Right now we’re going to talk about the building process.
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: Now that the inventory is so low and interest rates still make it very appealing to be a buyer, a lot of people are saying, well, if I can’t find it, I just might have to build it.
Bob Nelson: Now, that’s an interesting concept and it makes a whole lot of sense. The problem is, most people do not understand the construction industry, how long it takes, what the cost is to get involved with the system development charges, et cetera.
Marcia Edwards: I think the most frustrating thing for me to see as a consumer, a potential client who says, “Hey, I’m looking for a lot under 100,000.” That sounds great, and they may have done the math that, okay, if I buy a lot for 100,000 and we have 200,000 more to build the house, this should work. But there’s a couple things that are faulty in that line of thinking. One is that, it’s about 20 to 25% of the retail at the end is in the land value, so if you buy $100,000 lot, likely you’ll have to build about $400,000 home on top of that lot.
Bob Nelson: Right. The principle of balance, you don’t necessarily buy a $500,000 lot and build a $50,000 house on it.
Marcia Edwards: That’s the scale. Now, another danger in shopping by price for lots is what’s going to have to be done before it can go vertical, before it’s shovel-ready. That is, what services are available, engineering. There’s also natural springs in these hills where the lots are still available. There’s so many variables. You’ve got to understand your real cost of getting it started at the beginning of the transaction.
Bob Nelson: Well, you’re a guru on that particular subject. You’ve worked with a number of retail builders, a number of really high quality builders. You’ve got the understanding of that principle of balance. What’s it going to cost me to buy the dirt? What’s it going to cost me to pay system development charges, fees upfront that… One of my friends was building in a small apartment complex and his system development charges are $90,000, well permit fees and system development charges are $90,000.
That’s roughly analogous to taking 90,000 one dollar bills, going to the toilet, flushing and flushing and flushing until it’s gone. Once you’ve flushed away $90,000, now you get to start with the concept of let’s build an apartment complex.
Marcia Edwards: That’s right. So you want to understand your costs and a lot of people fear that the building is going to go to the number that they give them and they’re worried about sharing what their expectations are. You’ve got to be open and up front to make sure the plan is executable.
Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30pm on KPNW for the “Real Estate Today” radio show.