Ok guys,
Poke whatever holes you can in this plan. It can only help. And yes, I’ve read ” The Spec house from hell”.
I’m beyond the point where I’m willing to give up on my 60% pension that I’ll be collecting ten years from now but I’m always looking for a little something else.
I’ve run houses and renovations from the footings to move-in in the past. I’ve got a solid support network as my sister is a lawyer and my father is heavily into the business end of construction. I’ll have a partner who it just so happens is the guy I set up with my old customers when I packed it in. I’ve still got solid contacts and relationships even though I haven’t swung a hammer for a living since about December 2001. oh yeah, I’m married to an adult I can trust if I need her to run things while I’m away, if I’m away.
In my current condition I qualify for about $350K worth of mortgage. After the Home equity loan to remodel the kitchen and bathrooms I’ll owe $100K on a house that appraised at about $165K. My partner is in a fairly similar situation.
We are both located near a main traffic route (read: Turnpike) that goes from Scranton to Philadelphia. Anyway, Housing in our area is begining to be to expensive for young couples. Right down the street from me a 3 Bed, 2 bath, 1 car garage 2000sqft new construction will run you from $285K-$315K.
twenty or so miles up the road is just outside of the current development boom. We can buy land with easy access to the highway and a straight shot to the Allentown and Philadelphia areas. The price is low and we can easily afford to finance the whole project in house.
When I was younger and worked for the family business we used to frame tons of these little houses for Pulte Homes. 3BEd, 2 Bath, eat in kitchen and a great room. I’ve found similar plans in plan books recently.
The plan is to buy three or four lots and build one of these starter homes on an easily finished pre-cast type foundation. I’m doing the market research now and believe I can attract a client interested in more than a Modular has to offer. I’m working the numbers as if we were the builder. I’m not planning on doing any framing or trimming myself. If I have time all the better if not it won’t hurt us. I would like to finish it to the point of nuetral interior colors and no carpet before I even market it.
I’ve got the time to start off slow with this since I have a steady income. I’ll be in Egypt for part off the fall and winter so I’m looking towards next spring.
Before I take a few days leave and drive around looking at land, tell me what you think.
Replies
Unimproved land is always the riskiest real estate investment. Also the potentially highest return. With unimproved land your primary job is to ascertain that you can do what you want, when you want to, for a price you're comfortable with.
I'll leave the subject of low end spec housing for somebody else, other than to say my experience here is that it becomes extremely clear when you're off a very few thousand in your asking price. You won't be alone for long if it's a good location.
The land sounds interesting. The housing I'd avoid.
PAHS Designer/Builder- Bury it!
Tom,
i've done ok on raw land. If I were to do it again I would use the same formula. I look for an area just out of the way but still in what appears to be in the path of the current development trends. Shorter hold time and usually easier to sell.
Might pay a little more up front but the shorter turn around time is worth it. Last one was about 250% over 5 years.
Robert, I've done considerably better than "OK" on raw land. Matter of fact, I've made more money on raw land than everything else put together. Recent one was 225% in one year, and that was with dragging my feet to close with a friend buying. Ended up building a house for him. Property had been under contract and the original would-be buyer decided it wasn't a good deal. He was looking at it wrong. Unfortunately land prices are so volatile here now that I can't understand it. Currently sitting on 2 parcels.
I've also seen land buyers lose their shirts when they didn't ask enough questions or understand the regulations. That's the risk I mentioned. Sounds like that won't be a problem for you.
As I said, the land sounds considerably more interesting than the spec houses. Good luck.PAHS Designer/Builder- Bury it!
"And yes, I've read 'The Spec house from hell'."
Guess that thread has been thrown around quite a bit. It's pretty bad when people get defensive about it right off the bat. (-:
Being as I'm the builder of the infamous "Spec house from hell", what did I do wrong?
1. Not enough market research. I didn't know who was and who wasn't buying houses in that price range. (Sounds like you've done some)
2. Being too idealistic. I thought people would really appreciate the efforts I went to in building a quality house. But that's not what people want. They want big, cheap space. Quality isn't much of an issue. I don't think it's even in the top 10.
3. Taking too long and/or trying to do too much of the work myself. The interest really ate me up. A lot of the work I did myself should have been hired done. By the time I got it done, the interest expenses were high enough I could have paid for more help instead of paying interest to the bank.
4. Inadequate finances. I wish I'd have more of my own money instead of borrowing so much. When things started to go wrong, the interest just kept piling up. (Sounds like you would be in more or less the same situation - No startup money)
5. Bad siting. I put the house on the lot the wrong way. I thought it would look O.K., but I was wrong. And that's something that's impossible to change.
Can't think of anything else offhand. But I'm sure there's more...
Robert, I'm from your neck of PA and I'd have to say the "20 Miles up the road" is a killer. People commuting to Allentown and Philly are looking for a jump off spot - 20 miles could mean an extra hour. They aren't the best bet for a quick sell. Take a look at the Pocono's, if you want in on something like this the look between the Pocono's and Bear Creek. Big companies, little ones everywhere. Look for the quickest way to NYC and NJ, and that where you'll find the house coming up like weeds. You plan seems okay, but the market research needs some work. Narrow down your market..
Try5077,
The Pocono area was eliminated intentionally. Not all of this applies to all of the poconos but enough does to make me shy away.
1. maybe the most significant one is competition. The Poconos are full of builders hawking the same product I'm interested in selling. some fairly established. Almost all with solid marketing plans that target the NYC-NJ families who want away from the city. Many offer things like in-house mortgages and in-house realestate agents. I'm no position to compete with them right now.
2. The Commute. I've driven from East Stroudsburg to NYC or even just to someplace like Morristown. I've also made the RTE 84 commute as part of my research. Both are insane right now. two hours to cover 60 miles is not uncommon. Even mass transit has not solved the problem for some. Just recently I watched a report on " Extreme commuting" as it's become known to some. The Poconos/Eastern Pennsylvania to NYC was the route that took up most fo the show. many of the people they interviewd said they wished they had just sucked it up and paid more to be closer to work. Or, even worse, they wished they could find work closer to home. But, since so many people had moved there jobs were scarce un less you wanted to be a clerk at the adult bookstore up by the truck stop.
3. Property taxes. SOme school districts and townships have had to raise property taxes significantly to keep up with a rate of development. A friend of mine in MT Pocono has suffered a 300% rise in 8 years.
Those things to me add up to a place I'm not willing to take this risk on.
I've looked at some places like Kunkletown but their just a little to far off the beaten path.
I've chosen the location based on a few things.
1. The Northeast Extention of the P.A. turnpike. It moves along pretty well between Mahoning valley and Landsdale. If I can stay a reasonable distance from that road the commute won't be too bad for prospective buyers.
I drive from Allentown to Philadelphia every day and it isn't near as frustrating as it was when I had to go from Allentown to Morristown NJ.
2. The price of homes in the Allentown area. As the prices rise around here more than a few families who would like to move up from there twin or townhome but the only thing they can afford around here is a twin or townhome. THey have to go somewhere and thats a location that makes sense to me.
3. The land costs have not gone thru the roof but the area is starting to see some growth. It feels to me like the next 24-36 months is the time to strike in that area. After that it will be too late.
Thats the customer I'm looking for. The one who wants to live and work near the Lehigh valley but isn't ready to spend the $200K for a twin. SO much effort has been expended on luring customers from NYC and NJ that there is a forgotten segement out there.
Im way out here in Oregon
but
I grew up in the east, my brother is a major major player in the Virginia area and my othe r brother is in Allentown,Pa., his wife is in mortage banking
my first bro is an hour out of DC and cant build them fast enough , is limited only by land available
I have a cousin in Berwyn Pa, that is kickin butt with fixeruppers, remodels, additions
everything they tell me is , you can sell it as fast as you can build it
look at gps photos of the USA, where is the population. East Coast
will the population get smaller, heck no, its growing leaps and bounds
was it 60 minutes that just did a show on long distance commuters?
now Oregon is getting that way with all the californicators
land is skyrocketing, If I could buy some lots in a growing area , I would, in a heart beat, but Im a little old chump changer
hey thats it for me , food for thought, did I just make it harder??
Robert,
I know near nothing about new builds, spec houses or raw land. But I do know about research and investing in real estate. I think you are as prepared as anyone I have talked to in some time. You know the market and your skill set. You have your financing in order and you seem to know the risks involved and are comfortable with it.
All that taken into consideration my only question is when do you break ground? Making money is about risk. Business is about risk. But good investors and business men do all the research possible to minimize exposure. Sounds like you are there. Happy building. DanT
have you talked with your bank about borrowing money to fund the project ?
as far as the pre-cast foundations, I'll apologize to Gene Davis now as I say, I doubt I would want one. I haven't found them to be confidence inspiring as far as the home buyer is concerned.
I have a repair job now with a homeowner who was the GC on his 7000 sf home where the Superior Wall system was used. The walls required extensive permanent bracing to be performed to provide necessary reinforcement. This bracing was to be installed by the framer but was omitted for unknown reasons. The Superior wall nearly collapsed during backfill in one of these locations. This was after the floor system was in place.
A poured conrete foundation would not have these requirements. I never did ask the homeowner if he tried to put the repair bill on the framers. It had been over a year and he was still pretty upset.
Call me old school, but, I'm not fond of the idea of over 100 vertical cold joints in my foundation walls.
carpenter in transition
Tim,
Actually yes I have talked financing. A good friend of mine is in commercial lending for one of the bigger banks and I asked him to look things over. It looks good.
Ironically, my own bank, with whom I have not missed a truck or Mortgage payment in ten years, won't even touch it.
I also opened an account at one of the smaller banks a few years back for just this reason. It's funny going in a bank in 2005 and still getting a little passbook stamped.
As to the Superior wall system. a friend of mine had his house built on one. five years and no problems. It was however a simple foundation.
Without commenting at all about the specifics of your plan, the thing that raised my eyebrows was ...your partner... I know maybe a little added cash or credit looks good now but partnerships are a real tough sell in my book. you both have to be special people with pre defined duties and predefined payouts. You donb't want to have to call that lawyer after the fact, belive me. It seems that with your connections and family, going it alone is the direction you should really consider. If you truly have what it takes, you don't need a partner. And be sure to suck every last bit of knowledge and information out of everybody you know, no sense reinventing the wheel.
good luck