We recently brought Dan Haberkost on the show to talk about how his business of buying infill lots influences his real estate investments. Once he buys the lots, he either builds on them or sells them to another developer. New builds are a hot topic right now, so he’s back today to talk more about the process of buying a lot and building on it.
To hear all of the nuances of our conversation, check out the podcast or YouTube video.
- Listen to the podcast “#83: How to Build in Pueblo West If You’re Not a Big Developer” on the Colorado Springs Real Estate Investing Podcast
- Watch the YouTube video (at the bottom.)
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
What’s the Difference between an Infill Lot and Raw Land?
Dan’s business is focused exclusively on buying infill lots. That means that someone else has already done the preliminary work needed of taking a piece of dirt and getting it ready to build on. Infill lots are already zoned by the city, looked at by a civil engineer, and have utilities built out. All Dan needs to do is pay the tap fee to turn on utilities.
Raw land is untouched land that needs to be worked on before developers can build. It can be very profitable to buy and prep the land because many institutional builders only want shovel-ready lots.
How Do You Decide Whether to Build on the Lot or Sell It?
Dan likes to build the same style of house on the lots he buys. If there’s something unique about the topography that would mean having to alter the home design, he prefers to sell it to another builder. In general, Pueblo West’s lots are all the same, making them easy to build on.
How Do You Find a Home Design?
Different municipalities have different requirements for home designers. Denver requires an architect to create home designs. Pueblo West, where Dan builds the majority of his homes, only requires a designer. Dan found a great designer who focuses on the types of homes he wants to build—3 bedroom/2 bathroom 1366 or 1477 sq ft houses.
The designer’s plans are detailed enough that Dan’s project manager can use them to get bids from general contractors on materials and labor.
The buyers for these homes fall into two main demographics: first time home buyers and retirees coming from a more expensive market. Dan prefers to focus on building smaller, entry level homes as opposed to luxury homes because there’s less risk in simpler homes.
What Are the Timelines and Costs of Building a Home?
From shovel to closing, it generally takes 4-6 months for 3 bedroom/2 bathroom ranches. The pandemic and ensuing supply chain issues directly affected the cost and sales price of new builds. Before, the homes cost about $190K-195K to build and sold for $250K. Now, it costs about $270K to build a similar home, but the sales price has jumped to $395K.
One thing that helps offset the rising costs of supplies is that the land Dan buys isn’t expensive. Generally, he’s able to purchase lots for $.20-.50 on the dollar, creating an extra margin for safety.
What Type of Financing Do You Use to Buy Land?
Hard money usually works the best. Because he doesn’t have his own cash in it, 10-12% in loan costs still end up being pure profit. He’s been able to work out a deal with a local lender who allows him to treat the loans like a line of credit and he doesn’t get charged interest and fees until he draws money. The lender has confidence in Dan because he uses the same business model over and over again, giving him a good idea of what to expect.
What Do I Need to Know Before Getting Started?
Dan’s advice for anyone who wants to get into this space is to find someone who knows the market and learn from them. Every area is going to have its own nuances that are critical to understand. In Colorado, having enough water is a huge issue. In Florida, where Dan is focusing on next, flood insurance is necessary for every plot of land.
Connect with Dan
If you want to get in touch with Dan and learn more about his business, you can find him on social media.
Connect with Us
As prices increase and inventory remains low in the Springs, we’re keeping an eye on nearby markets, too. If you are interested in investing in Southern Colorado, reach out to me. I’m happy to explore your options in different markets and help you create an investing plan.