Buying a lot and building on it

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Submitted by zk on January 8, 2013 - 2:24pm

I'm considering buying a lot and building a triplex on it to rent out. It's in the southeastern U.S., where price/rent ratios are very good. It's in an area where similar triplexes rent very well.

Anyone have experience doing this? I'm concerned about possible pitfalls and traps or things I might not've thought of.

Thanks for any advice.

Submitted by sdduuuude on January 8, 2013 - 2:41pm.

Make sure you include the city fees and other non-construction costs in your cost model.

In San Diego, contractors will tell you "X per square foot" but that is to build once you get permits. I'm finding out in San Diego, architecture fees, city fees, utility fees and permitting fees for a new home can run $200K or more.

Also make sure you know "square feet of what" when you hear a cost per square foot. - is it square feet, excluding the garage ? useable square feet ? heated square feet ? square feet, including the garage ? yada yada.

Getting a clear, total cost from an architect or builder that includes everything is very tricky.

Submitted by SD Realtor on January 8, 2013 - 3:12pm.

Yes make sure you hire a local contractor who is intimately familiar with the city and county you are making the purchase in. Otherwise you can build it all only to get hurt by local ordinances or zoning laws that are pertinent to that area.

Submitted by The-Shoveler on January 8, 2013 - 3:25pm.

From my limited observation talking to a few who have built their place, it is very hard to beat the big developers in price per Sq foot unless you do the majority of the work yourself.

And you plan on being the General contractor etc...

Anyway, maybe a limited subset or people who tried this, but most were BURNED!!!!! Very badly.
Some never completed or were forced into BK or near BK.
try to buy something existing if you are not going to be doing the management and most of the nail pounding.

Submitted by FormerSanDiegan on January 8, 2013 - 3:47pm.

Do you live in the same city as you plan to develop ?

If you live in So Cal and are doing ti remotely, forget it.

The only thing remotely close to this that we've done is to do a full-scale renovation (and doubling the size) of a single-family home within 5 minutes of where we were living at the time.
Even though I hired a general contractor, at some point I was making ~daily visits to the site. In some cases I found things that were wrong (e.g. - framing of windows in the wrong place). IN other cases I went to see the impact of some things we uncovered along the way (e.g. the need to re-do the one bathroom we intended to keep due to dry rot and water damage) or simply review adjustments that the contractor had to make.

Submitted by CA renter on January 8, 2013 - 6:12pm.

FormerSanDiegan wrote:
Do you live in the same city as you plan to develop ?

If you live in So Cal and are doing ti remotely, forget it.

The only thing remotely close to this that we've done is to do a full-scale renovation (and doubling the size) of a single-family home within 5 minutes of where we were living at the time.
Even though I hired a general contractor, at some point I was making ~daily visits to the site. In some cases I found things that were wrong (e.g. - framing of windows in the wrong place). IN other cases I went to see the impact of some things we uncovered along the way (e.g. the need to re-do the one bathroom we intended to keep due to dry rot and water damage) or simply review adjustments that the contractor had to make.

Totally agree with this. We didn't double the size, but did a major renovation plus addition, and we lived just a few houses away. We were making multiple trips daily, sometimes just to make sure that things were moving along, and other times to make corrections and ensure things were being built to our specifications. We had the bathroom that we intended to keep, but had to re-do because of mold and water damage, too. We also tore into a wall and found mold there because the prior owner had done a DIY stucco patch, and never repaired/replaced the vapor barrier...so that whole portion of the stucco (about 10-15 feet) was torn down and redone.

Building from scratch avoids some of these pitfalls, but they have the added burden of bringing in all the utilities, etc. I think this is where a lot of costs can run up.

And ALWAYS add about 20-30% more **at a minimum** to what you're quoted by the GC. I guarantee this is why so many people go BK when they try to build or do major additions/renovations to an existing home. Things will ALWAYS come up that you weren't expecting, and they can often be some of the most expensive items in the whole process.

Submitted by sdduuuude on January 8, 2013 - 7:42pm.

SD Realtor wrote:
Yes make sure you hire a local contractor who is intimately familiar with the city and county you are making the purchase in. Otherwise you can build it all only to get hurt by local ordinances or zoning laws that are pertinent to that area.

Even that may not work if the contractor is charging you for construction plus other "fees" or "development" costs.

Contractors don't want to include a true total cost because nobody really has a good handle on all the possible fees that come up.

New builds are very different than renovations because the fees associated with a new building have already been paid.

Submitted by scaredyclassic on January 10, 2013 - 7:35am.

If it weren't so risky to build construction loans wouldn't cost so much more than reg mortgages.

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