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If you ever thought about building your dream home or just building spec homes for an investment, then this video is for you. In this video, I'm going to break down the entire process of a new construction home step by step. These are the same steps that I personally use in all my new construction projects from raw land to cashing out on the sale. And I wish I knew this earlier as it would have saved me so much time, money, and peace of mind. So, make sure to take notes and let's get into it.
First up is buying the land. Now, the first thing you need to do is to make sure the land is even feasible for a new construction project. And here are the things you need to do to determine if it's a good piece of land for new construction. First is to review the deed restrictions. The deed restrictions will spell out what exactly can be built on the lot and certain requirements or restrictions such as a minimum lot size or a building setback line. These deed restrictions will guide your architect on creating a site plan to see what can be built and what can fit on this lot and its restriction. After that, you want to check on the trees on the property. Are there any large trees that could be in the way of where you want to put the home or the driveway? As in many areas and jurisdictions, large trees are protected and cannot be removed. The next thing you want to check is the utilities. Are the city water and sewer lines on the same side of the street as your lot or is it on the other side of the street? And that makes a difference because connecting to the water and sewer lines if it's on the other side of the street is a lot more expensive and costly as you have to dig through the entire street to connect it and then repave the street afterwards. If all this sounds confusing and you're not sure, all you have to do is call up a local architect, provide them the lot you're looking at, and ask them to draw up a rough site plan of what they think can fit on that lot.
Now, the next step is a market analysis. Once you found the land and figured out what you can build on it, it's time to see what the numbers will look like. So, the first thing you want to do is to see what similar new construction homes are selling for or renting for, depending on what your exit strategy is. Next, you want to talk to several local builders and get a price per square foot estimate on how much it will cost to build. But make sure when you're comparing quotes that you're comparing apples to apples. You see, some builders quote a price per square foot based on the total framed area. That includes the living area, the garages, any balconies, etc., while some builders quote on the livable area square foot, as that's how the houses are priced when they're sold. So, make sure when you're getting these bids to double check and clarify with the builder on what method they are calculating their price per square foot. The last thing you want to do is shop around for construction loans. Talk to different lenders, banks, and credit unions to determine what exactly are the terms for construction loan, such as the down payment, the interest rate, how long the loan duration is, and that all factors into your underwriting on whether it's a deal or not when you buy this piece of land.
Now, all you have to do is reverse engineer and find out what price you can pay for the land. So, you know how much the house will sell for, subtract out your building cost, your soft cost, and your financing cost, and then take out however much you want for profit, and that will give you the number you need to offer to buy the land. And if the seller won't budge, then just walk away. Because if the numbers didn't work before you bought the land, it's not all of a sudden magically going to work after you start building the property. Remember, you don't make your money on the sale, you make your money on the buy. So, you have to buy the land at the right price in order to make money.
So, once you actually purchase the land, it's time to move on to the next step, which is the soft cost or the plans and permitting. Now, the first thing you want to do is to get an existing condition survey. This is different than your typical boundary survey because it goes into more detail and shows every item on the lot, every structure, every large tree, any easements, setback lines, etc. This will be needed for your architect to determine a site plan of what you can build. After that, you want to get a soil report. That's when a geotechnical engineer will go out to your lot. Then they will dig for soil samples at certain locations around the lot and test that soil to determine the composition. This soil analysis will be summed up in a report and a recommendation for a type of foundation will be created and this is provided to your structural engineer so they know what type of foundation they can build on that soil on your lot.
Now, once you have a site plan set up, you can then replat or subdivide the land to build multiple houses if that's your goal. Or if you're just building one custom home, then you can ignore this step on subdivision. Once the replat is complete, if you need civil engineering plans, then this is the time you'll get the civil engineering plans for drainage and storm water retention. However, that's not required in all areas of the US. And it's all case by case. So, if you don't need civil engineering plans, you move on to the architectural and structural drawings. These will be your floor plans and elevations and kind of the design and layout of the home. And you'll work back and forth with your architect if you're creating custom plans to tweak it to the way you like it. Once you and your architect agree on a set of floor plans, the architect will then submit that to the city for approval for plans and permits. But before you submit it, this is the time to value engineer your build. You can simplify roof lines, reduce complexities, and lower your build cost, all in certain design changes and tweaks that you work through with your architect. For example, unless you really, really need or want to have a balcony in your home, skipping the balcony can save you thousands of dollars on the construction side.
So once you submit your plans to the city, they will probably charge you impact fees. This is the fee the city charges for you to connect to the city water and sewer lines so you can use the city utilities. Now normally this is a flat rate and here in the city of Houston where I build, they charge $1,750 to connect to the wastewater and $2,100 to connect to the city water supply. There will probably be some back and forth between the city and your architect on the final plans and some minor changes before it's approved. And once it's approved and stamped, you're going to pay the final permit fees. And a pro tip is you want someone to stay on top of the city because if not, they can take their time and it takes a long time for them to approve or get plans back and that can really delay a project. So you have someone constantly following up with the city and checking on the progress of the plans. That can really speed up and expedite the whole process.
Now, depending if you're building a personal custom home or spec homes for investment at this time, you'll also get your construction loan closed. If you're building a personal home, you probably have the construction loan already to buy the land, but if not, then you're probably getting the construction loan now to start the construction of the homes. You want to make sure you shop around to get the best terms and the best rates and make sure you close the construction loan prior to the vertical construction of the land being started.
Now, once you're permitted, all the soft costs are complete, and it's now time to move on to the vertical construction of the home. The first thing you want to do is to install a temporary power pole. Your electrician will need to do that and pull the permits, but that provides power for your contractors to plug in their tools and their equipment to be able to start working. You also want to put a porta potty out there for your contractors to use the restroom while they're working throughout the day. After that, if there's an existing structure or building on the site, you want to demolish that or remove any trees that will be in the way before you start your dirt work and grading for the lot. Once the lot is graded correctly, the foundation company will go out and set the forms, which are wooden boundaries of where they'll pour the foundation, and then you'll get a form survey to verify it's in the correct location before you start doing any work. Once you confirm that the foundation is in the correct location, you can start trenching the underground utilities. That's the water lines, the sewer lines, and the electrical undergrounds to the home. At the same time, you'll be working on the water and sewer taps to connect into the city utility.
Now, it's time to work on the foundation. It can be a slab on grade, pier and beam, or a full basement crawl space. And this all depends on where you live in the country. The foundation contractor will install the rebar and the piers, but before you pour the actual concrete, the structural engineer that designed the plans will come out and verify everything is correct to the plans as well as the city inspector. Once they both approve it, you can then pour the concrete for the foundation.
Once the foundation is done, it's now time for framing. The frame for the walls would go up, and then you'll put the trusses between the floors if you have multiple stories in your home. After that, the roof trusses and the roof decking will be installed. The framers will also install the exterior windows and doors before putting on the sheathing and house wrap. And then finally, the siding, cornice, and trim around the exterior. When you start framing, you should also put up a security fence and security camera as lumber will be your most expensive item in the build, and it's a prime target for thieves to try to steal. This is also when you walk the site and visualize any layouts with the plumbing or electrical before they start the rough-ins to avoid costly change orders down the road.
Once the framing is complete, your plumber will go in and do all the rough-ins. That's all the water supply lines, the drain lines, and your waste vent pipes. Once they do that, your roofer can come in and do the roof of the home after the plumber has made their penetrations for the waste pipes. After your plumber, your HVAC contractor will come in, install the furnace inside and all the ducts for all the rooms. And lastly will be the electrician who will come in and run all the wiring for all the light switches, ceiling fans, fixtures, outlets, etc. And the reason for that order is because first the plumbers need all the space to grade the lines properly for the drain lines and run their water lines. And after that, the HVAC ducts are very bulky and take up a lot of space, while electrical wires are very flexible and thin and can work around the plumbing and the HVAC ducts. Every one of these rough-ins will get inspected by the city and you have to have a licensed plumber, electrician, and HVAC contractor for these rough-ins.
After the mechanicals pass inspection and the house is dried in, it's time to install the insulation and then the sheetrock. For most homes, you'll probably use batts insulation in the walls and blow-in insulation in the attic. However, if you want to upgrade, you can do closed-cell foam insulation on the walls and attic as well. Once the insulation is in, it's time to hang the drywall. That's going to be float, tape, texture, all until it's paint ready. However, before you install your drywall, you want to run a punch list. In case you forgot to pre-wire a speaker system for a home theater, alarm system, doorbell, or thermostat, you want to do that now because once the drywall is up, moving wires or adding wires gets 10 times more expensive.
Once the drywall is complete, it's now time for doors, trim, and tile. And this is when your house will actually start to look like a home. First up, you want to install all the interior doors and trim. And that includes the door casings, the window casings, and the baseboards. While the door and trim guys are working, you can also have the tile guys start working on the tile for the bathrooms. That's the tile floor, tiling the shower. Once that is done, you can then install the cabinets for the kitchen and bathroom vanities, and then after that, install the countertops. While all this is going on, you can have someone on the exterior begin the painting process of painting the home. So hopefully by the time they finish painting the exterior, the doors, trim, cabinets, and tile guys will be finished on the interior and they can move right on into the inside and start painting.
Once the painting is complete, you can then install all your fixtures. That's your recess lights, your ceiling fans, any pendant lights, all your faucets, bathtubs, toilets, sinks, mirrors, door handles, cabinet pulls, AC vent grills, all of that gets installed in your finishes. Once all that is done, I like to install my flooring. I'd save my flooring for last because I want to avoid contractors damaging or dirtying the floors. Once the floors are in, I then install the appliances and then do the landscaping on the outside and the home is complete.
After everything is installed and you do a deep clean, the city will do a final inspection where once you pass, they'll issue a certificate of occupancy. And to pass this final inspection, you have to make sure all utilities are turned on. That's your electricity, water, and gas.
Now that you have the certificate of occupancy, it's time for your exit strategy. Now, if you're building a custom home to live in for yourself, well, congratulations. You're finished and you're ready to move in. However, if you're an investor and you're looking to exit, you have multiple options. You can one, sell the home and cash out, two, refinance the home into a long-term debt and rent it out, either a traditional rental or Airbnb, or three, if you built multiple spec homes, you can package them all together as a portfolio and sell that entire package to an investor. And that's the beauty of new construction. There's so many exit strategies and so many ways to make money on new construction properties. If you want more detailed breakdowns and actual real-life project example walkthroughs, make sure to check out these.