If you are prepared to bring 400k to the table to build a home worth half that, sure, buy the lot. Your surroundings control the appraisal value, no matter how much it costs to build the home. You will always be way upside down.

Investigate the political atmosphere of the state.

Is that the exact lot? If so I would be weary. Although they shouldn’t, it appears the neighbours are enjoying much of the lot and this could be tricky if you change it. Again it’s not theirs but something to be mindful of.

We bought a tear down home on an amazing lot we loved and built new. We are in Canada but faced no issues with our construction mortgage to proceed with the build on this type of site, in our city there are no new subdivisions for single family homes though. Every new build is infill

Maybe it’s my upbringing in wide-open Iowa and Missouri, but I’d never buy a 50’ wide lot to build a new home on. And in an established neighborhood? Nope.

Your home will be the most expensive in the area, which you never want.

There’s a reason why this lot is reasonably priced.

It’s definitely your upbringing and where you live. Not all areas are the same. 50 foot lots are considered large in many cities and in fill is the norm

@littlebug zone 5 Missouri I live in Philadelphia. My 858 sq ft 2 story house is on a 878 sq ft lot, So 50x100 is HUGE to me. Urban living makes tight sparces normal. Also, this lot is a few minutes walk from the ”Main St” area and about 2 miles from the beach. There are also several parks and rivers nearby. The new construction subdivisions are way on the outskirts and the houses don’t look much different from these. I imagine the finishes would be upgraded though.

@WestCoast Hopeful This lot is on the next street over. The one I’m looking at has a trampoline in it! This town does have quite a bit of new construction developments, but none in the downtown area. I’d be more than willing to buy an existing home if I found one that met what I wanted.

Do you know why there isn't new construction in the downtown area? The usual reason is that there no tracts of land available in a downtown area. There are often tracts available but very expensive because something is already there.

I have found no difference between construction loans in a newer area vs in fill. I always appraised at build + land cost which is not necessarily typical.

But trying to build in a LCOLA has to be hard to appraise well.

You have to know that land is cheap in SW MI for a reason - this isn't Philly. Small walkable town is nice but people generally aren't willing to live on a 50 ft wide lot. Not when 5 min away they can have 100 ft. No significant traffic and plenty of parking make living 5 min away no big deal.

The setbacks can make for a small buildable area - like maybe only 30 ft wide. This makes a 2 car garage the entire front of the house with a door off to the side as an afterthought. Sure you can have a 1 car garage but that isn't ideal. Not when 5 min away you can have 2 cars and some breathing room.

But none of this matters. Ask a bank in the area. Only locals will know what appraisals will look like. The fact that others are not doing it is a bit telling.

When it comes to construction financing, there are two separate, but related, questions: 1.) how much will a lender loan you based on your income and personal finances?, and 2.) how much will a lender loan you to build a particular home built on a particular building site? To determine the answer to question 2.) the lender will provide a set of plans and specs to an appraiser who will estimate the value of the completed home in the particular neighborhood. After the appraiser has estimated the home's value, the lender will multiply it by whatever loan-to-value ratio applies for a construction loan (typically 80% in our area.) Lenders and appraisers tend to be pretty conservative, so I'd expect their estimated value to be limited by the market values of homes on the same street. And, in my experience, that is consistent with homebuyers' behavior; they aren't willing to pay a lot more for new construction versus resale on the same street.

@David Cary Thanks for your posts. I looked at the new construction houses and only a few lots were bigger than the one I’m considering and a few were significantly smaller. Most were around the same square footage. The price of something I would consider was mid to upper 300k. But I did have to remember that the distance and travel time to get to places would be minimal compared to what I am used to in Philly. A 15 minute drive vs a 15 minute walk. I really would prefer to not have to drive everywhere though. If I do build on the lot, the style would be like the ones already there.

There aren’t many lots available in the downtown area and from what I could gather, the city holds most of what is available (vacant and teardown) for redevelopment purposes. I’ve scoped out the literature from their planning office that indicated vacant lots and which properties were owned by the city. Since it is a LCOLA area, they are sensitive to the residents being priced out.

@Charles Ross Homes Understood. I’m going to go ahead and purchase the lot and see what the conditions are when I’m ready to build or purchase. But I now know, as I suspected, that I should expect to sink a lot of money into the cost if I choose to build on the lot.