No hover












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…you knock down the existing buildings

-when you buy the existing lot(s) you can usually get some kind of rent from whatever structures are there
-in many jurisdictions you will at the very least get a tax deduction on the losses
-if it all goes to hell you can at least sell the lots and get your money back
-after you’ve got all you permits, if you can’t raise the money to do the actual demolition and construction, at that point you can most likely sell the lots to another developer who doesn’t want to go through regulatory compliance. They will usually pay you a premium so you can get money that way.

You don’t really have your balls hanging out until you sign the contract with the builder and demolish the homes. If the builder goes bust it will bring construction to a sudden halt and you might be stuck paying out tens of thousands in interest a month on half-finished houses while insolvency processes are finalised

You will also have to have the collateral to make up the difference between the houses and the empty lots

Best ways to minimise these risks:
-don’t overleverage
-don’t go with the lowest bid, go with the most reliable builder with a good reputation
-if you have held onto the lots for a while hopefully the land will have appreciated so that it’s worth more than whatever you originally paid/borrowed to buy the lots with the houses on them

Better to do smaller projects with less leverage and less risk, than take on massive projects with massive leverage and then be screwed if construction gets held up.