Trust the math, numbers do not lie. Be sure to include the build cost, land cost, closing costs to purchase, architect and permit fees, utility fees, insurance, taxes, finance fees, this has to be deducted from your selling number and net proceeds to be certain you will make a profit. When you sell you are responsible for paying all real estate closing fees title costs, and legal. This can be 7%-10%+ taken off the sale price depending on where you live.
What is the targeted profit that you should seek after closing costs from your sale and real estate commission?
That profit range is totally up to you but for the risk and cost of money, you should at the very least worst case scenario clear 25%+ per year over the cost. If you are setting your goals for less than you should give your money to an investor who will provide more return with less risk and less work/stress for you. What if the timeline from purchase to sale takes longer than a year? That profit margin you calculate has to be higher than 25%+ per year. If D.O.M. in your area is 180 days that is 6 months of sitting waiting for a buyer. Your home has to be showcase condition 24/7. Lawn maintenance, house cleaning, touch up paint, are all the weekly expenses you must cover to keep your house in showroom condition.
Now you have your math homework complete and you are ready to select and bid on a property. You have your construction cost, and all of your costs associated with the complete build and sale of your new house. These are fixed numbers based on tangible items. The purchase price is the last variable and when you reach your ceiling and the seller cannot make it work, you have to walk away. So many times I hear from builders that they paid more than they intended because the location is worth it and when they finally sell it wasn’t worth it.
At the end of all your hard work and late nights staring at the ceiling trying to sleep, all of this stress has to be worth it or why do it? Do your math and stick to the numbers.
More coming later on the other stages of building a spec house.