

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Reply with quote  #24 

Jeff -

 

Thank you for your input. Yes, even though this loan is secured by the lot, there is very little equity there. The larger the risk the higher the return, right? My problem is I am not sure how much risk I am taking? I would disperse the funds as needed, so they would not get the $100,000 all at once (reduces the risk a little). Yes, I trust one of the guy, no question.

 

I guess the main risk would be if the something went wrong and the project was not complete I would have to foreclose and then complete the project and hope there is enough equity to recover my investment.

 

The completed home would have to sell for $499,990 for everyone to breakeven, if the house was completed and listed today I believe it would sell for $560,000 - 590,000.

 

Is there enough equity in this project to ruduce the risk enough to invest? I am not sure....

hessj

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Reply with quote  #25 

Quote:
Originally Posted by rlc

didn't Bush say there wasn't any inflation?

No kidding.  I now whisper I lean more towards Republican side

 

Anyways, I looked into building a 1600-1800 sqft home in San Antonio Heights (North of Upland,CA)  Arrowhead Credit Union would finance the construction loan at 9% until the home is built and I had 12 months to finish it.  After it was built I could finance it elsewhere for a fixed rate.  I knew after 12 months that the rates would be higher (which I was right) and the numbers would not be right for an investment.  Which I was right again and glad I didn't do it.   I did talk the GC (General Contractor) down to $120 a sqft but I had to do all the painting, floors, and roofing.  I checked into a few homes he built which were not bad but it was all too much for permits and risk.  The biggest problem in that "town" was water shares.  $10k for 1/4 share and need 1/2 share to start building and 1/3 of a share for how much I would actually use in the end.  Damn all the numbers were very bad in 2005.

 

I would wait a little longer to build unless you are “construction savvy” and could strike a deal with a GC. Or a nice moble home lol

BenJones

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Reply with quote  #26 

Land Cost = 300k

Soft & Hard Cost = 1,500sf x $150 = 225k

Contingency = 22k

Selling Costs = 30k

Total = 577k

 

They paid too much for the dirt.  A seasoned spec builder wouldn't touch a project for less than a 20% profit, i.e., 120k on a 600k sale.  This is a sucker deal where everything must go right amongst greenhorns to maybe make a tiny profit.  This is a deal only amateurs would do.

 

 

Jeff

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Reply with quote  #27 
Quote:
Originally Posted by jj

Jeff -

 

Thank you for your input. Yes, even though this loan is secured by the lot, there is very little equity there. The larger the risk the higher the return, right? My problem is I am not sure how much risk I am taking? I would disperse the funds as needed, so they would not get the $100,000 all at once (reduces the risk a little).

 

Do they pay interest only on the part they are using...or on the whole 100k?  After all, you are "committing" the whole 100k (you can't use it in another project).  Here is why I ask.  If they only pay for the part they use...and they only use a little at a time over 6 months, your "return" on the "committed" funds is going to be way less than 20%.  In fact, if every single thing goes right, you may end up making only about 5k-7k in interest.

 

Seems like a lot of bother and risk for a 5k return?  Have I done the math correctly?  You could put 100k in a Money Market account and make 5k with absolutely NO risk (albeit in a year).

 

My experience in this area is very limited, but I invested about 75k into a similar development deal (though much larger) in Texas last year.  After a few months, it returned about 24% (or about 33% annualized).  This is a done deal.

 

I turned around then and put  the entire amount, ~100k, into a development deal in Boise.  If every single thing goes right (it might not!) I will see a return of about 30k in roughly six months.  This represents a return of about 30% (or 60% annualized).  This deal is not "done," but supposedly the principal is never at risk as it is held by a title company...

 

I am currently involved with another development deal which reports to pay out a return of 50% over ~6 month time period.  If every thing goes as claimed (it might not), that means about a 100% annualized return.

 

In addition, I have about 30k in a lot development deal right here in San Diego county (San Marcos?).  Here the promised return is 24% plus a 5% bonus at completion.  Like yours, the loan is secured by the land only...

 

Just a small sample of what other people are getting on other, similar deals...hope it helps you!

 

Quote:
Originally Posted by jj

 

Yes, I trust one of the guy, no question.

 

I guess the main risk would be if the something went wrong and the project was not complete I would have to foreclose and then complete the project and hope there is enough equity to recover my investment.

 

The completed home would have to sell for $499,990 for everyone to break even, if the house was completed and listed today I believe it would sell for $560,000 - 590,000.

 

 

To the degree that your estimates are accurate, there doesn't sound like there is much "meat on the bone."  The market in CA could lose 60k in 6 months, then where would you (and your partners) be?

 

The more I hear about this project, the more I think (in my limited experience) that you could do better with your 100k...


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Paul

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Reply with quote  #28 
jj, Learning to owner build is like anything else. You just have to get into it. Search on the internet for live courses (there's a good one in Sacramento), books, DVD's etc. It's easier than you might think.
RonaldStarr

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Reply with quote  #29 

J. Joseph—CA----------------

 

From what I know at this point, I’d suggest you not do this deal.  The comps that you site are not inspiring confidence in me that this will be profitable.

 

I think that Ben Jones’ analysis makes sense. 

 

There is way too much possibility of no profit at all here, it seems to me.

 

I’d say “pass.”  You can do better.

 

I’d suggest you get some comparables for newer homes in older neighborhoods and see what kind of premium a new home seems to command.  Even if the comps are from different neighborhoods, perhaps you can use sales prices of newer homes as a percent of  sales of older homes. 

 

Or else, talk to several appraisers and ask them.

 

One of the major rules of investing is to not lose money.  This “deal” does not guarantee that you will be within that rule.

 

Passing by most offers to you is imperative to an investor, in my view.  You have to wait for a clearly truly good deal. This is not that.

 

Good Investing**********Ron Starr************

jj

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Reply with quote  #30 

Thank you for all of the suggestions. I was on the fence about this project, my thoughts were that the profit margin is too small. I will pass on this deal, but will keep everyone posted on the out come. It it may take 4 - 6 months.

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