Building on a Vacant Lot
This is my personal favorite way to get exactly what you want in Real Estate!
I always thought it was so challenging for a Buyer or Buyer’s Agent to look for a house with exactly all the demands on the Buyer’s list. It can be so frustrating unless the buyer is willing to accept certain compromises and be able to make some modifications either immediately through escrow, or later on as time and money warrant.
I also always think it is quite challenging for a Seller to make upgrades to a house to prep it for sale. In the process, they try to second guess the tastes of the buyer. Some buyers will like granite, stainless, and hardwood, some will not!
But, building your dream house on a vacant lot…or doing what’s called a “90% teardown”…a Buyer will be able to get exactly what they want, ready for them the day they move in.
The requirements are…
- Finding the lot – Like they say, “They aren’t making any more land”. Especially in desirable areas with good views, schools, etc.
- Up front money – most construction loans require at least 20% “participation” in the project. As a rule of thumb, that’s about 50% ownership in the lot before construction. The construction loan and the lot loan can then be rolled into a mortgage when the final inspection is successful.
- Most importantly, you’ve got to visualize the finished house before it’s built. An architect can be helpful, but is not really necessary…they may charge as much as 30% of the construction cost, and then design the house for THEIR taste and their professional ego. If you have at least some experience with building and have access to a good general contractor, engineer, and drafting service, you can do the design yourself. I highly recommend having a model build after the design is complete. You’ve GOT to be able to visualize walking, sitting, sleeping…living in the house BEFORE it’s built!
- When you’re satisfied and totally SURE this is the design of the house you want, the fun begins. You’re got to get permission with the HOA or the neighborhood review board. When you get that, it’s time to apply with the city for the actual permit.
- Finally, there’s the “soft costs”. The developer (YOU!) has to pay for the permits, the water, sewer, and gas hookups, the lot prep and the plans and engineering costs.
Here’s a real life, current example…
I have a lot on the west slope of Bernal Heights for sale right now. The seller wants $649,000. It’s only 25’ X 70’, but has the most primo view in the city, in my opinion. Looking west to Twin Peaks as the fog oozes over the hills! Construction costs for a 3bd, 3ba, 2200sq ft, three level house are at least $1,200,000. The best comparable existing house sold recently for $1,800,000. So, my targeted Buyers are NOT builders or Flipper Investors. (no immediate profit). I will have to find someone willing to do what I did, myself 25 years ago…buy the lot, design the house, jump through all the hoops to get it built, and then live in it for 20 or 30 years.
One universal truth in Real Estate is that if you have enough TIME, you WILL make money!
And… you’ve got to live somewhere…why not ENJOY it !