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Were the lots ever listed? The bank is probably into it at 50% LTV as to the land and 50/60% to improvements. They may take 50 cents on the dollar, at 80 cents on the dollar I'd say it goes out the door!
The HOA, gosh I'd destroy that if possible, I dislike HOAs, but in some areas it is a plus. I'd give no dollar amount to it, as you know it's soft costs of legal and filing fees.
Adam, look to lending guidelines (again, it's about financing). General rule of thumb is 20%, a 100K home will be on a 20K lot. As prices increase the ratios will increase to 25% say at a 200+K home becomes allowable. What can't be built and financed is seldom built. At a 400K home you're looking at an 80 to 120K lot. Variances are allowed in pricing as common for the area.
Our litmus test is $60k/door net, net profits for a buildable lot per door. So if the lot supports a condo regime with 2 doors we need to make $120k. As others have mentioned there is a fixed cost with development as well in terms of city brain damage and other overhead. Thus the bar can go down for the net profit needed provided your investor base is willing to accept the absolute dollar versus ROE tradeoff. Larger deals will make more dollars, but they generally take longer and often present bigger financing challenges as well. This is especially true if you are developing infrastructure and are trying to do so with debt.
All lots won't be the same, if they were listed to lot numbers you'll be ahead in seeing the difference perceived in the market as to location. First few lots toward an entrance may be sold at cost, sometimes less to generate activity in the subdivision.
Full disclosure, I've never actually executed on a raw land development, but have crunched the numbers on a bunch of them and taken negotiations deep on a couple. A while back we worked with a guy who specialized in entitlement deals he'd buy raw land, then sell the permitted lots. He always said developers could buy permitted lots on the 1/3rd rule. 1/3rd land cost, 1/3 construction cost, 1/3 profit. This is definitely one of those "rules of thumb" that can be debated ad nauseam (see posts Nike Roshe Run Mens Gray And Orange
Then look to appraisal guidelines as to the treatment for excess land, the value diminishes as excess land increases for lending collateral value and as to market in residential uses. Most lots won't fall into this situation. :)
That's a horse of a different color! Still not enough info, streets, curbs, gutters in, utilities (underground?) poles up, power to sites, I suppose is all there if sewer is in.
To me the wildcard in your deal is the larger looming foreclosure. Is the neighborhood set up such that you could build your house or two and sell them before the rest of the lots are developed? Realize that the bank foreclosure/new developer process could take a while. If I were considering an investment in a deal like this, I'd want to see at least a 25 30% return based on very conservative numbers. If I'm ok there, then I'd get very conservative with my construction and carry cost assumptions, as well as my end value. If I can get thing to pencil out a 25% return, and I believe I have a good chance of doing better than that, I'd take a good hard look at it. No vertical construction, but HOA is formed, water and sewer in, etc. Basically, the bank is in the process of foreclosing the development and will plans to sell it in bulk. I have the opportunity to cherry pick an individual lot or two that has already been foreclosed in advance of that.
The formula for smaller deals is pretty simple really. You just need to be able to accurately forecast what building and development will cost and establish a net profit number. From there you can price your dirt and filter projects pretty easily. Development was originally slated for $800k homes, big lots with water views.
has to size the deal to their borrowing capacity or experience for it to be viable for a lender to take a portion of the capital stack to decrease the cost of capital sufficiently so the equity can work at the rate it needs to work.
list), holding 3 5 years while a new builder/developer comes in, cleans everything up and builds out the development, presumably raising the value of our lot with Roshe Womens Black And White the improvements, and then selling. I agree re 25 30% min required returns, it's quite speculative and concedely outside my wheelhouse but doesn't require a ton of capital and the risk looks to be relatively defined. Of course, the upside is also capped by what a builder can profitably pay, and I appreciate all of the wise commentary on that issue. The biggest concern I see on your scenario is the HOA.
I've seen subs with end lots, second phase at 100K with the entry lots sold first at 20K. The size and potential of the subdivision needs to be looked at long term, could take 20 years to fill 200 lots, I've seen 50 sell in 6 months, location, location, location. Best of luck. :)
When I broker deals like this, I ask the owner what number they would be willing to sell the lot for. I typically do not place a sale price when I list them. Instead, I present it to home builders and see what offers they come up with. If you do this a few times, a "ballpark" value will emerge. This is another way to do this without trying to figure out the buyer's profit margin.
The foreclosure of the majority of the development looks to wrap up by the end of Q1. Word is already out, as the bank has received a couple calls from out of state development groups interested in taking it over. It's a judicial foreclosure state so it's already been a multi year process. We don't plan to build ourselves at this point (although it's an option). Rather, we are looking at buying a prime, 2.6 acre lot at a steep discount (80%+ of original Roshes Nike For Girls
Risk can be hedged by doing things in stages, but this also increases the project duration. The capital has to work at a certain clip or the deal is infeasible. One also Nike Roshe Mens Finish Line
on the 50% rule and 1% or 2% rule), but if you're asking for generalities, there's one!
Exactly. If I were to build a single $400K house, I'd want a profit of at least $80K, due to the long process and inherent risk of building one off. But, give me 20 adjacent lots where I could build twenty $400K houses, and I'd probably be happy with a profit of $40K per lot. The development wouldn't take much longer than a single lot, risks aren't increased dramatically and I'd have economies of scale both on the financial side and the time commitment side.
how much do you pay for lots
Is this a single home site or something that can be developed into a community? There will likely be a large variance between the two because volume matters. You might be able to get some idea of that by getting involved with some home builders associations. NAHB should have a chapter near you and there is typically a regional group that is related to it.
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