I know this is CRE but are there any larger scale spec home builders here that I could ask a few question to?
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[{"id": "gpsbbw8", "text": "Residential realestate tends to be cheaper to build per sqft compared to commercial. The secret is to hire latinx and eastern euro subs. They underbid the red and blue bloods by half.\n\nAs for ROE, it depends. Location is everything. Look for little old ladies dying from covid to cheat with cash deals.\n\nYou should not be building if your bankroll can not cover a failed project. Try flipping houses, probably safer if you are learning.", "replies": [{"id": "gpsfhc8", "text": "I build commercial right now. Also I\u2019ve built an apartment for $146/SF and I\u2019ve seen house construction for more than that. Also I don\u2019t care what ethnicity the sub is, I\u2019m taking the lowest bidder with the best quality. \n\nI\u2019m talking about building tract housing, ~100 units for scale. I just haven\u2019t done residential real estate, only commercial.", "replies": [{"id": "gpsqvrk", "text": "There's lots of ways to do it, generally you own the land and parcel it out, then the buyers either put a down payment on the build and they either get construction financing with draws or you build it and they get final financing or they put the parcel in an OTC one time close financing.  It depends on how custom or track you/they want the houses.  \n\nI prefer the latter. I have lenders that do OTCs that include the land in the deal, and will even pay out on modulars the day they are delivered.", "replies": [], "depth": 3}], "depth": 2}, {"id": "gpt2xn9", "text": "I downvoted for saying \"latinx\"", "replies": [], "depth": 2}], "depth": 1}, {"id": "gpt71av", "text": "Most of your questions are incredibly market dependent. \n\nTypically, financing will work like this:\nFinancing for a model home and maybe one spec home. Then you must generate presales to unlock additional financing. Financing then revolves as you sell off each home. You will only be able to build a few homes at a time to limit bank exposure. If you developed the land and the homes, your profit will come in each home sale, maybe 20%, and on the last few lots.", "replies": [], "depth": 1}, {"id": "gpteki7", "text": "I'll take a stab based on my experience. This is for tract building like you mentioned, not 10 lot custom build subdivisions. \n\nThe developer will get an A&amp;D loan for the land (maybe 65 LTV) with a revolver for the site work (maybe 90 LTV). The developer is typically responsible for the amenity. Of course size and scope of amenity are dependent upon market. In my experience, it's always difficult to make a deal pencil if you need to build the amenity upfront (unless it's part of marketing and driving sales price). You want to make sure there's no requirement to build it until there's sufficient buildout of homes (and associated revolver pay-down)\n\nA builder LOC will include money for a model (sometimes a model park depending on experience) and maybe limited specs, with an emphasis on funding pre-sales/to-be-built homes supplemented by a nice buyer deposit. You may be able to find an investor to do a model leaseback and free up capital for another spec. \n\nI would wager that gross margins on lots are 20%-30% (of lot price) and home sale gross margins are 15%-25%. True net margins are usually 10-15%. If you develop and build, make sure you double dip. No point in developing (or building) for free unless it's a crazy market. As for land vs house costs, it gets messy when you're developing and building. \n\nYou might find it tough to develop and build out a large subdivision. There's more qualified lenders here who can chime in, but you'll see significant erosion of ROI due to longer timing from the first shovel in the ground to closing on the first house. Plus that's a huge amount of capital to be tied up in one (I'm assuming) inexperienced developer/builder. Might need to sell off some lots to a builder to supplement your loan payoff covenants.", "replies": [], "depth": 1}]