I’m from MA and I’m always amazed at the new house developments that keep coming up all around… and even more amazed at how quickly they sell for. Has anyone bought a significant portion of land to then split up into smaller lots (for either single family or duplex etc) to then sell?
How far does one typically go in this deal? Is it unusual for a newbie to continue from the initial purchase of the land right down to the selling of the finished home?
Typical houses sell (say a 3 bed, 1.5-2 bath, 2 garage) for $420K in the Central MA area. What’s the profit for buying land, subdividing, building, then selling this? a lot? hardly worth it?
Honestly it seems like such a sure bet… houses always sell it seems as long as they are brand new… where can one fail?
The developer of most subdivisions have to have deep pockets or investors with deep pockets to make them successful. There is a lot of work and expense that has to go into one before they even break ground. Then all of the water, sewer, electricity, gas and streets have to be put in before they even sell the first lot. Although there is big money to be made, if you run out of money before you get everything sold, you are going to be in trouble.
Wilson is right it costs alot of money to do a development. Start off small with a single home on a single lot …cheap lot and small house to start off with. On a split level home I can make around 35,000 profit subcontracting everything out. If I do most of the work myself I can make another 15,000+ on top of it. But I strongly suggest that you should have an understanding of every step of construction. Its very easy to lose your but if you run into problems if you dont know how to schedule subs. Also you have to make sure you get subs that show up, do a quality job, etc… I been working for custom home builders for over 9 years and I see subs come and go and its a big hassle. Alot of your subs might charge you for XTRAS if you dont schedule them right or have things ordered wrong etc… Very profitable to build spec homes just do your homework on them first. The bigger and more expensive the house the more profits and risk are involved which is why I said start small then go up from there. In my own opinion…
Everything above is true, and I might add, it has gotten much, much harder to do a subdivision. There is a mountianeous amount of red tape. Now everyone wants to get into the pockets of the RICH developer. It is nothing like it used to be. It takes a bunch of money and a bunch of very skilled proffessionals to put up the fit and win. BIG DEEP POCKETS.
Use some caution and do your homework, then some more.
Sean 8)
OK. As someone in up to their eyeballs, let me give you some advice. Start very, very small. A piece of property that you can divide into two pieces of property. If you aren’t a builder, don’t try it. At least not yet. Find a builder to partner with if you want to go that route. But with two lots, you will be better off selling to a consumer.
As you learn the ropes in your area, cultivate the people you deal with at the planning, zoning, utilities, etc. Be ready to bite your lip sometimes.
As you gradually scale up be aware that “feeding the dragon” is your greatest danger. Debt service will eat you alive.
One way to buy time to make mistakes while simultaneously making your banker more willing to deal with you is to use a “dedicated escrow” to cover your debt service for a year. It isn’t a real efficient use of your cash but it does get you the loan when you wouldn’t and let’s you sleep at night. It also limits you on how deep you get in - if you can’t put up a year’s debt service then the deal is too big for you at this stage. Now, that is a crude way to do it because you can do a lot bigger deal - once you know more. Right now, though, it acts like water wings and just might save you from drowning. Once you can swim you can cast them aside. Of course, you are taking on the risk of drowning then, too
OK. As someone in up to their eyeballs, let me give you some advice. Start very, very small. A piece of property that you can divide into two pieces of property. If you aren’t a builder, don’t try it. At least not yet. Find a builder to partner with if you want to go that route. But with two lots, you will be better off selling to a consumer.