Land Deals are where the Money is at!
This is a very valid statement, but I think the real meaning of this has been misconstrued.
It is not that you MAKE a lot of money, it is that it costs a lot of money up front to get there. Now, I know this seems like a good problem to have but the fact of the matter is, it is a problem if you are diving into this and don’t understand the process.
It is also a big problem if you don’t understand what you are dealing with when you are looking to List or wholesale a piece of land.
So with no further ado lets dive into what buying land entails.
What fees are incurred when building a new home?
I am guessing I have to pull a permit for building the home right?
So I will look that up, BOOM I found the permit for new construction. It is a little pricey but not bad so lets start this process… SCREECH!!!!!
There is much more to building a home than just a permit. The process requires a few, or more than a few, steps.
Let’s break them down.
Plan Check Vs Permit
Many investors look at the cost of the permit and assume that this is the total cost associated with getting a project going. This is not only wrong but is actually VERY wrong.
There are fees that tie into the process starting at the very beginning, and the first one is Plan Check. Plan Check is exactly what it sounds like, the fee to check the plans associated with the project.
Now it is important to note that most projects, if they are new homes, will require 2 plan checks and not just 1. They will require a plan check for the site itself and the grading plan. This is the work that you are doing to improve the site and bring in utilities, set elevations and create the pad.
They will also charge you for the plan check out your building plans. These are the architectural plans and structural plans that make up the houses. Now if you were not anticipating fees for the grading, it is important to note that you will be paying for the creation of that as well.
Plan check fees vary from municipality to municipality so verify with your local building department.
What is a buy in and what am I paying for?
A buy in is the cost to join a utility in a district where you home is located. The biggest cost, in general, is going to be you water buy in fee. This is the cost that they charge to join the water district.
The fee is set by water line size that will be feeding the property (EX 3/4″ or 1″) and is generally charged to you by the local water company and the county you are in. This can easily run you $20K-30K for one house in many counties in Southern California.
Please note that a water buy in does not include the cost of installation and the cost of getting a meter on the property. Those are separate costs that you will need to associated with your property.
Additionally, your energy and gas provider will have associated fees for buy ins that will need to be calculated as well.
DIF- Development Improvement Fees
DIF is an important part to the community that surrounds a new property. DIF are fees associated with the development of the surrounding community and schools.
You will have school fees, sometimes more than 1 school, and they will be based on livable square footage of a home. You will have park fees, police and fire fees, road improvement fees and depending on legislation voted in your area you could have any more fees for designated projects in your area.
These to are important to note as they will change the value of your project based on capital being consumed.
Improvements- What does this mean?
Improvements refer to the work that is required to be completed with your particular project.
This may include creation of curb and gutters, under grounding of electrical wires, widening a road and re paving, extension of sewer mains and many other items.
These are items that you would need to conquer with your civil engineer when performing a feasibility report on a project.
Note that you do not always, actually you very rarely know, the extent to which improvements will effect your project up front. You will have to negotiate these in the plan check phase and you can not be 100% on the direction of them when you go into the deal but you can have a general idea.
Who will you need to hire to make your project happen?
Here is a short list of the minimum requirements you will have:
- Soil Engineer to evaluate soils conditions up front and to monitor grading while it is being completed
- Civil Engineer to create the site plan and handle the connection to local utilities
- Architect to design the property and create the functionality of the home
- Structural Engineer to verify integrity of design and create calculations for builder on design
- Title 24 energy consultant to review the home and ensure it is up to code with Title 24
- General contractor or Builder to build the actual home
- This can have several layouts including using different sub contractors and supervision to create a home
These are the bare minimums to get a project through to completion.
In closing it is important to note that with all of these fees, we have still not built the house. This is still just an idea at this point in time.
The reason I give you all of this information in a quick format is four in fold;
- I enjoy pass information off to interested investors- the more educated you are the more likely you are to succeed and that means we have an opportunity to work together if you find a deal to joint venture.
- Many investor/wholesalers reach out to me on deals and have the numbers completely wrong and I have to explain this over and over again to them. Now I have the ability to share this article once with them and allow them to digest.
- When a seller comes to me and says that the cost to build is “X” per square foot, I can then explain to them all of the pieces they are missing.
- My goal is to educate investors so they can be successful and make the decisions they need to make. One of those decisions is to join the Better Tomorrow Group which teaches you all about residential real estate investing.
The last thing I want to leave with you is that this is not a complete guide and is not going to make you successful in and of itself.
You will need to get out there and grind out some deals with these basic guidelines to see true success. Grinding out deals and checking out our Youtube channel can be very helpful in creating your success, but you must first get out there and make something happen!
PS- Here is a link to our YOUTUBE CHANNEL and don’t forget to follow our blog for updates!
Andrew T Greer
CEO Better Tomorrow Group
Andrew is an active investor, speaker, Realtor, serial entrepreneur, and educator in all that is Residential Real Estate. If you would like a FREE copy of his book follow this LINK. If you would like to follow him on Social media you can find him onInstagram@beastmoderealestate and @bettertomorrowgroup, onTwitter/Periscope@TheBTGRoup andFacebookathttps://www.facebook.com/bettertomorrowgroup/