What are the challenges to buying a lot and building a house, will I save money? What should I look out for? Will banks offer a loan?

Asked by shirley.mit07, Topanga, CA Wed Aug 21, 2013

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John Arendsen, Agent, Leucadia, CA
Wed Aug 21, 2013
I'm in San Diego and not the least bit interested in working in the Topanga Canyon area but as a General Contractor, real estate developer, investor, property manager and real estate broker for the past three decades I'll give you my educated opinion.

Unless you are experienced in construction and development I would be very careful about purchasing a vacant lot and building a home on it. Especially in today'f very convoluted and red tape ridden climate.

Even experienced builders and developers are running into often times very complicated entitlement requirements. We purchased a piece of waterfront property in San Diego in 1998 that had 19 entitlements including but not limited to the City of Encinitas, The County of San Diego, The EPA, Coastal Commission, State Park System and myriad same the World, hug a tree for you and me weirdoes who just couldn't stand the thought of a lizzard being displace from his home.

You'd be safe and wise to look for a home that's already been built. Or look for a builder/developer who has built a spec home or would consider building a custom home for you. That's my 3 cents worth (adjusted for inflation).
1 vote
JR Thrasher, Agent, San Diego, CA
Wed Aug 21, 2013
The total value of the property once, completed will have to exceed a certain percentage of the loan amount. Ask your lender for the exact number. You will have to come in with large percentage of cash when purchasing the land. Be careful, only work with a lender that has a lot of experience with construction loans.

You typically will not save any money over buying an existing home. When compared to buying a new home in a community being developed by a builder the costs are about the same in my experience. Buying a small home in a highly desired community and remodeling and adding on to it seems to save people the most money.

J.R. Thrasher
1 vote
Joseph Scroc…, Agent, Wildwood, NJ
Wed Aug 21, 2013
Have a good attorney. When you buy land there are a lot of issues that you want to make sure are to your satisfaction. First, is the lot buildable as is? do you need a variance? are there "special" environmental issues with building on this lot?

Once you have those questions answered then you have to figure out exactly what you can build on the lot. what are the set backs? now design the home, get bids from contractors or hire a general contractor/project manager to handle the construction of the home.

As far as financing yes you can get a construction loan. Once you agree to the price on the lot and have your final estimate to build, build in an additional 5-10% for over runs and other "unexpected" surprises.

Yes it can be done. You just have to know what you are in for financially and mentally.

Good luck!

1 vote
Jamie Tian, Agent, Los Angeles, CA
Wed Aug 21, 2013
Hi Shirley,

I think it depends on if you have experience with building and also the location of the parcel. If you do not have experience, it can be very costly to hire contractors, experts, and project managers.

The pros to building your own house of course are that you can build it exactly the way you want, although many of the remaining vacant parcels left in Los Angeles are relatively steep (on hillsides), and the foundations can often be very costly. I had a client purchase a parcel in Malibu to build a house and the estimated cost of the foundation was about half a million dollars.

If you do purchase a parcel, you will need to do geological, soils, topographical, and other tests to make sure the site is adequate for building. You will also need to make sure there is access to utilities, and that the parcel is able to be permitted by the city for building.

It is possible to get a loan for construction, although not as many lenders are willing to do this.

If you are interested in purchasing a land parcel in Los Angeles, I would be happy to send you a list of available parcels. I can also send you a list of available homes for sale if you would rather purchase a house.

Feel free to contact me directly at (310) 717-1321 or JamieTian@RodeoRE.com.


Jamie Tian
Rodeo Realty
(310) 717-1321
DRE #01920120
Web Reference:  http://www.jamietian.com
1 vote
anthony.vent…, , Danville, CA
Fri Nov 1, 2013
I can provide you with a single close construction loan with as little a 3.5% down, this loan can be used for the purchase of the dirt, pay fees and the build. You must have a middle score of 660 and ratios for your build and any debt be less than 45%.
I have seen several of the homes we have provided construction loans for appraise for higher than the cost to build and the fees and the land.

0 votes
Annie Ritz, , Los Angeles, CA
Mon Aug 26, 2013
This is a very complicated question. If you haven't been through the process of building a ground up property before, it's very easy to spend more money than purchasing an existing home and customizing it. Architects (you'll need to hire one!) recommend a 20% contingency fund as there are often unexpected costs that arise during the process of design and construction. These days it's very difficult to get a construction loan so be wary and approach with caution.

I'd be happy to point you toward several awesome residential architects and contractors so you can get a better sense of it. Just message me privately or send me an email.

email: annieritz@kw.com

0 votes
John Arendsen, Agent, Leucadia, CA
Mon Aug 26, 2013
Geology, accessibility, zoning are 3 of the most important elements of he due diligence process. I once spent two full days with a woman that was so proud of the 8 pieces of RE she thought she stole from a couple of banks. She literally got some of the most beautiful pieces of property with the most breathtaking views imaginable. Only problem? Not one of them was cost effectively buildable. I later became her expert witness in a fraud (deception) law suit that she won hands down.
0 votes
, ,
Mon Aug 26, 2013
I don't know how much land cost vary in Topanga, but in line with the other experienced posters here, I'd suggest building is not about saving money, it far more about designing your dream
without having to work around tons of obstacles in an existing home. New construction, remodels,
and additions are stressful, expensive, and much depends on your personality, and the professionals you hire.

The advise about getting a good attorney who specializes in real estate is important, because you have to ask if it's so easy to do this, why hasn't anyone built on this lot before?
0 votes
Johnny James, Agent, Carson, CA
Sun Aug 25, 2013
It is more expensive right now to buy a lot and build a house from the ground up. There are banks that do construction loans.
0 votes
carlos parra…, Other Pro, Monrovia, CA
Wed Aug 21, 2013
Buying a lot and building a home takes time, depending on where, it could take anywhere from 2 to 5 years. You have to live somewhere while this is happening. so If you count that into the cost, it is unlikely you will "save" any money. Building costs are high and so are land values. If you have never done it before, I don't recommend this.
0 votes
Dorene Slavi…, Agent, Torrance, CA
Wed Aug 21, 2013
Finding money for raw land is very difficult the loan structure will be different they borrowing money for a single family home (for instance), and the down payment will be much higher. You might save money, it just depends upon what type of home you build and where you build it.
0 votes
Alexander Gr…, Agent, San Jose, CA
Wed Aug 21, 2013
Whether you are building or buying, I can certainly help you out with a loan.You can call me at 408-352-5147 or email me at AGreer@themortgageoutlet.com. You can check us out at http://www.TheMortgageOutlet.com. I will look at your situation and present you with some options.

Alex Greer
NMLS #1056079
0 votes
Jeffrey Jang…, Agent, Beverly Hills, CA
Wed Aug 21, 2013
Hi Shirley-
If you're looking to save money, new home construction is definitely not the right choice for you. In fact, you'll often see fixers, which might need a few hundred thousand dollars worth of work (still substantially less than building new), selling for lot value. Per square foot prices for new construction are pretty high in Southern California and also depend a great deal on finish quality, but you could estimate your cost at @$400/sq ft, just to give you a ballpark figure. Additionally, HELOC loans (Home Equity Line of Credit) loans are harder to get than home loans, so you'd have to make sure that your credit qualifies you. I think that given the nature of your questions, a fixer is probably a much better option for you than new construction.

Hope that helps. Good luck!

Jeffrey Janger
Pace Properties
0 votes
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