Single Family Home Development
One of my coworkers recently mentioned that he bought a 2-acre plot in SoCal with his brother-in-law and plans to build 6–7 houses on it. Where do you even start when it comes to finding land like that, and what are the logistics of taking on a project of this scale? Since his brother-in-law bought it and he just pitched in the money, he didn’t have much of an idea into how to actually find plots.
Has anyone here ever looked into something similar? Where do you even begin your search, and if you have any resources or advice, I’d really appreciate it.
Typically through pure cold calling land owners. Nothing fancy
Or if he’s plugged in / player in the market, a broker probably came to him off market
Second what skydome said. If the deal is on-market then it is probably listed on MLS, Loopnet, etc... If not then either cold call or through relationships with brokers.
As for the logistics of building them? I mean you either build them yourself if you are a licensed general contractor or you hire a licensed contractor to build them. I have experience building single family homes, so if you have any specific questions regarding logistics I can try to answer them, but building 6-7 single family homes is just building 1 single family home 6-7 times lol.
I will caution you however that everything comes down to the numbers. Is your co-worker's brother-in-law in the business and experienced? If not and he just thought buying a random 2 acre plot of land and building/selling 6-7 SFH would be easy money, he might be in for a very unpleasant surprise.
I'm pretty sure his brother-in-law works at REIT/REPE shop and is doing this on the side. He mentioned the goal was to own 2-3 of the houses and sell the rest. What would the construction cost of each house be and would it be worth it in this market? House prices are generally around $1-1.5mm in the area he mentioned he got the plot of land.
Which part of SoCal? How much was the land? How large will each house be? I'm going to assume that he will be hiring a GC to build them since he works at corporate. I was actually just in SoCal (LA area) talking to a general contractor and he told me his cost to build a SFH is over $400/SF. Now how much of this "$400/SF" is real and how much of it is him trying to protect his business from me, another developer/GC, i'm not sure, but I think $400/SF is way too high, but I'm not from the area. If I were to develop a pretty high end SFH in my market, a similar Tier 1 market, I'd estimate my cost at $250-$275/SF, but this is my cost as the GC. If you are hiring a GC to build, I'd tack on another 20%-25%, so $300-$350 seems pretty reasonable. If the plot of land is in a less desirable area like Bakersfield, then it will probably be cheaper, can't really say for certain how much since that is a market I am even less familiar with, but maybe 25%-30% discount? but if it is in anywhere along the coast, OC, Irvine etc...$300-$350/SF+ seems pretty in line.
So assuming 7 houses, average sellout of $1.25mm, avg house size of 3000 SF, $300/SF to build, and land cost of $0, the numbers would be $8.75mm (gross sellout) - $450k (closing/sale cost) - $6.3mm (construction cost) = $2mm and I haven't even factored in land cost, soft cost such as architect, engineering, etc... nor carry cost. In my opinion, this is a horribly shit deal, not to mention it will probably take at least 3-5 years to complete. Unless you adjust the assumptions more favorably ($1.5mm avg sell out, smaller SF houses, $200-250/SF construction cost), then perhaps it could be alright assuming those more favorable assumptions are actually accurate, but I personally still wouldn't touch it with a 10 foot pole.
Landowners are helpful in this matter.
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