Here's my analysis of building the above WaterColor house in today's market:
First, I don't think you can buy a nicely located lot in Phase 3 for $250K. While I see that there are a couple listed below 300, I'm thinking that $300K is a more realistic number to use for a builder who is searching for a nice lot to build a spec house on. And that's pretty cheap. Of course someone can disagree with this... and all of my numbers for that matter... but it's the number I'm using for this example. In my experience, everything ALWAYS ends up costing more than you expect, so if nothing else, I prefer to be conservative when projecting costs and tend to over-project.
Please note that these calculations are not perfect as I'm not 100% sure how each builder finances their projects, but it's close enough.
Lot Cost: $300K
Closing Cost: $5K
6 months interest: $11,250 (on 250K at 9% to get plans designed and approved through WaterColor DRB):
Architect and Design Review Board Fees: $25K
Construction Cost: $650K (I used the higher of the two numbers suggested by Fisher because, as I stated, everything costs more than you think and it's better to be conservative).
Interest during construction: $56,250 (I assumed a build time of 10 months with an average note balance of $750K throughout the process with 9% interest).
3 months of carrying cost: $22,500 (to allow marketing time after completion and before the home sells and closes).
Total Cost: $1,070,000
Builder shoots for 15% Profit Margin: $160,500
Total Cost (including Profit for Builder): $1,230,500
Builder lists it for $1,350,000 and sells it for $1,275,000 within 90 days of completion.
Builder pays 5% real estate commission... so he nets $1,211,000 after paying commission... yielding him a profit of $141K... or 13% profit margin.
If he doesn't sell it in the first 90 days, it costs him him around $8,000 (and 1% of his profit margin) for each month that it sits unsold.
Okay. Let's pick apart my numbers. They aren't perfect, but it's probably a lot more realistic than a lot of the numbers I hear thrown around. Lots of people say that if I buy a lot for X, and build it for Y... then X+Y = My Total Cost. Or in the above example, if I buy a lot for 300K and build a house for $650K, I'll only have $950K in it! WRONG.
You can certainly find issue with my numbers, but it will probably not add up to a big difference and it probably won't affect the "big picture" to a great degree. The fact is that it costs a lot of money to build a home in WaterColor. But... people keep buying them at a faster rate than any other high-end development on 30-a.
Oops... I forgot a couple of other costs that the builder has. Taxes and Insurance. Well, that certainly will eat into his profit... or he'll have to sell for even MORE than $1,275,000.
Are there other costs that I've forgotten, or am not aware of? You bet.
Keep in mind that this is a SPEC HOUSE. Anyone out there who thinks they can buy a lot and get a builder to build it for them at this price is going to be in for a big surprise because you'll want a custom home... not a spec home. You're sure to do a lot of upgrades. You'll choose to spend money not only on cosmetic upgrades, but also on better quality construction that most people (including yourself) never even knew existed before... much less noticed when viewing a house for sale.
Count on it costing at least 10% more than you originally anticipated... if you're lucky. Also, if you don't live in the area, will you count the cost of the many, many trips you will have to make down to look everything over? And after you're done in 18 months, you'll say to yourself that you'll never do that again!
You might guess how I know all this? I've walked in those shoes... and just did the final walk-through with our builder 2 weeks ago. Now if only we could afford to furnish it!
Merry Christmas to All!!!
