In the Bay Area, the majority cost is the land. In San Jose, it is probably 50%/50% land/house. In peninsula cities, it can be up to 80%/20% land/house.
If you are not in metropolitan area, then you can say majority of the cost is the house.
For someone who has never done this, I doubt you will come out ahead. If you are knowledgeable in construction, oversee the details yourself, and have good relationship with contractors, then you can come out ahead.
Although it is unlikely, but it’s very possible that the OP has a lot of cash on hand, but just lacking the things jk88cal mentioned, so I wouldn’t rule out the possibility that it might be a feasible route for the OP.
Besides quitting your day job and go into RE full time, is it possible to obtain 1. and 3. ?
Are there online resources like MOOC for IT professionals but for home construction? (how to lead the project, design/architect, various topics in remodeling etc)
If one doesn’t already have good relationship with contractors because of no prior business, what’s the best way to find reliable / fair priced contractors?
First OP’s statement “It looks like it is cheaper than just buying house already built”. If he has cash rich, he/she will directly bid (inexperienced in building) and get home.
Four of my friends started extension, found contractor, applied permits…blah…blah…blah…etc.
First one completed 3000 sqft remake (keeping some portion), went through architect,approval and a contractor bidding, finally completed with 2 months extension(original 12-15 months) , cost over run $50k from $400k
Another completed 85% after 10 months (original estimate 6 months), 50% price increase from $200k to $350k for 800 sqft addition.
Third one, still under approval process after 15 months, neighbor’s objected some windows overlooking their swimming pool etc.
Fourth one, never completed, but spent 10k, went over litigation and finally got his money back with 10k loss. The contractor about to bankrupt due to his court case. My friend somehow grabbed whatever he can from the contractor.
Building or extension is a kind of full time job with huge factor of safety in terms of money, be ready to spend 30% to 50%. If you estimate properly with high cushion, you may end up 20%.
Key is good architect, good contractor, your time, and sufficient money.
I agree with most of you saying it is huge undertaking. You need to build up experience slowly like small remodelling project to big remodelling. Then you would know what you are getting into with extension or build up. This is not talking about some of the risks that Jil mentioned above. There is also financial aspect that getting a construction loan and acquiring land (or with tear down unit). If you have hordes of cash, that will help there but most of us want to leverage.
For 1 & 3, I say time is your best friend. I got 3 due to relationship built over the years, for #1, spend time to talk to people or learn from other resources. I haven’t seen MOOC for home construction, but here is some ebook that can help with the knowledge. It might not apply directly to new contruction in BA, but it is more of general topic.
It’s hard. A great outcome requires a lot of things to go right and there are literally 100 ways you can get screwed. A poor outcome can be the result of just a single issue.
I’d say cost savings is not a great reason to pursue this option. You probably aren’t accounting for the full cost when making your calculations. The reason you go the custom home route is that you want a custom home and that’s the only way you will feel satisfied.
A significant component of return for developers is going to be speed. It drives their IRR. I heard this from someone else and it bears repeating – you can only choose two of the three.