First, custom-built homes are often more energy-efficient and more disaster-resilient. Second, custom-built homes can be augmented with an ADU or granny flat to function as investment properties or as multigenerational housing. Third, homeowners are able to choose each and every feature of the layout, interior and exterior of their homes. This maximizes the function of the home while the owner lives in it. It also makes the home more versatile and more attractive to potential buyers when you sell your home. For example, custom-built homes are often equipped with smart home technology. This technology can be adapted as new innovations enter the market or industry standards change.
Lastly, working with a well-respected custom homebuilder can add credibility to the quality of your home, enticing and assuring future prospective buyers. In short, custom-built homes can cost a few extra hundred dollars per square foot than tract homes. Custom-built homes can cost as much as or more than $800 per square foot. This extra cost might not be worth it in areas of the country where property values are low. However, suchan expenditure makes sense in California where property values and demand are both high. For instance, the median cost per square foot for a home listed in Beverly Hills is currently $1,100 according to Realtor.com. In Palo Alto, the median cost per square foot is $1,600.00. In a hot real estate market like that of California, investing $500 or more per square foot in a custom-built home makes sense.
EIGHT WAYS TO BUILD A PROFITABLE INVESTMENT PROPERTY YOU CAN LIVE IN
#1 CHOOSE THE RIGHT LOT
First on our list of ways in which to maximize profit when selling your home is to choose the right lot before building. In the irarticle “How to Select a Building Lot” for Better Homes & Gardens, the editorial team notes elaborates. They write that “the site you choose will play a major role in determining how much you enjoy your new home." This also determines "how much it pays off as one of the biggest investments of your life.” Homeowners who wish to build a custom house must consider the desirability of each lot, local regulations andrelevant zoning restrictions. They must also consider the safety and security of each lot -- e.g. susceptibility to flooding, wildfires or erosion. We recently covered this in our posts “Hillside Homes: Costs and Considerations.” We also discussed these elements in “Steps to Buying Land in Los Angeles to Build a Home” and “Subdividing Land in California.” Safety, security, versatility, buildability and preserved value are five key elements that will attract future buyers.
KEYS TO CHOOSING THE RIGHT LOT FOR YOUR CUSTOM-BUILT HOME
ENSURING SAFETY AND SECURITY
Those planning to design and build a custom homes hould only purchase land in areas that are both safe and secure. While crime trends contribute to safety and security, so do air quality, soil quality, disaster risk and local build codes. Prospective homeowners should shop forland that can be easily built up without significant risk of damage or loss. To this end, homeowners should opt for lots that do not depend upon neighboring buildings for safety and security.
We noted in “Hillside Homes: Costs and Considerations" that homeowners who build near other homes could suffer due to no fault of their own. You might have hired “a practiced architect and builder to create a fully up-to-date build that closely follows or exceeds all safety recommendations.” However, your upstairs neighbors mightnot have done so. Similarly, just because you have exceeded recommendations by clearing your lot of debris that could pose a fire risk, your neighbors might not have. Considering the local regulations and building codes as well as inherent risk is important to choosing the right lot for your custom-built home.
PRESERVING FUTURE VALUE
Preserving future value by choosing the right plot of land is essential when designing a custom home. When shopping for land in California, future homeowners should choose a subdivision or neighborhood that will develop in ways that are advantageous. As such, homeowners should enlist the help of a local real estate agent. They should hire a realtor who canclearly read, understand and communicate local subdivision restrictions andallowances. For example, one would be ill-advised to purchase land in as ubdivision cleared for exhaustive future development -- whether commercial or residential -- that could hinder privacy or high-value views.
RISKS OF BUILDING IN THE WRONG SUBDIVISION
In “Steps to Buying Land in Los Angeles to Build a Home,” we explain the risks of building in the wrong subdivision. We note that “buyers should scopeout the zoning for their lot." In addition, "they should also consider how the surrounding neighborhood might change.” In their article “How to Select a Building Lot” for Better Homes & Gardens, the BHG editorial team elaborates. They note that “if there is undeveloped land near a building site, it's critical to find out what is planned for it.” This could be a concern because with a "lot on the outer edges of the subdivision... today's pastoral view can become tomorrow's strip mall.” Homeowners interested in selling their custom home for a hefty profit should consider how the value of their home might suffer from development.
PRIORITIZING VERSATILITY AND FUTURE BUILDING
Across the country -- but especially in California -- demand for multigenerational homes and for homes with rental units is skyrocketing. As such, those shopping for land in the Golden State should prioritize lots that allow for future builds. We noted in our recent post “Can I Build a Second House on My Property?” that “multi houselots are becoming more common.” They are also becoming more desirable,especially amongst a new generation of buyers. We explained that this is "due to the fact that Gen X and Millennial homeowners [want to help] their...parents age in place.”
It is also due to a growing desire for properties with passive income potential. California’s hot real estate market and affordable housing crisis has made homes with accessory dwelling units incredibly attractive to buyers. Homeowners who choose a lot that they can develop in this way could maximize profit when they decide to sell. Given this, those purchasing land in California should shop for lots that are zoned for such development. Such lots will up the eventual asking price and sale price buyers are willing to pay for your home.
#2 BUILD AN ADU OR RENTAL PROPERTY
Second on our list of how to maximize profit when selling your house is to invest in an ADU. ADUs -- shorthand for Accessory Dwelling Units -- have become more common across California since state and local governments loosened building restrictions. Not only do they providead equate, independent living space for elderly parents and young adult offspring, but they also provide rental income. Passive income from an ADU rental can make a house pay for itself by covering monthly mortgage payments in the short term. In the long term, an ADU could make money for the owner through a higher value sale. Most ADUs are larger than the average tiny home but smaller than a single family house -- between 600 and 1,200 square feet. They are usually comparable in size and function to studios -- around 550 squarefeet -- or one-bedroom apartments -- around 900 square feet. ADUs can be expensive to build. However, there are quite a few incentives in California --particularly if homeowners opt to add solar panels or other efficiency elements.
ADDING AN ADU IN CALIFORNIA IS ESPECIALLY PROFITABLE
Those who build a custom home with an ADU in high-value areas could make up the cost in a couple of years. For example, the average rent of a one-bedroom apartment in Palo Alto, California as of July 2021 was $2,750 according to Zumper.com. The average rent of a one-bedroom apartment in Beverly Hills was about $2,450 per month in the beginning of July 2021. Current owners in areas such as these would recoup build costs and cover their mortgage with passive income. In addition, future owners would be willing to pay a higher sales price for the property. In her article “Backyard landlord: What to know before building an ADU or granny flat” for The Los Angeles Times, Bonnie McCarthy elaborates. She quotes Ricardo Lopez, who recently built an ADU on his property. According to Lopez, “‘besides starting a business...there’s absolutelynothing you could do to your property that is going to generate income. '"The only thing that could is "'this type of rental.’”
#3 INVEST IN LUXURY ELEMENTS
Third in our guide of how to maximize profit when selling your house is to invest inluxury elements. According to real estate agents, today’s prospective buyersare willing to spend a lot of extra cash on turn-key homes with incredible built-in amenities. Those planning to build a custom home would do well toinvest in luxury elements that make their property more attractive to future buyers. In her article “Here Is What Luxury Real Estate Buyers Want In Their Homes” for Forbes, real estate writer Dima Williams elaborates. Williams writes that today’s luxury buyers “tend to favor newbuilds with open-concept floor plans." These homes "support contemporary interiors” and do not require repairs after a home inspection.
Ann DuBray of Coldwell Banker real estate tells Williams “‘buyers are into the finishes...something in the house that gives it a wow factor.’” Coldwell Banker’s Roger Pettingell told Williams that “‘[luxury home shoppers are] willing to pay up for brand new or newly renovated.'" According to Pettingell, "they will even give up a view if you have a new home requiring no work.’” Williams and real estate agents note that smart home technology attracts buyers. Wellness “amenities that emphasize holistic health as well as environmental stewardship” and “multifunctional spaces” will also contribute to a higher home sale price.
#4 CONSIDER ACCESSIBILITY
Fourth in our guide of how to maximize profit whenselling your house is to consider accessibility. Today’s seniors are committedto aging in place while their children are committed to caring for them as their parents age. Because of this trend towards multigenerational housing and aging at home, accessibility has become more important to home buyers. Building a custom home that is accessible to all ages and abilities expands the buyer pool for your property. This could result in a bidding war when selling your home, eventually producing a higher sales price. In her 2020 article “How about first-floor master bedrooms for everyone?” for The Washington Post, Michele Lerner explained.
Quoting VP of Sales and Marketing for Brookfield Residential Gregg Hughes, Lerner wrote that “demand for a first-floor master suite appears to be growing." In fact, demand for accessible floor plans is growing "among all demographics.” Writing for The Balance in her article “How to Buy a Home With Good Resale Value,” Elizabeth Weintraub elaborates. She identifies first floor master suites and other accessibility elements as “basic indicators of good resale value.” According to Weintraub, “most buyers prefer a one-story home or at least a home with a first-floor master bedroom.” Large, customized bathrooms, limited stairs or steps and easily navigated open floor plans can increase the number of interested buyers when selling a home.