In all of the time I’ve spent reading and learning about realestate investing and all of its facets, I realized one day that residential builders are exactly that…investors. they are just creating the equity via new construction v/s improving existing homes…in any case it’s basically the same as far as spec. homes go.
that being said, what is the genral concencus on price per sq. foot in terms of costs? I’ve talked to multiple builders in the last month or so and have gotten quotes all over the board.
I personally tend to think that you can build an all brick, custom home (if you’re a builder), hardwoods, granite, crown etc…for about 75+/- sq. foot. I’ve seen builders selling custom for 85 a sq and then I’ve seen homes just like it for 120sq.
All depends on where you are in this country. Fine Homebuilding did a study on lumber prices last year. A sheet of 1/2" CDX plywood was $14 in Georgia and the same sheet was $22 in Massachusetts. If your in the Northeast forget even coming close to $75/ sq. ft for all brick. Up here your looking at $150 to $200/ sq. ft. Also there are TON"S of inventory on the market right now. When you see guy’s as big as Toll Brothers giving away Mercedes to get people to buy their homes good luck competing with that.
If however, your looking to build for yourself then now is a GREAT time. The feds just reported new home starts… Down 14.3% in January (the warmest one I can remember) OOCH!
good points. just to be clear on my end I wasnt saying a consumer could use a builder and pay 75/sq. the retail price per sq is 85-120/sq in SC.
I was saying that as a builder it can be done wholesale for 75/sq. I guess the difference is what the markup will be. fortuneatly, I can pull mortgages online, so I know pretty damn close what some of these builders have in these spec homes and the markup is tremendous. I’ve seen many of them marking up 100k from what they’ve got in the house/lot. I know they may run a little over when building and come out of pocket a little, but not that dang much. alot of these builders are getting 100% loan to cost loans, so if they are good estimators, they shouldnt be coming out of pocket anything.
I’m not in your area so you would know more than me regarding your market. Around the Northeast here’s how it breaks down. I’m a builder so I’m not talking about Brandon and Buffy prices here, this is cost to the builder.
Buildable lot with approved septic system design (not system) just design… $160,000
Materials for a 2000 sq. ft. Colonial, Vinyl siding, architectural shingles, Anderson windows, tile floors in kitchen and baths (2 1/2 baths) hardwoods everywhere except the 3 bedrooms. Baseboard hot water heat with separate A/C system and 2 car attached garage.
Excavation and septic = $ 20,000
Foundation = $ 10,000
Lumber= $ 40,000 (includes all lumber, interior and ext, plus middle road kit cabs)
Roofing = $ 4000
Plumbing with materials and furnace $15,000
Electrical = $ 10,000
Plaster and board= $ 9000
Building permits $8000 yes $8000 not a misprint (IMPACT FEE’S)
Misc. intems to finish ie. landscaping, driveway, paint. carpet ect
TOTAL COST $329,000
SELL FOR $429,000
minus realtor -$20,000
Gross Profit $80,000 or about 30% Which is excellent in almost any business
The days of 100% profit in new construction are over up here.
construction cost also vary widely with the size of the builder. big nationwide builders have armies of purchasing agents who are building mountains of materials and thus get far superior pricing to your local GC. Just think, if you buy drywall a 5 million sheets at a time, I’ll bet you get a better price than at your local HD/Lowes. I’ve heard numebrs as low as $60/ ft2 for entry level and 75-90 for mid-level stuff.
However, local land prices and fees, etc can push those numbers up.
That sux. I’m not privy to the cost estimations that you’ve provided as I’m not a builder…although I’m considering becoming one…in anycase, I just looked at a house this week that was 3800sq. feet, all brick and hand cut stone, 5bed 4bath, 3 car garage w/ FROM, 2 fire, deck, screened porch, copper awnings on front stoop, crown and hardwoods throughout, custom cab., granite and vaulted cealings in all rooms except upstaris. even mast bath had vaults…anyway…builder had 330k in house (I pulled his mortgage online) and I suspect that he even used some of that money on another spec. house he was building in the neighborhood…anyway, the lot was 79k. 409k ttl in house from builder…listed on MLS at $550k…has not sold yet…listed for 60 days so far.
I dont know what you pay up there for lumber, but I know for a fact that lumber prices have gone down in last 6 months. I called 3 lumber yards in town and they all confirmed this. roofing is cheap here b/c I pay mexicans to do it on the weekends…framing, plumbing, electrical rough-ins are the most costs here. receptical taps and hookups are standard on most lots…improved lots go for about 50k for 25,000sq ft lot, not on lake…
40k sounds high for a house of 2k sq/ft…including cabinets…using OSB, 2x4 studs, plates, headers etc…well maybe not including cabinets…sheething, drywall, etc…sounds about right…roofing sounds about right, forced air is standard here…sounds about right…permits are rediculous…
anyway, I’ve figured to the best of my abilities using brick on a custom home at about 75sq/…
ofcourse I’m in south carolina…so…there you have it…
I think you just confirmed all my numbers in your area. At least potential profit percentages.
The Northeast is brutal as far as construction costs go. You are right, prices are coming down for lumber and building materials but that is because demand for these items is falling due to the big drop in new home sales. The fed reported Friday a 14.3% drop in new home sales. That’s a 10 year low. And this has been one of the warmest winters on record.
The bottom line is this… If your just starting out, now is not the time to learn the new home building business. If I read your post correctly the builder you mentioned is going to make maybe $50,000 on this house IF he sells it soon. Unless you’re in a position to work out of your pocket, your holding costs in this market will eat you alive. Add realtor fee’s and bye, bye big pay day.
I don’t know your situation financially speaking, but if this is something you want to try and you have a pile of cash sitting around I would start looking for approved land. Buy it cheap and hang on to it. When the market turns around in 5 or ten years you WILL make a killing.
Now I’ll hear about how stupid it would be to hold land that long, but I can tell you from a lifetime in new construction that it is EXACTLY how builders do it. Land to a builder is a bank account. You can borrow against it, It allows you to build homes in the future at attractive profits, and it is just the way the game is played. Be VERY careful getting into new construction in this cycle of a market. “Like trying to catch a falling knife” is a very good way to describe it.
I hate to be negitive but the reality is that things HAVE changed. There are MUCH easier ways to make $50,000 without having to risk $400,000 to do it. That’s all I’m saying. And remember this… That $50,000 is going to take you 6-9 months if your GOOD. You have to acquire and close on the land, get all your plans together, permits, estimates, then the contruction starts, weather delays, SELLING IT! getting someone financed (not as easy as it used to be, and WILL get much harder) and closing. 1 full year is not out of the question. I could do 10 kitchen remodels in that time and make 5 times that amount and I risk NOTHING!
all good adivce. yea w/ the deal I’m talking about, I’ve got it figured w/ the builder making about 100k if he sells in next 60 days. house isn’t even done yet and already on the MLS. he’s got about 406k in house and lot according to his mortgage and deed transfer and listed at 549,900.00.
I’m mainly wanting to get my license to build my own house and help me in doing flips. I don’t plan on any specs right way. After I get more experiance I plan to start marketing to build custom homes when people come to me. As far as construction loans or construction perm loans go…I’ve got several wholesale lenders I deal with as a mortgage broker that will do 100% LTC (100% of cost to build), which most if not any branch banks will do. Generally banks deliver their product to fanniemae and the CP loans are capped at 95% LTV…So a 100% construction loan is pretty strong…I can work a deal right now and put somebody in a new construction w/ no money out of pocket for closing costs or interest payments.
I am located in Texas and I specialize in new construction lending. I can tell you this… I work with several builders and ALL of them are stocked with inventory right now. Some are even refinancing the properties into their own name, putting renters in them, and then trying to market them to investors. The builder you mentioned in your example has got to sell that house ASAP or holding costs will eat him alive. Figure every month his profit drops by over 3K (that is based on the 406K at prime plus one) and that number goes up if his rate is prime plus 1.5% or if he still is drawing money out of the deal. What are the chances that a buyer is going to pay full asking price for that house? Slim to zero. So lets just say he gets 94% which is about the average at least here in Texas. That means his house sells for 516K. After he pays his realtor 6% he is now down to about 486K. After you subtract out his closing costs his profit is getting smaller and smaller. In addition to that he has probably paid his taxes and builders risk out of pocket. Which is more money out of his pocket. Also, local banks will beat you all day long over national lenders when you are looking for construction money. They will 85% of final value or 100% of construction costs. They won’t keep the permanent loan which helps you out because you get to close twice meaning more money in your pocket, closing costs will be less, and if you need more money or an extension to your construction term they will always be easier to deal with. Acting as your own builder is not a smart idea unless you are going to quit your day job and can spend large amounts of time at your build site. If you would not act as your own lawyer or doctor what makes you think that being your own builder is any easier. Those guys are out there every day meeting with subs, looking over invoices, and inspecting the subs work. It is not an easy job. As someone who works with these people everyday I can tell you that it is a labor of love more than anything else. Here is in Texas a license is not required to become a builder all you have to do is register with the state. You would be shocked at how many yahoos come in and want money to build a spec house and have ZERO experience. Finally if you do proceed with getting your license and try to act as your own builder most of the wholesale lenders out there will not allow you to finance 100% of your construction costs. If you check your guidelines most national construction lenders do not allow owner-builders unless that person makes 75% of their income from being a builder. Even then they will have a cap on what they are willing to lend an owner-builder and I can almost guarantee you that it will not be 100%. A local “branch” bank may be a different story. As I said above they are far more lenient when it comes to construction finance.
When I said this builder would make $50,000 that’s the number.
Back out holding time, income taxes, realtor commision and I’d bet a $100 that’s all this guy pulls on this place.
Another thing I forgot to mention. There is NO WAY you are going to even come close to this guy’s prices for materials and subs. Think about it. You mentioned that he had a couple of houses going. His subs will not work for the same money they charge him when it comes to your house.'This guy has a track record, sends them regular business, if he’s smart, pays them quickly, and they know when he calls he’s ready for them, I’ve built lots of houses. My friends see what I do and think, how hard can it be?
I could go on for days about these people burying themselves in projects they had no business getting involved in.
I would never discourage you from trying, especially if your building your own home. You can make some mistakes and because you’re going to live in it, time can fix a lot of screw ups because of appreciation.
Good luck with your project and if you have any questions fire away.