I want to buy land and build a house. What’s up?
By Dick Thackston CRB, ABRM, ABR

Many people that have been looking for land and been surprised to find land prices have not fallen nearly as much as residential housing if at all. Many more desirable building lots have remained unchanged in price or even increased in price a real shocker for the first time land buyer or people looking to build.

Here’s why!

First and most importantly land sales were never driven up by the mortgage lending boom over the last few years. Many people don’t realize it but land was, is and will likely remain a largely cash sale: no easy financing means, no inflation means and no deflation. To buy a building lot there are only a few avenues a buyer can take: Cash, Owner Financing or a construction loan.

Construction loans are traditionally hard to obtain and are only given to the best most qualified buyers – basically people who don’t need to borrow the money. They typically require high down payments, are interest only and balloon within six months to a year of closing. Normally before a bank will agree to make a construction loan they will require full architectural prints and bids for all phases of construction not normally what the home handyman has in mind. These loans are typically made by smaller local banks rather than larger national institutions smaller banks are under significant pressure to improve their portfolios and avoid “high risk” loans such as construction loans so they mostly don’t make them.

Once you find you land and money to buy it the next problem is materials costs. While there are certainly sales in local lumber yards and liquidators of back inventory it may be difficult or impossible to count on exactly what you need being available when you need it for new construction if that was you planned route for materials. Buying new materials for construction projects has actually never been more expense. Remember two things a piece of plywood is a piece of plywood whether it goes on a house in New Hampshire or a house in Chunking China. There’s a building boom going on in China right now sucking up much of the world’s building supplies such as lumber, copper wiring, window glass, shingles etc and driving price up!

Labor is tighter than you might think. There is plenty of unskilled labor available but licensed plumbers and electricians have laid off many of their helpers and trainees so they have maintained or even increased their costs. Most towns and cities will require that at least these two trades be licensed in a new construction project.

The greatest value and easiest projects remain renovations of lender owned properties, (REO’s). If a buyer has limited cash and time there are very favorable opportunities with REO’s which are eligible for special financing through the FHA’s 203K program. In a normal lending/home buying market lenders, REALTOR, Home Buyers and Seller’s run like the wind from the FHA’s 203K program however in today’s economic climate new rules have been implemented to make the program more viable and allow the average homebuyer up to thirty thousand dollars for post closing renovation work without bids being obtained before closing – that’s a lot of home handyman work!