Sell lot vs. build and sell?

[victor page]

I need help and can't rely on advice from RE agents and home builders because of the inevitable bias.

All numbers are rounded for the sake of simplicity.

I own an old house on a 70 X 150 lot in central Toronto - newly built houses on the street are 4500 sq. feet and sell for $2M to $2.2M right now. The houses are high-end but not exceptionally premium finishes (good but not off the charts great)

I've been offered $900K for the house and would consider accepting that but want to know if it would be advisable to build the new house on my own and sell that next year when it's completed.

It all comes down to how much it would cost to build the house - I know how much it would cost to borrow the money, how much I'd have to pay my real estate agent, and how much it would cost me to rent a condo while all this plays out. Let's say all that = $150K.

The ultimate selling price should be $2.1M (a conservative estimate) but I know this is impossible to know for sure.

I am self-employed and can afford to spend a lot of time as a general contractor (though short on the expertise). I have friends that have done it so would have a lot of referrals to start with.

Rejecting my $900K offer, and spending $150K on carrying costs and closing costs, puts me at $1.05M. This gives me $1.05M to work with.

Isn't that more than enough to build a 4500 sq. foot mcmansion?

[clock]

Rejecting my $900K offer, and spending $150K on carrying costs and closing costs, puts me at $1.05M. This gives me $1.05M to work with.

Isn't that more than enough to build a 4500 sq. foot mcmansion?
You already have all the numbers figure out...and for your only question, can't you just ask the builder for a quote? Tell him you want a project total cost price, and not charged by hours/rate.

Whatever numbers he give you, add 20-30% to that since they alway go over budget and ask you for more money. :twisted:

Also, my advice, it is a pain to deal with home builder/contractor personally. If you are talking about 100-200K difference, I wouldn't bother.
Freed up your cash and give u a peace of mind by just selling it.

[budfrogs]

Don't forget to take into account risk and hassle factor.

How long can you carry a $1Million mortgage on the construction loan if the house doesn't sell?

How much will it cost to stage the house to look lived in so you get more $ for it?

Do you really want to move twice and have to deal with construction people/permits/by-laws and so on?

[victor page]

Thanks for your replies. To answer the question "why don't I just ask a builder for a quote?". I have asked, but the problem is that the builders have their own agenda (they don't want me to build, they want to buy my lot, build it themselves, and sell the new one).

I've heard them say it would cost me over $1M which I think is BS. One of them told me 90% of builders lose money. Sure buddy - they're in it for the good times.

The second question - why put yourself through the hassle? Well I get that for sure but, if there is the potential to pick up $100-$300K tax free then it's worth the hassle. How long would it take you to save that much money after taxes? (not sure about you, but it would take me a very long time).

[bythehour]

We're in the same boat.

Hard construction costs should be about $150/sq ft, so you have the budget to make a profit.

Some builders will quote you more ($175) and some less ($125), you need to find the guy who you trust.

If you have the time and inclination to be hands-on, you should hire your GC on a cost-plus basis, instead of an all-in quote. With cost-plus, everything is transparent. you can see what they are paying for labour/supplies, and you can substitute your own of you're so inclined.

[LarryLat]

OP's numbers indicate $233.33 per sq/ft to break even. I think that's reasonable for a luxury house with top-end materials. Not sure how much margin is in there for profit, and protection against high-end RE market fluctuation.

However, why bother if you can have $900K tax-free today.

The new house will be build just in time for HST and likely higher interest rates.

I would so take money and run!

BMO reports earnings next week. If they don't cut the dividend this time then it probably going to be safe for the next eon. BMO yields 5.556% dividend, that's $50K per year in dividends on $900K!

[bythehour]

Good points, esp the liquidity of $2mm+ homes. I know the ones in our area are sitting much longer these days

[victor page]

A general contractor on a cost plus basis is a good idea - I will look into that.

We do have a mortgage (and will need to buy another house sooner or later) so unfortunately I can't buy $900k of BMO!

Call me naive, but I just don't see a new home costing anywhere close to $1M. First you get architect drawing, all permits, demolish the old house, dig a hole, drop in the foundation, do the frame, put in all the wiring / HVAC, drywall, windows, brick exterior, roof + all the interior finishes then landscape.

The Amish can do it all on a Saturday afternoon!