New Construction Concepts for Real Estate Agents and Investors

By
Mortgage and Lending with Olympus Labs

New construction real estate involves the purchase of undeveloped land with the intent to sell it to another investor as-is or with improvements. New builds present a number of options but are trickier than their post-construction counterparts. Investors love to swoop in and snap up promising land deals on an emerging urban fringe. As a real estate agent, your job is to lead them to promising land for sale. Typically, this will include lucrative improvements that would be valued by investors or present a blank slate for imaginative investors.

Learn the Lingo

It's important to learn the language of construction and a great place to begin is the Census glossary for new construction. You can also deep dive into topics that impact construction cost, such as equipment sales. Something as esoteric as excavators and replacement parts may seem a world away, but understanding the details of a project often makes the difference between making a profit or not.

Real Estate New Builds

Investors looking for the best margins want competitive pricing, and the first phase of development is the cheapest to acquire. Basically, the lower the cost, the higher the spreads. There's a lot of risk here since many lots sit for years, slowly increasing in value. Many real estate agents are willing to talk shop in online forums, which can be helpful to beginners.

Because it’s harder to perform a valuation on undeveloped land, it's important to do the legwork on market conditions that indicate a very motivated seller or land located on the edge of expanding urban areas--which is highly likely to increase in value as urban sprawl moves outward in the area.

Brush Up on Zoning and Get to Know Local Officials

New construction agents need to understand local zoning and land use regulations. The best way to suss out what your client would be getting into is to contact local officials regarding the municipality's plans for a respective area. In a perfect world, the vision of city officials aligns with likely buyers. Otherwise, your client will have to be a savvy negotiator to get the buy-in of officials who will determine whether a developer's plans are approved.

A raw land investment can be extremely lucrative and these investors are a breed apart. However, for a real estate agent, the concepts aren't all that different than other commercial or residential ventures. Finding new construction sites takes more skill and diligence, and deals may take months or years. However, the commissions for large tracts of land are also much higher.

Unlike a typical flip, raw land investing requires expert knowledge of area zoning laws, utility organizations, surveying, and construction and equipment concepts. Those who stick with this industry develop a true passion for it that appeals to investors, who also tend to be mavericks.

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David Jackson, MBA

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