Transcription
We're going to build a house in 2026 and we're going to get started right now. And this is the complete road map of exactly what you need to do step by step to successfully take a groundup build out of the ground even if you have zero experience and how to do it with almost with very little almost no money out of your own pocket.
Now, there is no such thing as no money, but I'm going to show you how to bridge the gap and get 100% replacement of any capital that you do put into the build. As we walk through this, understand that it takes strategic execution, but we're going to walk through this together. But you're going to have to execute based on these very simple executable steps, provided you pay attention. So, listen up, put your distractions aside, and let's build a house in 2026.
Now, the first thing you need to do is you need to understand that everything is based on comps. Okay? The banks are looking at comps and asset values. Okay? They're looking at asset values and that's all comp based. That's how you get money, guys. That's how you get money. Most people are used to talking about conforming lending. This is not conforming lending. This is not debt to income ratios and this is not credit scores. This is a real tangible asset. A house is a real tangible asset if you're building it for profit. Okay? Now, once you build the house and once someone lives in it, it's not an asset anymore. It's a liability. That's why they go back to conforming lending. Let the conforming lending be for those who you sell the house to. You're going to go in and you're going to execute based on investment lending.
Now, what you have to do is you have to go in and you have to make money where there's profitability. I know that it seems like it's easier and safer to build a smaller home, but it's not because the profitability is smaller. What you can do is you need to position yourself where either you collateralize the equity of the build and utilize the equity contribution. Okay, I want you to become familiar with that word equity contribution. Okay, that means that if you go out and you build an $800,000 home for sake of example, okay, you have, let's say, $200,000 in equity on that build because you're going to make $200,000 in net profitability. You're going to contribute that $200,000 of equity that you're creating in that build as the down payment. It's called the contribution of equity. That's how you actually pay for the land in your physical build is through the contribution of equity, not physical finances and money that comes out of your two front pockets.
Now, when we do that, guys, the reason that I don't do fix and flips and the reason that I don't go in and compete with Dr. Horn, PY, Lenar, KB Homes, Sentex, and all the big builders is because there's not enough profitability. When you take a compressed valued home of $400,000, and you take that $400,000 home, you can only squeeze so much profitability out of that house. So if you make $40,000, there's not enough equity in that $40,000 to contribute as the down payment on that build. So the biggest problem is it becomes a liability to the bank because the bank itself doesn't have enough equity to be able to hold that asset. So the reason that we don't go in and build smaller assets is because it costs me more money out of pocket to get lending on it than it does to build a larger asset that holds larger equity. because now I have that spread of equity contribution that I can apply to the physical build and down payment of that house.
Now, so when we go in, guys, we're looking at places that are between 600K to $1.5 million. Okay? And yes, everybody can qualify for that. Even if you're 20 years old, you have very little credit or no credit at all and very little money, you have to be able to apply the steps. Okay?
Now, so here's our business model, guys. This is the upper middle class, okay? And this contributes for 24% of the population that are buying homes. Okay? There's enough people in enough pool in that 24%. Now, what we're looking for is we're looking at two things and the banks are looking for the same thing. We're looking for days on market and we're also looking at price per square foot. Okay? Now, never build in an area where the price per square foot is less than 275. Okay? Now, I like where there's houses that are being built in excess of $300 a square foot and sold. If you're in the Bay Area, if you're in like Washington State, you're in Portland, Oregon, you're down in South Beach, Miami, and you're some of the more affluent areas, your houses, guys, your land's going to be more expensive, but your profitability is going to be higher because the resale price are $600, $800 a square foot or even more in some areas. But for the vast majority of 95% of the continental United States, 275 price per square foot or greater. If your comps don't support that, the bank you're going to have a hard time getting money from the banks. Days on market, anything from zero days to 90 days, I'm okay with. Okay. I want the lowest days on the market and the highest profitability. I'm willing to sever a little bit of profitability to reduce my days on market so long as I'm profitable. I want to be profitable, but I want to move real estate because I want to make money. Okay. Now, when you get over $300 a square foot, that's where the profitability is.
So, let's go in. Let's say that we have an $800,000 house. Okay. Now, we're going to go in and everything is based on comps and assets. So, if you're new in 2025 moving into 2026, and you really want to move the needle, you have to get comps. Now, when we go in, guys, one of the biggest things is positioning yourself where you know beforehand what your comps are and what you need to build. So, we don't go in and reinvent the wheel. So, if you're brand new and you're starting, don't reinvent the wheel. There's a lot of wheels turning where people go, "Okay, what do I build? How do I build it? What do I get? How when am I going to build? What is exactly the type of house I'm going to build?" You build exactly what's already been built. If there's a proving concept that's already set in place, why reinvent the wheel? You just go into an area that supports profitability, that supports resale values, just like this. And once you go into those areas that support profitability, what you do, you figure out what is being built that supports that profitability. So if what's being built there, let's say for sake of example, is a 2600 ft houses is the average, you're going to build a 2600T house on average. 2580, 2600, 2650. You're going to build a 2600T house. That's the abbreviation for square foot.
Now, if we know that our houses are selling for in excess of 300, let's say that our house is selling for $310 a square foot. So, now we go in, we get comps, $310 per square foot. We take $310. $310* 2600. That's going to be an $86,000 resale value for the house. We know that it's going to sell for $86,000. Okay? because it's compb based. The banks are going to do the exact same thing. So, if you do what the banks are going to do in advance, you can know that you have what you need for the banks before the banks ask for it because the underwriting is the single most important aspect of the entire build. So, you want to position yourself to get exactly what the banks are going to be looking for. That's the money play right there, ladies and gentlemen. That's the money play.
So now once we do that, we go in and we say, "Okay, how does this function?" Now listen up. If you are between $600 and a million dollars, you cannot afford to pay more than 15 to 20% of the overall resale value of the house for the land. Okay? You cannot pay more than 15 to 20% of the resale value. This 806, you take 15 to 20%, that's the maximum amount you can pay for the land. So let's say we pay all of the money for the land. You take an $86,000 value times 20% that's $161,000. So the land cost cannot exceed 161k. That is my max land proceeds that I can pay for the actual land itself. Okay? Now we go in if you're paying $1.5 million or more for the house, you can pay up to 25% for the land. But that's the only case is if you're building more of a luxury home in that $ 1.5 million mark. Otherwise, 15 to 20% max. Doesn't matter if the land's listed for $180,000. You can't pay more than 161. You got to find the lot to negotiate down to that 161 maximum price. So, you cannot pay more than 20% for the overall land value.
Now, according to the National Association of Homebuilders, the average cost to build nationwide is 141 a square foot. We've built for less than that and we've built for a lot more than that. The majority of our builds nationwide in Phoenix, New Mexico, in Washington State are anywhere between 150 and 180 a square foot to build. Now in Washington State, we're about 185. You go into Arizona, you go into like Desert Hot Springs, California, you come to New Mexico, you go to Texas, our cost per square foot to build a really nice home, a custom home is about $155 a square foot.
Now, for a lot of people that are watching, you don't have any experience. So, you're going to have to hire a general contractor. It's called the process of 30. And through that process of 30 is where you find your contractors. It's through a mixture of referrals from the real estate agents, other builders that are already building in that area, and just going into Google and finding residential home contractors that fit the spec building business model that we're doing. There's a lot of different contractors out there and if you go out and you try to get prices before you get a set of prints, you will be highly disappointed and you will be highly discouraged on building. And the reason why is because if you don't have a set of prints and a builder doesn't know, think about it this way. If you sit back and you ask a builder, hey, how much does it cost for you to build a house for me? He's going to say, well, what kind of house? How what type of house you going to build? What am I covering? Am I covering the trimouts? Are you covering the trimouts? Like, who's paying for what? and just to cover their back. They're going to sit back and tell you $300 a square foot, $200 a square foot, $250 a square foot, and you sit back and go, "Drome, your business model doesn't work. These contractors are charging too much." If you're trying to get a contractor and you don't have a set of prints, you should have no business getting a contractor, nor do you have any business going to the bank.
Most of you guys are going to sit back trying to go back and guarantee yourselves a loan before you even have a piece of land. And you're going to go in and ask a lender, a bank, hey, can I get a construction loan? I don't have experience. Well, do you have land? No. Do you have a set of prints? No. Do you know what you're building? No. Do you know what their answer is going to be? No. You can't get money if you don't have a set of prints. Don't even get to the bank. That's like step number eight. The first thing you have to do is you have to go through the process of entitlement. And as you go through the process of entitlement, now you have a tangible asset because now you have a set of blueprints that your contractors can look at. Now you start interviewing contractors. then that's a whole different phase, guys. The contractor side of things is easy provided you get a set of prints because now you have a tangible asset that you can use and they can bid from. Now, it's time to go to the bank. But you got to have this first.
So, what's involved in this, right? What's involved in this? Let's come back to this in a minute and we'll look at our profitability. Now, let's go in and let's look at what we're building. Okay, how do we know what we're building? We're going to get comps. The comps are going to tell us this is 2600 square f feet. We know that we can build this for 155 a square foot. You hire a contractor, you're going to be closer to about 165, maybe even as close as 170 a square foot. So if we take as high as 170 a square foot for a 2600T house, we take 2600 times, okay, we take times, we take that, that's our resale cost, $170 a square foot. Our cost to build is going to be 170 times 2600. That's going to be $442,000. Okay, that's our cost to build. Okay, now we know that. Now, we also know that we need 6% to be able to sell it. So, if we take 6% of this, we're going to take 806* 06. That's going to be $48,000. Okay? That's your closing cost to close on this piece of real estate. Okay? And you're going to need a loan. The loan is going to cost you someplace in the neighborhood of about $25,000. So, if it cost you $25,000 in lending, we're going to do what's called a reduction of proceeds to pay for our lending fees. Okay? Now, I'm going to show you that in just one second. Now, that's going to be our lending fees. Now, if we go in, we take 161 + 442 + 48 + 25, that's 675, we're going to subtract that from 806 minus 806. That's $131,000. Okay? Now, you're going to make less hiring a contractor, guys. Initially, you'll make closer to about $200,000. The contractor is going to cost you about $50,000. That'll put you up at about $180,000 in profitability once you start doing owner builds or doing this on your own as a contractor in the near future. Also, we're building a higher price per square foot. You could build these at 155 a square foot. That's going to also add about another $40,000 to your bottom line of profitability. So that'll put you over the $200,000 net profitability as you get experience. But as you build and you earn while you learn, a $131,000 profit, being conservative is not a bad profitability. I think you'll be closer to about 150, but let's do it conservatively.
Now, you have to go in and you have to get lending. Okay? So, we go in and get lending. You're going to need to have a spreadsheet to give to the bank. Now, we're going to have to go through what's called the process of entitlements. The second you do your comps, you know what you're going to build. You're going to go out. You're going to retain a survey. One, a survey from your seller on your land. They're free. You don't have a survey, get an app called Landlide. Landglide is $99 a year. Buy the app. And when you buy the app, it has a topography setting in there. You can literally go into the app, get your dimensions, you can measure out your dimensions, do your own survey work yourself for free with your $99 a year app, and then you could check the topography, take a screenshot of that, and send that to your architect immediately. Okay, so number two, you're going to need an architect or draftsman. If you can go do use a draftsman, it's typically half the price to use a draftsman than it is to do use an architect. Now, to get a topo survey, certified one for permits and a boundary survey, you're going to spend someplace in the neighborhood of about $1,500. Okay? Now, these costs right here, guys, are going to come from credit cards, and they're going to come from lines of credit. If you do not have the capital to be able to do the entitlements, you're going to have to get private money or we're going to build business lines of credit to do it. That's going to be an entirely different training. But I'm going to tell you guys that right now, guys, when you go into college, you're going to get a $2,000 credit card with no credit, no job, no nothing. When you go and you start a business and you go to Bank of America, you go to Chase or City Bank, they're wanting to give you a credit card from the big lenders. And the reason why is because those big banks want to lend you money. They want you in debt. So to go in and get as a new business owner to get a $10,000 credit card is not hard to do. Okay? It's very easy. If you have bad credit, we got to fix your credit. That seems to be our step one. If you have a 650 credit score or above, we're game. We go in, we start doing this, we can get you credit. If you don't, make sure that if you don't have the resources and you don't know where to start, DM me and I will put you in contact with my affiliates to help you bridge over the gap to be able to afford the entitlement cost because this is going to be your real out-ofpocket cost that you're going to contribute as part of your equity into your build. And it's going to be your only cost out of pocket.
Now, when you go in, guys, you're going to have that $1,500. Your architect is going to cost you either $1 or $2 a square foot. So, if you're building a 2,600T home, let's say that you're paying $2 a square foot, you're going to be right around $5,200 for your prints. That's on the high end. Okay. Now, if we go in, we're going to need engineers. We're going to need a civil engineer for a grading and drainage plan, and we're going to need a structural engineer. The structural engineer, all of his work is going to be done by your draftsman. CAD is going to do all the structural engineering on your shear walls, your seismic, your loads. All they're going to do is review it, stamp it, sign it, confirm it, and then send it back to you. You're going to spend no more than $1,000, guys. I usually spend $600 to $800 on a structural engineer. Do not spend more than that on a structural engineer. If you get prices back for more than that, shop your structural engineers and work with your architect. They do have leads and qualified professionals to help you. Okay? So, we have 1K there. And then your civil engineer will cost you about $3,000 to get a grading and drainage plan. Now you can go for permits. So now we have three, four, we have five, six, seven, eight. So 9 9 10 $10,700. Let's call it $11,000 out of pocket. This is where our line of credit becomes important because this right here is going to give us money, guys.
Now we have a set of prints. Now we can go to the bank. Now it's time to go start talking to lenders. And now it's time to put your budget spreadsheet together. The lender is going to give you a spreadsheet that looks similar to this. It's probably going to be more simplified than this. Don't be intimidated by the spreadsheet. If you want my spreadsheet, DM me. Now, when we go in, guys, my spreadsheet's more in depth than the banks. And the reason why is because I want to make sure my buckets are filled and I have no moving pieces that I miss. The bank is going to package some of these line items together and it's going to be a lot more condensed spreadsheet. Now, when we go in, guys, we're going to go in and fill in this spreadsheet, and we're going to send this package out to general contractors. The general contractor is going to send this out to bid from his subcontractors. I myself am also going to send this out to bid as well because I want to get the best price per square foot. Now, I have a tangible asset that can get bid by a general contractor and subcontractors. Now, I'm going to plug and play. I'm going to execute and I'm going to go in and I'm going to fill out my spreadsheet with my bids that come back in. I'm going to get three trade bids for every trade. What I'm looking for is three qualified bids with the best price and the best qualified professional. And then I'm going to go in and I'm not going to be satisfied with this and I'm going to negotiate until I hit that $150 a square foot range. I will not budge until I hit that $150 per square foot range. Once I get to that 150 155 a square foot, it's game on.
Now, that's my execution numbers. I'm gonna go back over here and if you look at this guys, I need to pay for the land and I need to pay for the build. That's going to be a total of the $442 plus the 161. Now that's $63,000 that I'm going to need to build this house. Okay, the bank's looking at this 806 right here. Okay, they're looking at that 806. So the value is 806 106k. Okay, now I need 603. This is my execution number here. Okay, I need $63,000. This is execution. This is my spreadsheet. This does not go to the bank. The banks is separate. The banks, we're going to underwrite it $800,000, guys. 800K. Why? Because we're doing it retail. The banks don't expect you to work for free, and they understand that people aren't walking in equity with equity in their bills. How you take your profits is up to you. You could put a management fee in here. You could put a development fee in here. You can increase your workload by 15 to 20% on every trade item from the land. Your entitlement fees for 11K is going to go in here as well because we're going to replace that on our first draw. We're going to get the bank on our first draw to pay for the land and give us a reimbursement for all of our out-of- pocket costs so we can pay off our credit cards and we can go out and start build number two. Okay.
Now, what we're going to go in is we're going to put the dirt work, the framing, the foundation, the lumber, the roofing, the plumbing, mechanical, electrical, cabinets, flooring, all the the items all the way down. I will not start that build until my spreadsheet confirms that I can build it for that price. I want to know I'm going to make profit. I want to know I have the qualified contractors to do it at that price. Now, we're going to go in and take these numbers. We're going to inflate them by 15 to 20%. We're going to underwrite it for the bank at $800,000. You can't go over that number because if you do, it becomes a liability to the bank. You have to know what the comps are in advance.
Now, if we take $800,000, the banks are willing to give us about 85% loan to cost or loan to value. Let's call it 80% to be conservative. We take $86,000 times 0.20. The bank is willing to give us So, we take $800,000 times 0.8 for 80%. The bank's willing to give us $640,000 in proceeds. Okay? Now, remember what I told you. The bank is going to do a reduction of proceeds to take care of the lending itself. So, that's $25,000. So, the bank's going to go in and we know that the bank's going to take a reduction of proceeds of $25,000. That gives us $615,000 to execute with. How much money do we need? We need 603. The rest of it is contingency money, guys. So, when you go in now, we know we have $615,000. We now have our spreadsheet. We know that we can execute, pay for the land, get a reimbursement for all of our entitlements, and we can still go in and build a house, and successfully do it with what's called a contribution of equity.
Now, you got to go back to step number one and get your comps, find your area. Do not look for land. Look for an area that supports the financial viability of your business model. Then you look for land in that area. Ladies and gentlemen, let's buy some land. Let's build some houses in 2026. You want to be able to move the needle. We're not putting spaceships on Mars. We're not doing selling NFTts. We're not selling pet rocks. It's sticks and bricks. We're building houses and we're going ground up. And we're doing it in 2026. You drive around, there's houses going up everywhere. The question is, how do you position yourself to get involved, participate, and take down profits in single family builds? You buy land, you build houses, and you follow this process. You go out there and you compound your success, your future, and your family depend on it.
Ladies and gentlemen, for more content just like this to learn how to profit from real estate and groundup development, click and subscribe to my YouTube channel. Pound that thumbs up button and don't forget to leave a comment down below. Thank you.