Can someone tell my why I'm not doing this? - Posted by Tom

Posted by Wayne-NC on March 17, 2006 at 16:13:45:

Yes, I had 2 built, refied and they appraised the same. Also take into consideration that none of the materials are left out in the weather and the construction is not subject to weather related delays, except on maybe the day that they are set. They could be stronger due to the marriage wall being of double thickness in which the home is built around.

Can someone tell my why I’m not doing this? - Posted by Tom

Posted by Tom on March 16, 2006 at 19:43:48:

Ok, so I’ve been looking at modular home builders. I live in the DC area, which is so oversold it’s really hard to make a profit…but:

I can buy a lot, in an area where houses are selling for 600K, for 80K (with a 3 BR perc). I can have a modular home build for $150.00 per sq foot. So, if I have a scenario that goes like this:

Land cost: 80000
buyer’s closing costs, 3% of above: 2400

construction cost: 365000
carrying cost (6 months @ 6% interest only): 13422

selling price: 575000 (25K below mkt for quick sale)
selling costs: 40250 (7%, 6% to realtor + 1% sellers closing costs)
profit: 69454

Um, can anyone see something I’m missing here? Why should I not start this deal?



No HOA or Architectural Review Board? - Posted by Pat

Posted by Pat on March 17, 2006 at 16:39:55:

an area with 600K homes and no HOA of sorts to prevent you from putting a modular home on a lot. Wow, hate to be a neighbor.

Risky for a newbie … - Posted by Frank Chin

Posted by Frank Chin on March 17, 2006 at 09:09:26:


Up in my neighborhood, older homes are snapped up by builders for “more than its worth” to be torn down. This is because zoning allows three 2 Families to be squeezed onto the lot. The numbers look like this:

  • Buy a clunker worth 450K, pay 550k, ask the owner to leave immediately. Ok, give him a week.
  • Build three 2 families with demolition, costs about 1MM
  • Total cost about 1.5 MM with land.
  • Asking prices for the brand new units?? 900K each. A neighbor down the street sold an older 2 family for 850K, so 900K sounds reasonable.
  • Gross profit 2.7MM less 1.5 milliom or 1.2 million, less selling costs.

Compared to your deal?? A much better margin, and lower risks.

Why am I not doing this??

The went to auctions at many an RE in the early 90’s where construction started when the RE cycle turned down, there were no buyers, and the builders could not hold on.

I bought and live in a 2 family where construction started in 1986, with the CO issued in 1987. The builder got a mortgage, negative cashed flowed till 1990. The bank held on for two years, and I got it at an auction for 227K. The mortgage was 290K.

I actually looked into building one of these in there late eighties, where there was an empty lot for 50K down the street from my mom in law. The construction cost was about 250K.

The builder turned down offers of 360K for the 2 family in 1987, as he wanted 399K. Apparently, the market was not his friend.

I bought condos in MA that was completed around the late eighties. The developer went broke, the bank foreclosed on it, and the bank went broke, taken over by the RTC.

I rememeber going to the closing, and the seller’s attorney showing up, and my attorney and this guy was discussing whether he actually represented the bank, or inherited the right of the developer as called for in the bylaws, or he actually represented both.

The seller attorney didn’t know the answer.

Tom, I held off playing developer since I figured when the downturn comes, being a vulture represents a smaller risk.

The problem with constuction often is the lead time involved, and you can start the process in the boom times, and the market can be as cold as ice when you’re done.

As a vulture, dead meat is dead meat.

Frank Chin

Re: Can someone tell my why I’m not doing this? - Posted by Killer Joe

Posted by Killer Joe on March 16, 2006 at 21:38:50:


Does the cost associated with building the modular include preparing the site? How about the cost of the septic? Do you need a well? Do the other houses in the neighborhood have basements? What is the cost of landscaping the property? How much does a driveway cost? You can see where I’m going with this…

As a side note, the DC area is one of the areas that is currently at the top of ‘the balloon has a slow leak’ list. (Not my opinion, the facts are published) If your holding time is extended, and the values decline over the time frame required to sell the property, especially if you have cost overruns, you may have a breakeven or worse situation. What I’m getting at is you are going in with a projection of 12% for your efforts if it all works according to plan. Many developers will tell you a 30% spread going in is a good target. They will also tell you that if they net 18-20% they can afford to keep doing it. IMHO your going in too thin.

Here’s where your leaving money on the table…$150 a sqft to build. Builders don’t spend that kind of money, they charge it. Big diff! I would be willing to bet you could shave that $150 figure dramatically with a little digging.


Re: Can someone tell my why I’m not doing this? - Posted by JD

Posted by JD on March 16, 2006 at 21:24:06:

Tap, utility and permit fees for starters. Also, new houses built by non full time builders tend to sell for a discount to market (been there done that). But I would say that if land is only selling at 13% of finished build price where you are, you may have a really good oppourtunity. In most areas of the Country it is 20%-25% for that price range. On the other hand there may be a good reason why land is only selling at 13% of finished build price. Oh, and the fact that you don’t seem to know what a modular home is may indicate that you are not ready to build a $600,000 house.

Re: Can someone tell me why? - Posted by dealmaker

Posted by dealmaker on March 16, 2006 at 21:13:13:

A couple of comments: The $600K is for “stick built”, modular is not the same to most folks, The top 10% of any price is often “fluff”, take 10% off your $600K and you’re no longer in the black.

Just my opinion.


Re: How about panelized homes? - Posted by James

Posted by James on March 16, 2006 at 22:13:15:

I have read the panelized homes appraise the same as “stick built.” Any truth?

Re: How about panelized homes? - Posted by Wayne-NC

Posted by Wayne-NC on March 17, 2006 at 16:16:40:

Yes they do as I had no problems with 2 refi’s. Talk to an appraisor or lender in your area. See the post below for more info. Try an archive search on modular homes as well.

Re: How about panelized homes? - Posted by Joe

Posted by Joe on March 17, 2006 at 10:25:26:

I would like to know this as well. Because, as I understand it, modular homes (not mobile homes) are built the same as stick built homes. Except they are built in parts in a factory then assembled on site. In fact, since the modular homes are built in a factory with jigs and the same guys doing the same cuts and pounding the same nail locations 8 hours a day, 5 days a week, 50 weeks a year … some consider the modular homes to be of better quality construction.

This would be good feedback to get.