Landowner / Developer JV deal

[Christian Maddison]

Hello, I am about to enter into a landowner / developer JV deal and I want to be sure all bases (or as many as possible) are covered. I will not yet say if I am the landowner or developer because I want to see if the deal is fair (or at least reasonable) to both sides. The land is a half acre lot and is owned outright by the landowner.

The proposed deal (numbers are just for example sake):

• - half acre land value = $300K
• - developer will build 6 SFHs on the half acre (covering all expenses); build cost = $150K / house; total = $900K (6 houses) + $100K (soft costs) = $1M
• - developer charges $120K for services (to be included in build cost, not separate)
• - developer will get three of the houses to sell and keep 100% profits (minus land value); houses sell for $330K each = $990K - $450K (build cost of 3) - $300K (land value) - $50K (soft costs) = $190K net profit
• - landowner will get value of the land paid back and the other three houses (minus build cost); landowner to keep 2 free and clear for STR / LTR
• - landowner will sell one house to cover the building costs of the other two; $330K (sale of one house) - $150 (build cost) = $180 (profit to cover build cost of other 2 houses); $350K (build cost of other 2 houses + soft costs) - $180 K (sale profit) - $250K (land value from 5 of 6 houses) = $80K cash in pocket

Holes? Missed calculations? Either side winning much more than the other?

Thanks in advance!

[Chris Seveney]

@Christian Maddison

Typically what I have seen in these types of deals is the landowner will sell it for $x per lot and get an upside which is done through a 3rd party audit. So let’s say it was $100k per lot and the landowner would get x % of every dollar for every house sold for more than y.