We hired a custom builder to build our home 3 years ago.

We did the plans first, submitted them to the bank for an estimated appraisal. Established the construction loan that paid out as phases were complete - foundation, framing, electrical/plumbing, drywall, and complete. Once done, the appraiser walked through for the final appraisal. Our LTV was based on the final appraisal.

Easy process and our final appraisal came back a little higher than the drawing appraisal.

Your friend could easily pay $640k for the materials and labor and have an 800k value if the comps will justify it.

Depends on the area for both construction costs and comps.

In one town the comps for a 2000 sq ft house can be 250,000 the next town over can be twice that.

The actual cost to construction in both places is about the same.

quote:

Originally posted by sigmonkey:
Risky game when one does not have enough money to cover his bet.

The housing market can turn in the blink of an eye, and if that happens, your acquaintance will be in the same "flood" as all those new houses that cannot be built fast enough, turning into chests of gold on a sinking ship.

And at this point in the socio-political-economic field, I would think long and hard about going that route.

But it is easy (for me) to "spend" another person's time and money, when you have nothing in the game.

This right here. I've seen a few go broke in previous economic downturns. You never see it coming.