New Construction Investing Mistakes That Cost Investors Thousands

Richard Feis (00:00)
The biggest mistakes that I see investors making is on the lot, the actual lot. They’re not—they’re—they’re buying a lot without doing a feasibility study. So

the lot may not be, in some cases, may not be able, may not be buildable, may be very expensive to build on because of features of the lot or whatnot. And when we’re looking at lots, we deal with buildable area and there are all kinds of zoning factors that come into play that we need to evaluate to determine what we can build.

Dylan Silver (02:04)
Hey folks, welcome back to the show. Today we’re joined by Richard Feis, a Georgia-based investor and construction expert and the founder of BuildSmart, where he helps investors learn how to do new construction. Rich, thanks for joining us here today.

Richard Feis (02:19)
Yeah, hey Dylan, thanks for having me. Now—

Dylan Silver (02:21)
Now,

when we talk about new construction, there’s a lot of folks who may be coming from other segments of the real estate space, such as fix and flip, and we were talking about that in the green room. What are some of the most common mistakes that you see investors making when getting into new construction?

Richard Feis (02:39)
Yeah, so most of the investors I work with actually come from fix and flip, and it’s a great foundation for them to get into new construction because they understand a lot of the nuts and bolts of the transactions and—and—and buying and selling.

The biggest mistakes that I see investors making is on the lot, the actual lot. They’re not—they’re—they’re buying a lot without doing a feasibility study. So

the lot may not be, in some cases, may not be able, may not be buildable, may be very expensive to build on because of features of the lot or whatnot. And when we’re looking at lots, we deal with buildable area and there are all kinds of zoning factors that come into play that we need to evaluate to determine what we can build.

So typically an investor knows, “Hey, in this market, I need to build a four-bedroom house that’s about

2,600 square feet with a two-car garage.” So you kind of look at what that’s—that’s the sweet spot of the market. So you’re buying a lot. Well, the problem investors run into is that doesn’t fit on the lot. I had an investor recently who just bought—he bought a lot. I was working with him last month. He came to me, had already purchased the lot, came to work with me on doing this as a new construction house that he could sell. And—

I went and I looked at the lot. We went and looked at it. He didn’t have a survey. And—and so I—it was like, I had explained to him, “You’ve got to have a survey.” And he did not take my course. So he was coming to me where kind of mid—mid-planning. And he didn’t have a survey, so I introduced him to my survey company. We had them go out and pull a survey on it. And—

they also—what they also do when they do this survey is I asked them to do a feasibility, basically show me the box where we can build the home on the lot. How much room do we have to build? What—what are the zoning parameters we have? Well, lo and behold, when I went and looked at the lot, it just looked like a flat lot. I didn’t see any features on it. I didn’t walk into it because it was overgrown, but I looked at it from two sides. My survey company found out there was a creek running along the back side of it, which made the lot

not buildable because in Georgia we have 25, 50, and 75-foot setbacks off of creeks, different—different zoning criteria. One of them’s 25 feet, 50 feet, 75 feet. So because of the 75-foot state buffer off a creek, we couldn’t—you can’t build on the lot. It’s a totally unbuildable lot. We explored getting a variance for them, but they—the—we talked to the county about it and the county, their opinion was that

it was not going to get approved because it’s a real strict guidelines, real strict regulation. So—so that—that’s one of the biggest things is lot feasibility. That you can really eliminate that by having a checklist that I teach. And that’s one of the things I show investors, like, when there’s a whole feasibility component to this when you’re looking for lots. There’s a lot pre-con—there’s a lot of pre-construction planning that goes in that I think a lot of people don’t realize.

But yeah, that’s—that’s kind of the biggest mistake I see is the lot. Now—

Dylan Silver (06:40)
Let’s talk about

the pre-planning that goes in. When you’re looking at deals, you—you talk about needing a survey, right? Is there anything else that immediately comes to mind as things that fix and flip investors might miss in the planning portion of it?

Richard Feis (06:56)
Yeah, it’s probably the next, after you get through the lot, if you determine the lot’s buildable, we can build the type of house we want to build on it, it’ll fit. The lot doesn’t have any topography or any features that make it expensive. Like, in Georgia we have a lot of topography. So if—if the lot is sloping too much, it might require a very expensive foundation. So I would say let’s pass on a lot like that. Let’s go look for one that’s not as expensive to build on. Or you might find a lot that requires

a lot of infill, a lot of fill dirt to be brought in. And—and that’s—I have a situation like that right now where we built on this lot, but we had to bring in about 60 loads of dirt, which was expensive. Luckily, we’re able to absorb it because of the price point we’re in. But that’s something if we determine that the lot needs a lot of fill, we’re not going to do—we’re not going to do that lot. We’re going to move on to another one. But the next thing that comes up is the design of the house. And so

what we want to do is there are a lot of components of the house we have to address that are not very sexy. It’s not like, “Is this a great-looking kitchen? Is this an open great room? Do we have a great master suite?” But we’re going to look at things like venting, we’re going to look at mechanical, electrical, plumbing, and—and how does all that fit into the structure? And how does, like, vents.

We want to—we want to make sure, like, dryer vents, bath vents. We want bathrooms to be on exterior walls so it’s easy to vent them. We want the laundry room to be on an exterior wall. We want the kitchen cooktop to be on an exterior wall so the vent can go straight out. So these are things that make the house more efficient, cheaper to build. We also are looking at engineering, so the structural engineering of the house. And we don’t want a house that requires too many engineered beams, too many

what we call LVLs and different types of structural beams. So we want a house that—that has point loads and it’s—and it’s designed so that it’s a little cheaper to build. So we can build it with the more—the more affordable lumber rather than this real expensive lumber. So we look at components like that. So we want it to be efficient to build, but that’s—that’s the next thing we get do get into. I’ve—I’ve had people bring me plans to build that were just

it’s like, “This is silly.” It’s—it’s just—”This is too for the price point you’re in, you shouldn’t be building this type of house.” We need to—and—and actually, one of them that I did this year, we changed his plan. We went and changed it to make it make more sense.

Dylan Silver (09:19)
This is something that I think is probably new to a lot of people, right? Understanding what is going to be the—the cost to build this home versus if we have a different plan in place, right? How—how often is it a—a drastic change like that? Or—or is it sometimes not necessarily a—a—a outward change, but it could be something inside in the—the interior of the planning, which is not going to change the outside but might actually have a big impact on bottom line.

Richard Feis (10:23)
Yeah, no, I mean, it—and I wouldn’t call these big impacts. I—I mean, it—it—it spans. Some people—I’ve had somebody bring me very open floor plans, which—which are—are in some markets, they’re popular. Some—I have had some feedback from homeowners that they—they don’t like the big open floor plans. They want private spaces so that the kids can be in here,

you’ve got some guests over and you can be in this room and you’re not all on top of each other. So, but the open floor plans tend to require more of the engineered lumber to make the house work. But the other part of that, like, when we look at a plan, I had somebody bring me a plan and it had—it was very open floor plans, and there was a bathroom up in the middle of—of the upper level, and below it there were no walls. So the question is

how do you get the plumbing to drain down? And it had to go horizontally a long distance. And it was a little challenge because you have to have a certain slope on the plumbing lines and into an exterior wall, which is not ideal. And—so we—it really didn’t work right. I mean, and so we actually had to change it. We had to change the location of the bathroom to get it over a wall. So those are things you want—you want things to stack, and that’s where I—I—I call it MEP, mechanical electrical plumbing. We are basically

virtually building the house on paper. We want to make sure everything is going to fit in this house. What you don’t want to do is you don’t want the plumber to come out to the house and he starts running the plumbing in a framed house and says, “Hey, I got a problem. I—I don’t know where to run this.” And the worst thing that comes up is they say, “Well, we’re going to fur out a chase.” And I don’t know if you’ve ever seen this. Sometimes for HVAC in a basement, you’ll see these box chases furred down from the ceiling to run the ductwork and stuff like that. Well, that’s—that’s a

sign of poor planning. You really don’t want to have to fur those down. You’re going to pay money to fur those down, too, because they weren’t in the original plan. So we want to avoid stuff like that. We want to make it real efficient. But it—but in essence, you talked about estimating. Yeah, we’re going to build the house on paper. And I teach investors how to break down line item. We—we don’t talk cost—we talk cost per square foot in generalities when we’re doing a—a—a market comparison.

We will talk that, and—and I—I teach kind of what cost per square foot really means and how to use it in your initial market analysis. But when you’re actually doing, when you’re plugging a number into your pro forma, we want to plug in a lot—we want to take a cost to build spreadsheet that’s line item. We want to look at every—we want—what is the foundation cost? What is the plumber going to charge me? What is the electrician going to charge me? So we want to look at all of those components

broken down, and that’s what we’re plugging into a pro forma so we know a real cost of building. The great thing about new construction versus fix and flip is you can predict all these things. It’s all planned because it’s all new. So there are no surprises like you have in fix and flip. And—and the other benefit of new construction, I think I mentioned to you before, is that you—it’s a new house. It’s a brand new house. So if we built it this year, it’s a 2026 as opposed to a fix and flip,

which I’m doing some right now for some investors. House that was built in 1972. We gutted it down to the studs, we replaced all the plumbing, electrical, HVAC systems, new insulation, new drywall, all new finishes on the interior, new windows, new siding, new roofing, new gutters. Everything’s new that you can see on the exterior and interior, but it was still built in 1972. So it’s still an older house. It still has that stigma that comes with, “This house is over 50 years old.”

So that—one of the benefits of new construction is it’s a brand new house.

Dylan Silver (14:05)
Yeah, f—for—for sure. And—and when we talk about—w—the competition now, we were talking in the green room about there’s so many, especially in the Sun Belt, right? There’s all of these new subdivisions going up. So if you’re a flipper, traditionally you weren’t competing with new construction. Well, now you really are, especially with some of the—the entry-level price points of this new construction. Pivoting here though, Rich, when we talk about

new construction, of course, and fix and flip as well, but new construction in particular, managing contractors and managing timelines, without giving away all the gold, but maybe a nugget to our audience here. What are some base-level things that people can do to make sure that they’re not being taken advantage of?

Richard Feis (15:27)
Yeah, a hundred percent. Yeah, this is a—this is a big one.

I’m actually working. A lot of people get sent to me when investors, because I—I’m networked in—in my area here in Georgia, they get sent to me when, like, somebody has a problem. “I got this—I’ve got this problem with this house. Who do I talk to? I need a contractor.” And—and I—I a lot of times get these calls and I’m dealing with some of them right now. And a lot—a lot of times it’s they—they—their contractor took off with a deposit. Their contractor did work on the property that did not meet code.

They did work and they—they skipped inspections. So they just—and—and then the municipality, the county or the city found out, and they issued a stop work order on the house and then the contractor just disappears. And then, I mean, I have one right now where we literally had to remove, I’d say, 50% of the drywall from the house to be able to inspect the plumbing, electrical, HVAC, and insulation

so that we could get the city to pass it to—to keep the—to finish the house. So these are—those are some of the things that—that—that these—that these guys get into. So yeah, so it—it there’s all kinds of nightmares that come up out there, but I get a lot of calls from stuff like that. One of the big ones is giving deposits. I teach people how to manage contractors and how to stay in control of the project.

So you don’t want to put deposits out there. And there is a way to work with contractors and not give a deposit. And there’s a friendly way to do it. And there’s a—and I teach, not just how to structure that, but also how to structure communication with your contractor, how to set expectations with your contractor. And there are some guys you’ll bring this to, some contractors, and they’ll just stop you. You—you kind of when you’re interviewing them,

you go through these, “This is how I want to manage the project.” Some of them will just say, “Sorry, not for me.” But if—if somebody—then that’s obviously not the guy you want. And some of them want big deposits. And I would never—and I understand why contractors ask for deposits. I—I’ve—I’m—I’m in those shoes sometimes where it makes sense, but from an investor’s point of view, you—you are really the contractor’s partner. And what you’re doing is you’re putting yourself in a position—

Dylan Silver (17:26)
Demand—

Richard Feis (17:43)
Contractor says, “I need to buy materials.” Well, what I tell people is you buy the materials. Buy—you as the investor, get the contractor to give you a list. “Hey, I need this lumber.” Okay, I’m going to go to the lumber yard. I’m going to set up an account with the lumber company, or I’m going to just go pay for it with a credit card and I’ll have the lumber delivered to the site. And you don’t want the contractor to pick it up, either. You want to have it delivered to the site and you want verification it was delivered. So I teach a lot of ways to stay in control of the project.

know financially also. We get into the ways to stay in control of the project from a standpoint of getting third-party and engineers to come in and check, and there’s—there’s a whole checklist of when you want them to come in to ensure that your project’s being built right. There’s also a checklist for inspections, for what inspections need to happen and when, so you’re—you’re—and you’re monitoring that with your contractor. So

again, it—it’s—it’s a bunch of checklists, and there’s a lot to learn. That’s why my course that I give to investors is 12 weeks. It’s 12 sessions over 12 weeks, and there’s homework in between. And it’s because there’s a lot to learn. But at the end of the day, I simplify it. You end up with a—a binder full of checklists that—that—that you can refer to as you’re going through your project and as you’re working with your contractor. So to keep you from getting in trouble and

the most important thing: stay in control of the project, stay in control of the project schedule, and stay in control of the budget and the money on—so that you—you’ve got a good cycle time in getting the house done, getting it done on budget, and getting it done right, passing all the inspections and having all the engineering right.

Dylan Silver (19:23)
You mentioned third-party engineers coming in and really doing spot checks to make sure that things are where they should be at the point in the process where they’re at. For folks coming from that fix and flip background, there’s a lot of cowboys in that fix and flip space, right? And so you can kind of go through a fix and flip in many cases,

maybe missing some of those spot checks. And so when you go into new construction, quite literally you—you can’t because there’s more scrutiny, right? And not only can’t you do it because you don’t necessarily have the—the know-how and the skill set, but there’s also more eyes on it. Like the city could come in and sh—could shut your deal down because they’re aware of this, where sometimes you can just be in and out of a fix and flip before people even know. That’s not happening in the new construction space.

Richard Feis (20:08)
Yeah, yeah, you’re right. Yeah, it’s definitely

new construction is on the radar. I mean, you—you’re not going to build a new construction house in most cases without a permit. If you do, it’s—someone’s going to flag it down. So, yeah. And once you’re in the permit process on a new construction, there’s a real strict—there’s a—there’s a real strict critical path that you’ve got to follow for inspections. And you have to have them all. You’ve got to dot the I’s and cross the T’s on these inspections. And so I set that all up. I show people what are the inspections. Not all counties and cities

have the same series of inspections. But what I do is I provide a master list of all the possible inspections you could have. And then in—and then what you do is you ask the city, and I teach people how to ask this: go to the—the permitting department and say, “Which inspections from my list I’ve got right here do you guys require?” And they typically can—they sometimes have a list on their website or they can send you the list.

Most of them, the permitting is done online and you can log into whatever system they’re using and there’s a list of all those inspections that you can look at. And so—but it’s really important. You’ve got to make sure all those inspections pass. But in addition to the inspections, you can still—you can build a house and pass all the inspections and still have problems. This is—this comes in

in—in—in foundation, and whether you’re doing a slab foundation or a crawl space or a—a poured wall foundation with a basement. We look—the first thing I teep—tell people to look at, the most important thing before you build is to look down at the dirt. And you’re—you’re looking at the soil and you’re determining what—we—we want an engineer to come in and determine compaction when we’re about to do the foundation. And there’s a certain—there’s a couple of steps to this, but

that’s one of the most important things because you—you—you may know this, but a lot of houses settle. They have problems with settlement and cracked foundation because the house settled. There’s a lot of foundation companies out there who are making an absolute fortune because all these houses settle over time. A lot of it’s because of groundwater. So that’s—that’s another thing we do at the end of the project when we’re doing a final grade on the house. Want to make sure stormwater

flows away from the house because stormwater is one of the things that affects foundations and causes problems with foundations. So there’s all these checkpoints that we address that aren’t necessarily in—in the inspection schedule. We are

Dylan Silver (22:34)
Coming up on time here, Rich. Any new projects that you’re working on? And then also anything you’d like to mention directly to our audience.

Richard Feis (22:42)
Yeah, absolutely. So, I—I’m obviously a contractor. I’ve been doing this for 30 years, and I currently st—I mean, I’m doing remodels, I’m doing spec houses right now and custom homes. But most importantly for the audience, I work—I have a program for investors who are doing fix and flip, who want to get into new construction and want to learn how to do new construction and how to do it responsibly,

how to do it and—and to make money, because quite frankly on new construction, you should have a net profit of anywhere from $50,000 to $250,000. So if you can imagine, you do a couple of these a year, four of these a year, it’s a—it’s a pretty good—pretty good income. So I teach how to do that. I have a 12-week course. I have one starting in August. I think late August is when we’re going to start, but it runs 12 weeks, and I teach everything. I have it all broken down,

every aspect of new construction. You don’t—and—and again, you don’t have to be, like, as an investor, you don’t have to be licensed. In some states, as an investor, you can pull a building permit without a contractor and—and you can hire your own subs and build it yourself. And I give information on how to do that. But I also, more importantly, I teach these investors how to hire a contractor and how to do it to protect yourself and protect the project.

How to work with that contractor so that’s a successful project. So the course is very valuable, and—and like I said, it—it’s coming up. I have another one starting. I only do this once a year, but I have one that’s going to start in August. And I charge $1,997 for it. You can reach me by going to my website, buildsmartpro.com,

and you can email me at [email protected]. And it doesn’t matter what state you’re in. I—I show investors how to do this all over the country. And this—I—I don’t—I haven’t found anywhere it really doesn’t work. Anywhere anybody’s doing fix and flips is probably a feasible city, county, state for doing new construction.

Dylan Silver (24:41)
Rich, thank you so much for your time today. Thanks for joining us.

Richard Feis (24:44)
Enjoyed it. Thanks, Dylan.