Question from a reader:

Hi there, we’re interested in buying land in LA County, commissioning a prefab home (read built offsite to CBC building code and CFC fire code), and installing it on a foundation.

Our question: how profitable (and to what extent) has this been for others in Los Angeles County, assuming they put the home of for sale right after it was completed?

Thanks for the question. If you want to profitably buy land, and put a prefab home on it, and resell it for profit, then the key is of course, maximizing the delta between the cost of land plus the cost of construction, and the sale price. Fort this reason, you’re going to want to focus on high-end areas where there is a high price per square foot.

Based on a quick search on MLS listing sites like Zillow, many areas could work. Here’s one good example: https://www.openlistings.com/p/1-woods-dr-los-angeles-ca

It’s a lot for $160K in a part of Westwood where homes are selling for an average of $700 per square foot.

If you are going to put a 3,000 square foot home of the property, then the cost of prefab construction for a new high-end home, with permitting, site costs and construction should run you $350 per square foot or less, even with a complex (i.e. heavily sloped) lot.

If you use those numbers and assume $700 per square foot on sale, then here’s some basic math:

Sale price of developed land: $2.1mm

Cost of land: 160K

Cost of home $1.05mm

Broker fees: $105k

Profit = $700k+

The key variable on these types of developments is how easy it is to do permitting for the lot in the area. We don’t have good data on that and what areas this has been done most frequently in L.A. County, but the high cost per square foot throughout the county lead us to be bullish on your chances of success.