Developing Raw Land. Q&A

[NTBorer]

Wow. Just Wow. Thanks for the time it took you all to type so much knowledge into this thread.

Special thanks to nolimits76, bczygan, and justanengineer(even though he made fun of my 8n! But don't fear, loaders and dozers are available for the price of fuel.)

Please keep in mind, that I have no intention of starting this construction soon. It may be a year or two before ground is even broken. The reason I ask these questions now, in a hurried manner, is to decide whether or not I even want to buy the land. There is competition for this property, so I am trying to make the most educated decision I can. If I am uncomfortable with the project when it comes time to bid, I will no doubt walk away.

Most of you are right, reading between the lines about my experience with construction.....It's nil! So I'd like to vet this decision, buy the land, and settle down for a while, so as to learn and plan. (While continuing to live off site.)


Back to the zoning. I talked to the department, and they said I cannot have two separate residential areas on one plot of land. They did, however, say that I could construct a garage with in-law quarters and eventually build the house off of it. They even mentioned an enclosed walkway (to the future main house) would be enough to call it one major structure. The minimum footprint for a 2 story home is 1000sqft.

The neighbors are now the only problem. How much noise can I make? How long will they put up with slow construction?

Lastly, for the people that are asking about funding. I can get a loan to cover the land. I can roll this loan into a construction loan at any time. I have been pre-approved for the land purchase price +200k.

 

[Bib Overalls]

For what it is worth, I say go for it. I did what you did twice and never lost a dime. Hard work, but very rewarding.

 

[Dick in Wisconsin]

For what it is worth, I say go for it. I did what you did twice and never lost a dime. Hard work, but very rewarding.

I was just going to say "whatever you think its going to cost, double it".

In the long run Bib Overalls is likely right ... unless you pay way too much for the land or the local market goes to pot underneath you. If you have staying power and can ride it out, you should do well.

There are three secrets to making money in real estate and not getting burned:

Location, location, location.

Good luck!

 

[nolimits76]

You're welcome -- hope it really helps.

Sounds like you have a truncated time table and will have to hard bid against other people. Is this an auction style property? I've heard about them, but never participated. Always wanted to, but just hasn't worked out.

If indeed you are in an auction/bid scenario on this property, I would strongly encourage you to be 100% accurate on covering your costs. Perhaps getting with trusted contractors and getting bids to subcontract the work is the safest way. Then you have a hard number to some degree, and any money you can save self-performing is money in your pocket.

Once you have a relatively good idea of your true costs, now it's time to assign a value to your time and effort for coordinating/self-performing the work. Remember, time is our very most valuable resource, and it's limited. So use it wisely!

Also, you want to add a contingency amount for unexpected repairs, upgrades, etc. This largely depends on how risky you view the project. On a normal commercial job, we run a 1-2% contingency (more if we see it as high risk); however, homeowners typically need to allow a 10-15% allowance unless you've really got a solid plan and hard contract w/ all your finishes, etc nailed down to a tee.

These are fake costs, but as an example, your analysis may look something like this....

-$25k - architect/engineering/permits/soil reports
-$75k - land development (utilities, road, grading, etc);
-$200k - house construction (complete);
-$50k - garage/MIL suite (complete);
-$50k - value of your time;
-$50k - contingency (14.3% of $350k building cost)
================================
-$450k - total build cost
+$500k - cash / loan availability
================================
$50k - available to bid for lot**

** = could increase if value of time or contingency is decreased

In this example, you would have $500k in a house when it's all said and done. At this point, you have to examine if the neighborhood is truly worth that amount, because you will lose $$ if you overbuild. Ideally, you want to be the baby house in a big neighborhood. Secondly, you are forced to consider what $500k would buy pre-existing.

It's easy to say, well I only have $200k to spend now and will do the rest as I go. But if that's true, can you really raise $300k out of pocket? And does that really change your total investment?

Remember, every dollar we spend has an opportunity cost. For instance, if I spend $1 for a soda pop but I do it every day for a year then that is $365 I could have taken and invested in a stock that could be worth thousands later on. Instead, all I got was a drink that is bad for my health and lost out on the potential to make money -- opportunity cost.

 

[nolimits76]

For what it is worth, I say go for it. I did what you did twice and never lost a dime. Hard work, but very rewarding.

I've done it a few times myself and made great money. But each time I did my homework and approached it using an analysis similar to what I described in my previous post.

I love real estate and building in general. That being said, for the successes I've enjoyed, I've easily turned down 100 more that just didn't fit an analysis that made sense to me.

I think you will agree -- the lesson here is not to be afraid, but rather to be smart and calculated in your approach and feel reasonably confident you can build a dream that won't sink you later on.

 

[White 99]

It is possible, I did it,but it will cost more than you think, mine did.

Perc test is a big one around here. You can buy it with a contingency that it passes. Check, it might already have one done too.

This book helped me when I was looking: "Finding and buying your place in the country" by Les Scher. Or.

http://www.amazon.com/s/ref=nb_sb_s...:finding and buying your place in the country

I forgot how to do the links here.

It is written by a real estate lawyer. I had the 1975 edition later may be better still.

 

[justanengineer]

and justanengineer(even though he made fun of my 8n! But don't fear, loaders and dozers are available for the price of fuel.)

FWIW, I wasnt making fun, just being realistic. My father collects IH/Farmall letter series and weve been members of several tractor clubs since I was a kid, theyre what I learned to drive on and have done a metric **** ton of lighter work/tractor pulling with. 8N, 9N, Jubilee, been there, done that but you gotta be realistic bc its very easy to get beyond their ability and cost yourself time, money, and broken tractor parts.

 

[NTBorer]

I've got an on-site meeting with a home builder tomorrow. His office is only 10min away and he has built in this sub before. Hopefully that means more accurate quoting!

Nate

 

[DekeT]

Don't do this. Buy a developed property nearby and if you just have to, male this thing a hobby.

I have work being done on my existing place. The survey, just to tell me what needss done is about $10,000. It's solely to get a preemptive handle on the county.

There is an extremely good chance that lot hasn't been utilized because it's unbuildable.

Let.someone else lose the $200,000 in infrastructure costs.

Take no lesson from this thread other than;

Go to the county /municipality NOW.

This is by far the best advice in the entire thread.

 

[Ross/Kzoo]

I've got an on-site meeting with a home builder tomorrow. His office is only 10min away and he has built in this sub before. Hopefully that means more accurate quoting!

Nate

Make sure that you talk to some of those that had their house built by this person, not just one. The area that I bought a lot in has many,many disgruntled homeowners and many in the neighbor hood said" I hope that Rich isn't building your house". Do your homework. Find out if he was on budget or over budget with these homeowners.

 

[PCO6]

I have developed many residential subdivisions and it's pretty unusual (around here any way) for a developer to sell lots to individuals vs. to house building companies for a variety of reasons. The developer would have entered into a subdivision agreement with the municipality and posted financial securities with it to ensure that final grades, service and utility connections, etc. would be done to the Town's satisfaction. Those securities are often in the $10 - $20,000 range per lot.

Municipalities don't usually assume a subdivision until about 85% of the homes are built. Final assumption means that the developer effectively still owns all of the services that the Town will eventually assume and maintain (roads, sewers, storm water facilities, street lights, etc.). The developer usually has to maintain those services until the Town assumes them (BIG bucks!).

 

[Ross/Kzoo]

I have developed many residential subdivisions and it's pretty unusual (around here any way) for a developer to sell lots to individuals vs. to house building companies for a variety of reasons. The developer would have entered into a subdivision agreement with the municipality and posted financial securities with it to ensure that final grades, service and utility connections, etc. would be done to the Town's satisfaction. Those securities are often in the $10 - $20,000 range per lot.

Municipalities don't usually assume a subdivision until about 85% of the homes are built. Final assumption means that the developer effectively still owns all of the services that the Town will eventually assume and maintain (roads, sewers, storm water facilities, street lights, etc.). The developer usually has to maintain those services until the Town assumes them (BIG bucks!).

Totally different in Michigan.

The OP showed a drawing of 2 parcels with a "meets and bounds" description and not a plat. The utilities are the responsibility of the homeowner. It probably has no natural gas, electric, sewer or water on the premises. It may not even have a paved road in front.

PS I worked with land developers and new plats to provide electric and gas for 30 years.

 

[PCO6]

^^^ I agree that the onsite utilities would be the OP's responsibility. The subdivision utilities are the developer's responsibilities of course.

 

[nolimits76]

Make sure that you talk to some of those that had their house built by this person, not just one. The area that I bought a lot in has many,many disgruntled homeowners and many in the neighbor hood said" I hope that Rich isn't building your house". Do your homework. Find out if he was on budget or over budget with these homeowners.

Right now I know you are more interested in gathering cost data to help you proceed onward with the land offer. And as long as the builder is fairly accurate in his analysis, that is okay. However, Ross makes a good point. Always check multiple references.

Be weary of the builder, or their references, claiming there was no problems. That's unrealistic. Instead, you should be looking for a builder that is proactive and planning ahead so they avoid as many issues as possible. And when an issue does happen, they work quickly and efficiently to rectify so you get what is needed/desired without additional cost and/or time to your home build.

Additionally I would strongly encourage you to find where this builder has homes under construction and go visit them (w/o the builder). I like to see them in various stages as I think each stage can tell you a lot. Key things would be looking for shoddy materials, abnormal looking construction techniques, excessive cracking in slabs, how well the site is kept (especially in high $ neighborhoods), etc.

Just about any builder can make a house "pretty" to sell. It's the bones that last you a lifetime.

Assuming all that checks out, I then like to interview the builder to get a feel for them and how responsive they can be to the level of detail that I seek/need from someone I am going to hire. Sometimes an overlooked part of this process is personality. Most builds take 3-6 months, and if I am going to spend that much time working with someone I want to like them. I want it to be a fun process for both of us and hopefully one that the builder can share in my dream to a certain degree, instead of it just being another house and another dollar.

 

[RickP]

My first building (garage) will be a house!! So, as long as I can convince them that it's okay to have a 5 car, 1 bedroom.......It should work? I'll call the town zoning today.

Back to the zoning. I talked to the department, and they said I cannot have two separate residential areas on one plot of land. They did, however, say that I could construct a garage with in-law quarters and eventually build the house off of it. They even mentioned an enclosed walkway (to the future main house) would be enough to call it one major structure. The minimum footprint for a 2 story home is 1000sqft.

You might be able to build a house and a detached garage -- you might just have to remove the kitchen stove from the apartment when you build the main house. Check with your zoning dept for the specific definition of a "residence." But it usually hinges on whether the building has a kitchen -- and that is often defined by the stove.

If you want an attached garage, then go for it. But $100k is going to be tight for a 5 car garage with a finished living space. Do you want the apartment to be permanent, or only temporary until you can build the main house? Have you considered building a 1-story barn-like structure (instead of 2-story building) for the garage? A 1-story garage would be cheaper, and you could just frame in some of the bays for temporary living quarters until you build the house. A 5-car garage with a 2nd story is going to be pricey.

 

[RickP]

I'll get the 8N on the property, if only for dragging around a trailer full of fire wood. I have access to a lot of equipment, but it's all an hour away. (family farm) If I need a skid-steer, I'll get one. Although I'm not positive I'd be able to keep it there. I might need to truck it back and forth for each job. I guess I should add some money to the budget for rental of more expensive machinery. Dozer, Back hoe?

I kept my tractor at the job site while our house was being built. I'd recommend getting a 40' shipping container to use as a "garage" for your tractor during construction. You can buy or rent the container -- ours was about $100 per month, and we were able to store a lot of other tools and equipment in it as well.

 

[banjo2733]

Nate,

How did the meeting go with the Contractor today?

 

[justanengineer]

Municipalities don't usually assume a subdivision until about 85% of the homes are built. Final assumption means that the developer effectively still owns all of the services that the Town will eventually assume and maintain (roads, sewers, storm water facilities, street lights, etc.). The developer usually has to maintain those services until the Town assumes them (BIG bucks!).

Not sure how common it is elsewhere, but I live in an area where its not uncommon for the city/town to NEVER assume any of the infrastructure in a subdivision. Before moving here I had never seen that, but I made the assumption that my last rental would have the street into it plowed by the city. WRONG! Plowing and certain infrastructure was owned/maintained by the HOA, which meant it sucked and/or was slow to be fixed. If it snowed, youd better have a truck or stay home. If a drunk took out a hydrant or power line feeding your area, hope you can do without for a day or two. Luckily, my house now is on a major city-owned street, the only infrastructure I have to maintain beside that going to my house is the private sewer my neighbors and I are connected into, which flows down into the city's sewer a few blocks down. I pay the city sewer bill but will have to pay privately for sewer repair should it ever have issues, two years and it hasnt, hopefully it wont.

 

[805gregg]

You know they sell property in Hawaii also

 

[PCO6]

Not sure how common it is elsewhere, but I live in an area where its not uncommon for the city/town to NEVER assume any of the infrastructure in a subdivision. Before moving here I had never seen that, but I made the assumption that my last rental would have the street into it plowed by the city. WRONG! Plowing and certain infrastructure was owned/maintained by the HOA, which meant it sucked and/or was slow to be fixed. If it snowed, youd better have a truck or stay home. If a drunk took out a hydrant or power line feeding your area, hope you can do without for a day or two. Luckily, my house now is on a major city-owned street, the only infrastructure I have to maintain beside that going to my house is the private sewer my neighbors and I are connected into, which flows down into the city's sewer a few blocks down. I pay the city sewer bill but will have to pay privately for sewer repair should it ever have issues, two years and it hasnt, hopefully it wont.

As developers we had some that went up to 10 years or so before assumption but we never had a NEVER! The long assumption periods were usually due to politics. Municipal staff would recommend assumption to Council but the ward Councillor or someone would come up with some dumb *** excuse to delay it. If we went for assumption in November there would be something that would delay it until the spring. Council knew that if anything would go wrong it would be in the winter. Meanwhile the Town would collect property taxes from 100's of homeowners and we would be doing the maintenance.

 

[finn]

Not sure how common it is elsewhere, but I live in an area where its not uncommon for the city/town to NEVER assume any of the infrastructure in a subdivision. Before moving here I had never seen that, but I made the assumption that my last rental would have the street into it plowed by the city. WRONG! Plowing and certain infrastructure was owned/maintained by the HOA, which meant it sucked and/or was slow to be fixed. If it snowed, youd better have a truck or stay home. If a drunk took out a hydrant or power line feeding your area, hope you can do without for a day or two. Luckily, my house now is on a major city-owned street, the only infrastructure I have to maintain beside that going to my house is the private sewer my neighbors and I are connected into, which flows down into the city's sewer a few blocks down. I pay the city sewer bill but will have to pay privately for sewer repair should it ever have issues, two years and it hasnt, hopefully it wont.

Sounds typical in Indiana. My sister and BIL live in a subdivision outside Lafayette. His quote is "I like the low taxes but it took some time to get used to no services"

Pay me now or pay me later.

 

[NTBorer]

Nate,

How did the meeting go with the Contractor today?

Well, the future is bleak for this property. The builder and I walked to the top of the hill, he took a few looks and gave a rough estimate of 100-150k for engineering/site prep and driveway alone. That cost, plus that of the land does not leave any room in my budget for much construction.

Bottom line is, I'll pass on this project. Hopefully others with questions about unimproved land will find this thread useful as well.

Lastly, the builder I met with was an individual of the highest caliber. He answered all of my questions, and even gave me some advice about the land search. His name is Ron Henkel of Pinnacle Homes. (Rochester, NY) I recommend him based on his personality and customer service alone.

Thanks guys!

Nate

 

[Will S.]

Sorry that your dream for this property has been shattered, but there will be another one. I just hope that the builder you met with, did not "high-ball" you on the price, with the idea that he may want to buy and flip. If the county is fine with building a apt/garage, and no main (attached) house for several more years, AND, if the property perks (and I'm guessing it will, based on the area), this is still doable.

Yes, if you sub out all the site work, or high a general contractor to handle everything, then you will go through 100-150k just for that. But, with all the equipment you have available for no more than fuel costs, and having time to put into this, I still see it as a project I would do.

 

[NTBorer]

Yes, if you sub out all the site work, or high a general contractor to handle everything, then you will go through 100-150k just for that. But, with all the equipment you have available for no more than fuel costs, and having time to put into this, I still see it as a project I would do.

I agree Will, I think I could still do it under budget. I had to do some soul searching to decide whether or not I could live in that neighborhood. I also spoke to the neighbors....Let's just say they weren't too keen on me having the property under construction for 2 years.

Also, I did some tax calculations and checked out the tax values of the other houses on the street. Let's just say I don't want to pay the 20k tax bill when I have the place fully built.

 

[4x4_G30_Sportvan]

I think you made a wise choice.
I myself built on raw land, and it DIY'd it. I'm still working on the house.
Undercapitalization will kill you when building, even in VERY rural ares w/ little code.

 

[Will S.]

I agree Will, I think I could still do it under budget. I had to do some soul searching to decide whether or not I could live in that neighborhood. I also spoke to the neighbors....Let's just say they weren't too keen on me having the property under construction for 2 years.

Also, I did some tax calculations and checked out the tax values of the other houses on the street. Let's just say I don't want to pay the 20k tax bill when I have the place fully built.

You did your due-diligence, and I believe you made a wise decision. You will find the right one. Good luck.

 

[banjo2733]

20K a year for taxes?

Wow. just Wow, we live in the hills of S.W. MO, 30 Acres of woods, 2,900 Sq. Ft. home, 40'X30' shop, taxes are $851.58 a year!

Having said that, Sam's and Walmart are a 2 hour driving round trip, not counting shopping, I'm retired and the wife works from home, we only leave the house to go out maybe every 3 or 4 weeks!

Sorry, all the land around here is sold, not more room down here!!!!!!!!!!

 

[banjo2733]

20K a year for taxes?

Wow. just Wow, we live in the hills of S.W. MO, 30 Acres of woods, 2,900 Sq. Ft. home, 40'X30' shop, taxes are $851.58 a year!

Having said that, Sam's and Walmart are a 2 hour driving round trip, not counting shopping, I'm retired and the wife works from home, we only leave the house to go out maybe every 3 or 4 weeks!

Sorry, all the land around here is sold, not more room down here!!!!!!!!!!

 

[Clik]

With the housing market what it is in most areas, you can buy an existing home for peanuts compared to what you can build for.

 

[nolimits76]

Sorry to hear this, I know you were excited. The good part is that you went through all the exercises and know what to expect when the next property comes up. I've lost properties that made me sick, but I knew financially they were a mistake. There always seems to be a better one down the road.

Sounds like it could have been a stuffy neighborhood based on home values you cited, and your assessment of the neighbors. More disturbing are those taxes -- $20k!?!?! That is stupid crazy IMO.

 

[BrownEnterprises]

One of my neighbors built his own house and two-car garage on a lot that was overgrown with trash and trees. Mind you he did 90% of the work himself and with friends (myself included) helping him. Major costs come in with the slab and septic/water. He saved a ton framing the house and the garage. Mind you the house is liveable its far from finished. If you stepped inside you wouldnt know the difference until he showed you. It's a gorgeous home and was done on a tight tight tight budget over the course of 2 years or so. It's doable. Just do your homework and everything will eventually fall into place. He also lived in another county out of a trailer with his girlfriend (Now wife) So sort of the same situation. I can't offer any advice other than good luck in your venture no matter what decision you make!

 

[NTBorer]

One of my neighbors built his own house and two-car garage on a lot that was overgrown with trash and trees. Mind you he did 90% of the work himself and with friends (myself included) helping him. Major costs come in with the slab and septic/water. He saved a ton framing the house and the garage. Mind you the house is liveable its far from finished. If you stepped inside you wouldnt know the difference until he showed you. It's a gorgeous home and was done on a tight tight tight budget over the course of 2 years or so. It's doable. Just do your homework and everything will eventually fall into place. He also lived in another county out of a trailer with his girlfriend (Now wife) So sort of the same situation. I can't offer any advice other than good luck in your venture no matter what decision you make!

I'd love to do this, but after some assessing of the area/neighbors/HOA, it was clear that we weren't wanting the same things from our land. Which is fine - I just don't want to tiptoe around property I just poured my soul into.

I'm going another direction, one that includes efficient use of my money. I am looking into rentals, with the goal of buying a duplex and living in half of it.

 

[Jimi]

you will always be better off buying something already built even if you have to rework it.

I tend to lean this way too. I like to think that the premium properties have been scoped out and developed way before I began looking. Having the utilities there already is a plus, even if you have to bulldoze a shack that's sitting there. Just because the home is a **** hole, doesn't make the lot bad.

Sounds like you've learned quite a bit going through this. Good luck!