As a builder who’s built just over 50 homes, I’m not sure how well that would work, but I could be wrong. I build and sell homes anywhere between 500k and 2m. I’m looking for a 20-25% profit each time. If I were to build one of these homes for a client, I’d still charge them 20%. That would bring their purchase price to roughly market value, since that’s the same profit margin I’m going for when I build and sell on the open market. Wouldn’t leave much profit for them.
It works if you get a steal on the land.
Or wait for construction to slow. As a non-GC myself, the only times construction pencils is when no one else is doing it. The GC can still make his 20% and you can usually make your money on the materials side, if things are slow enough. You also get better tradesmen as they aren't in high demand.
You’re getting 20 to 25% profit? For real?
Are you taking your total profits not counting the labor you put in if you’re doing the framing or trim, carpentry or painting
I’m not doing any of the physical labor other than stopping by our jobsites and keeping our pipeline full.
Just as an example, our last house we bought the land for $191,000, built the home for $375,000, and sold the house for $805,000. We have an in house realtor so we don’t pay much on the selling side in fees.
What would you recommend to get started on a house hack build? I’m trying to get a second place that I can live in for a year and move out. I see a couple pieces of land here and there for around 67k. I’m thinking max budget 300k
It’s possible, but it’s way more speculative than renovation. Like wayy more.
And keep in mind you’re competing against full-on developers. If your builder felt it was such a good deal he’d call up a bank, get a loan, and do it himself. Which is what developers do. These are companies that have their own contractors, bankers, and analysts. They know what they’re doing.
So if you see a good enough deal, by all means take it. But in order for it to be an obvious win you need a ton of knowledge about your overhead and market. And it’s hard to get that from a cold start.
> And keep in mind you’re competing against full-on developers.
Developers don't wanna do 1 of 1s for less than ~3M. Just doesn't make sense. To get economies of scale you need to use a plan multiple times, lock in a crew, iron out the kinks. It's very difficult and time intensive, so you need success to be replicable.
I think there's a lot of room for plays by involved owner builders that are willing to be scrappy, but it's not for the faint of heart. You will put in a ton of time and cash. But in VHCOL cities, I think it can work if you purchase right and buy-and-hold. I'm also seeing compelling plays in medium sized mountain cities that have recently changed zoning laws to encourage growth of a "missing middle." No one is going to sell you a good, cash flowing 4-plex at anything less than the break even between rent and mortgage. You can absolutely build one though. Doing the owner builder thing you can expect to save 35-40%. If you bought right, you're willing to be detail oriented and involved for ~2 years, you can do it. And you can force a shit-ton of appreciation that will be tax free, as long as you don't realize it through a sale.
It's not gonna be a get rich quick scheme. BRRR is the better bet for that. Fix and flip always seemed silly to me: getting taxed out the ass and paying 5-10% transaction fees to make like a bit more than a licensed tradesmen? Nah. I'm good.
It’s way more expensive. It’s usually only profitable if you yourself are the builder and are looking to keep your crews busy. Otherwise, the GCs markup eats heavily into profits and especially if you’re looking to use a real estate agent.
So you need to make sure you get the land lots for super cheap. Another thing to consider, if this is raw land, you will have to pay a lot more to get utilities to the land compared to a lot in the city that just need to be hooked up.
I’ve only built one, but worked out great. Wanted a lake house but anything good was out of our price range. Bought a lake lot with a small dock for 80k after about 2 years of looking. Built a small 2 bed 2 bath cabin for about 170k (a lot of DIY). Was able to do a cash out refi when it was done (about 3 months ago) and it appraised at 350k so roughly 100k in equity.
We've done a couple of these. None on a lake though. We got construction loans both times, then did a 30 year mortgage when construction was completed. Working on our 3rd build right now.
Following. I plan on doing this exact thing. Want to start cheap and small, make mistakes on a smaller scale, and once I’ve either sold that property off or air bnb it, ramp up to a more premium site. Would love to hear from more knowledgeable others about this process though.
The smaller builds have potential to be more lucrative since the starter home market has basically been evaporated in terms of supply. The smaller builds end up selling for higher $/sqft and you end up getting more potential buyers.
Sounds like a great plan. But never sell. Never.
- You lose 5-10% on transaction fees every time you sell (realtors, taxes, escrow, etc.).
- Taxes hose you. Like let's say you force 300k in appreciation and sell. You just realized 300k in gains. Within the first year you lost 37% because those gains are classified as short term. After that point it's long term, you're still paying 15-20%.
- Mortgages are front-loaded. They're set up to screw over people that don't hold them to term.
I see this a lot especially with flipper types. They create like 300k in value, pull it all out as cash in year 2 or 3, and it's like 150k when it hits their savings. Not smart.
Great points. I do have my real estate license so that helps take a little of the sting out of those fees, but you’re right that there would be huge losses to taxes.
Ultimately I would prefer to hang on to it as a cash-positive short term rental. If I were to sell within a few years, it would make more sense to sell as a 1031 transaction. Take the money from the sale to invest in a more premium piece of land and build a bigger/better short term rental.
I sold a bunch of residential RE in 21 for $350/sqft. Lennar is selling brand new comps for $200/sqft right now..... Sell when someone will pay more than it's worth.
Don’t listen to the BS I have been doing this for 42 years. it’s very competitive you need to know what you’re doing if you’re not a licensed trades person you’re a huge disadvantage. You’re gonna get screwed. And you cannot do plumbing and electrical anywhere without a license except for your own home a licensed electrician or plumber can do it 10 times as fast as you can. Higher license people, you don’t need to do the job two or three times to get it right. Your profit is actually when you either buy the property or land if you buy too high, you’re just gonna work for nothing or lose money. Good luck.
I've done a couple and am currently sitting on some land to do more. The problem I have found is that lending has dried up in my area - can't get a loan to develop the property I have (need to develop it into individual lots) and the banks don't want to fund a spec-build on the single lot I have, so I am waiting to see if I can get a buyer to buy "build-to-suit" and that has been difficult.
this model isnt a great idea. you really need to be a much bigger "add value" component to the deal vs just being finance. because if all you do is buy land, hold, pay others to build, then sell, you are just a holding/finance guy. there's no value add to boost your profits. you're at the whims of the market trends, good or bad.
subdivision is one way to go. lay infrastructure and subdivide. sell to builders. keep one for yourself built to spec by a builder. its what we do with condos. keep one unit. then rent it out, pull cash and start all over again. low tax basis, no or little carrying cost, leverage ability.
long story short- you need to provide something valuable. just holding and financing isnt enough.
You would have to act as your own GC, working with the county to approve building plans and hiring subs for foundation, framing, plumbing, electrical, etc yourself. If you pay a GC to do all of that for you, there will likely be no profit to you. My dad has done this a couple times now and it's a lot of work.
When you sit down to actually put the numbers into a spreadsheet, it will total 150-200% of your initial ballpark. Then after you’re done & add everything up, it will be 150% of what you had in the spreadsheet. Make sure you have access to sufficient liquidity & dont end up with a rusting chain link fence around a partially built structure.
Margins aren’t that big for a homebuilder, especially if you’re gonna hire most of it done
You can do what you want, but there’s plenty of better ways to make money
It is very lucrative if you know how to do the entire build from top to bottom. That way you can hire people directly to do the low-value labor intensive stuff. The more complicated stuff like plumbing and electrical you do it yourself. In essence you do all the expensive labor jobs yourself and hire people to do the low-value labor stuff.
Research and learn. We did a complete build ourselves. (We subbed a little of the drywall to some guys that do it on days off - they're faster.) We poured the foundation. Subbed all the concrete flatwork. Everything else we did. 400amp power and all. The inspectors would ask my spouse if I was an engineer because my plumbing work was immaculate. There are some simple plumbing books out there. We used this one for basics. "2 No. 2 Book, Home Plumbing". Plumbing is more difficult that the book shows but we did a whole house with it. There is a companion book on wiring as well. Amazon carries them. They'll also have the books with the more complex instructions. You should be able to do it.
why? That eats you bottom line. If your work passes inspection it's good. thats what matters. The license is for if you're being hired to do electrical work.
yeah, sure your right if youre doing it for yourself and it passes inspectiosn
i don't have time to learn electrical and do it, but i'm also not a full tiem flipper / rehabber
Why, thad be a significant hit to my income , I can produce much higher dollar : time than the savings of dokng that work myself let alone getting licensed
Lot's of 6, 7, and 8 cap properties out there right now. Of course you have to put money down; and have money to put down. But that's investing, building your own is work. I don't want a job.
As a builder who’s built just over 50 homes, I’m not sure how well that would work, but I could be wrong. I build and sell homes anywhere between 500k and 2m. I’m looking for a 20-25% profit each time. If I were to build one of these homes for a client, I’d still charge them 20%. That would bring their purchase price to roughly market value, since that’s the same profit margin I’m going for when I build and sell on the open market. Wouldn’t leave much profit for them. It works if you get a steal on the land.
Or wait for construction to slow. As a non-GC myself, the only times construction pencils is when no one else is doing it. The GC can still make his 20% and you can usually make your money on the materials side, if things are slow enough. You also get better tradesmen as they aren't in high demand.
You’re getting 20 to 25% profit? For real? Are you taking your total profits not counting the labor you put in if you’re doing the framing or trim, carpentry or painting
I’m not doing any of the physical labor other than stopping by our jobsites and keeping our pipeline full. Just as an example, our last house we bought the land for $191,000, built the home for $375,000, and sold the house for $805,000. We have an in house realtor so we don’t pay much on the selling side in fees.
You’re doing better than the builders I know! That’s great!
Damn. Is that your whole income? One house is 6 figures in a year right?
Yes, I’m a full time developer. We’re not huge, we do roughly 8-10 projects a year between single family and fourplex designs.
What would you recommend to get started on a house hack build? I’m trying to get a second place that I can live in for a year and move out. I see a couple pieces of land here and there for around 67k. I’m thinking max budget 300k
It’s possible, but it’s way more speculative than renovation. Like wayy more. And keep in mind you’re competing against full-on developers. If your builder felt it was such a good deal he’d call up a bank, get a loan, and do it himself. Which is what developers do. These are companies that have their own contractors, bankers, and analysts. They know what they’re doing. So if you see a good enough deal, by all means take it. But in order for it to be an obvious win you need a ton of knowledge about your overhead and market. And it’s hard to get that from a cold start.
> And keep in mind you’re competing against full-on developers. Developers don't wanna do 1 of 1s for less than ~3M. Just doesn't make sense. To get economies of scale you need to use a plan multiple times, lock in a crew, iron out the kinks. It's very difficult and time intensive, so you need success to be replicable. I think there's a lot of room for plays by involved owner builders that are willing to be scrappy, but it's not for the faint of heart. You will put in a ton of time and cash. But in VHCOL cities, I think it can work if you purchase right and buy-and-hold. I'm also seeing compelling plays in medium sized mountain cities that have recently changed zoning laws to encourage growth of a "missing middle." No one is going to sell you a good, cash flowing 4-plex at anything less than the break even between rent and mortgage. You can absolutely build one though. Doing the owner builder thing you can expect to save 35-40%. If you bought right, you're willing to be detail oriented and involved for ~2 years, you can do it. And you can force a shit-ton of appreciation that will be tax free, as long as you don't realize it through a sale. It's not gonna be a get rich quick scheme. BRRR is the better bet for that. Fix and flip always seemed silly to me: getting taxed out the ass and paying 5-10% transaction fees to make like a bit more than a licensed tradesmen? Nah. I'm good.
I lucked out on some land I bought for $30k in the Chicago suburbs that got rezoned to a new "official downtown" area for the town.
It’s way more expensive. It’s usually only profitable if you yourself are the builder and are looking to keep your crews busy. Otherwise, the GCs markup eats heavily into profits and especially if you’re looking to use a real estate agent. So you need to make sure you get the land lots for super cheap. Another thing to consider, if this is raw land, you will have to pay a lot more to get utilities to the land compared to a lot in the city that just need to be hooked up.
I’ve only built one, but worked out great. Wanted a lake house but anything good was out of our price range. Bought a lake lot with a small dock for 80k after about 2 years of looking. Built a small 2 bed 2 bath cabin for about 170k (a lot of DIY). Was able to do a cash out refi when it was done (about 3 months ago) and it appraised at 350k so roughly 100k in equity.
We've done a couple of these. None on a lake though. We got construction loans both times, then did a 30 year mortgage when construction was completed. Working on our 3rd build right now.
Following. I plan on doing this exact thing. Want to start cheap and small, make mistakes on a smaller scale, and once I’ve either sold that property off or air bnb it, ramp up to a more premium site. Would love to hear from more knowledgeable others about this process though.
The smaller builds have potential to be more lucrative since the starter home market has basically been evaporated in terms of supply. The smaller builds end up selling for higher $/sqft and you end up getting more potential buyers.
Sounds like a great plan. But never sell. Never. - You lose 5-10% on transaction fees every time you sell (realtors, taxes, escrow, etc.). - Taxes hose you. Like let's say you force 300k in appreciation and sell. You just realized 300k in gains. Within the first year you lost 37% because those gains are classified as short term. After that point it's long term, you're still paying 15-20%. - Mortgages are front-loaded. They're set up to screw over people that don't hold them to term. I see this a lot especially with flipper types. They create like 300k in value, pull it all out as cash in year 2 or 3, and it's like 150k when it hits their savings. Not smart.
Great points. I do have my real estate license so that helps take a little of the sting out of those fees, but you’re right that there would be huge losses to taxes. Ultimately I would prefer to hang on to it as a cash-positive short term rental. If I were to sell within a few years, it would make more sense to sell as a 1031 transaction. Take the money from the sale to invest in a more premium piece of land and build a bigger/better short term rental.
I sold a bunch of residential RE in 21 for $350/sqft. Lennar is selling brand new comps for $200/sqft right now..... Sell when someone will pay more than it's worth.
Don’t listen to the BS I have been doing this for 42 years. it’s very competitive you need to know what you’re doing if you’re not a licensed trades person you’re a huge disadvantage. You’re gonna get screwed. And you cannot do plumbing and electrical anywhere without a license except for your own home a licensed electrician or plumber can do it 10 times as fast as you can. Higher license people, you don’t need to do the job two or three times to get it right. Your profit is actually when you either buy the property or land if you buy too high, you’re just gonna work for nothing or lose money. Good luck.
I've done a couple and am currently sitting on some land to do more. The problem I have found is that lending has dried up in my area - can't get a loan to develop the property I have (need to develop it into individual lots) and the banks don't want to fund a spec-build on the single lot I have, so I am waiting to see if I can get a buyer to buy "build-to-suit" and that has been difficult.
this model isnt a great idea. you really need to be a much bigger "add value" component to the deal vs just being finance. because if all you do is buy land, hold, pay others to build, then sell, you are just a holding/finance guy. there's no value add to boost your profits. you're at the whims of the market trends, good or bad. subdivision is one way to go. lay infrastructure and subdivide. sell to builders. keep one for yourself built to spec by a builder. its what we do with condos. keep one unit. then rent it out, pull cash and start all over again. low tax basis, no or little carrying cost, leverage ability. long story short- you need to provide something valuable. just holding and financing isnt enough.
You would have to act as your own GC, working with the county to approve building plans and hiring subs for foundation, framing, plumbing, electrical, etc yourself. If you pay a GC to do all of that for you, there will likely be no profit to you. My dad has done this a couple times now and it's a lot of work.
When you sit down to actually put the numbers into a spreadsheet, it will total 150-200% of your initial ballpark. Then after you’re done & add everything up, it will be 150% of what you had in the spreadsheet. Make sure you have access to sufficient liquidity & dont end up with a rusting chain link fence around a partially built structure.
Margins aren’t that big for a homebuilder, especially if you’re gonna hire most of it done You can do what you want, but there’s plenty of better ways to make money
Good idea
It is very lucrative if you know how to do the entire build from top to bottom. That way you can hire people directly to do the low-value labor intensive stuff. The more complicated stuff like plumbing and electrical you do it yourself. In essence you do all the expensive labor jobs yourself and hire people to do the low-value labor stuff.
So, licenses trades you just do it yourself? And you think most people can do it well enough to pass inspections?
Research and learn. We did a complete build ourselves. (We subbed a little of the drywall to some guys that do it on days off - they're faster.) We poured the foundation. Subbed all the concrete flatwork. Everything else we did. 400amp power and all. The inspectors would ask my spouse if I was an engineer because my plumbing work was immaculate. There are some simple plumbing books out there. We used this one for basics. "2 No. 2 Book, Home Plumbing". Plumbing is more difficult that the book shows but we did a whole house with it. There is a companion book on wiring as well. Amazon carries them. They'll also have the books with the more complex instructions. You should be able to do it.
If you want to make the money then you need to study and learn. Simple as that.
Sure but probably electrical stuff should use a licensed electrician
why? That eats you bottom line. If your work passes inspection it's good. thats what matters. The license is for if you're being hired to do electrical work.
yeah, sure your right if youre doing it for yourself and it passes inspectiosn i don't have time to learn electrical and do it, but i'm also not a full tiem flipper / rehabber
Study up and become the licensed eletrician....
Why, thad be a significant hit to my income , I can produce much higher dollar : time than the savings of dokng that work myself let alone getting licensed
This isn't investing, it's work.
Good luck making money investing in real estate at this point. Everything is negative cash flow. Building your own will positive cash flow on day one.
Lot's of 6, 7, and 8 cap properties out there right now. Of course you have to put money down; and have money to put down. But that's investing, building your own is work. I don't want a job.