Pre Development Buyer Commitments

[Emilio Ramirez]

Hello Kind People of BP!!

Have a group of people who are interested in building a residential community together. I would like to develop this project for them.  They seem to be very committed to the idea and need someone to figure it out for them.  What kind of commitments, if any, can I acquire from these people prior to building the properties?  Prior to owning any land?

Any thoughts on how to put this together? Thinking out loud... maybe have the homeowners form an HOA... fund it with the purpose of developing this project and hiring me to do it???? Thanks in advance... :)

[Brian Moore]

@Emilio Ramirez

It sounds like you have a (church?) group of potential homebuyers that are interested in living in a private development. If you are looking at this from the perspective of helping the group, I would find an experienced developer and/or an existing (possibly failed) development, introduce the two parties then get out of the way and let the group handle the particulars of what and where they actually want to live. The developer can "herd the cats" and walk them through the rest of the process based on their needs. This may or may not work out for the parties but it would certainly be a good faith effort to help them.

If on the other hand you are looking at this as an opportunity for you individually to make a profit, I would say that without a track record doing development and/or a good sum of money to invest you will not be of much value to the group. I don't know your experience level in all the responsibilities of developing property but I can tell you that architecture/engineering is a small fraction of the duties required to get this done (like 4-5% - BTW I was an architect in a former life). You will need to build a team that has the experience that you lack (commercial land broker, zoning attorney, entity attorney, real estate attorney, civil engineer, environmental engineer, surveyor, residential architect, general contractor, construction manager, etc). Even then it is unlikely (and even undesireable) that you will find a 3rd party team member to do the two most important steps: 1) "selling" the group on the plan (from conceptual plan to "closing" the deals with each individual purchaser) and 2) finding financing. If you are confident in your ability to come up with a workable/financeable plan that meets the group's goals for location, cost and aesthetics and the local political/planning goals then you might be able to bring this to fruition. 

A third option for you motivation is that you want valuable experience AND profit (at least compensation for your time) to help this group get what it wants, I think a JV with an experienced land developer may be the best course. First, from my read of the original post, you don't bring the necessary experience to the table to do this deal in a straightforward way so you will be feeling your way around in the dark and most likely this will result in failure. A JV will reduce the headaches of getting up the learning curve on all the many disciplines, give you some valuable experience and ideally some profit on the back end.

Regarding the question posed in the original post - I would try to get letters of intent from the members of this group stating that they intend to purchase W-sized house on X-sized lot for Y-amount in Z-general location. With these commitments you have something valuable that you can take to a developer to start the JV ball rolling.

Good luck and keep us posted. Now, back to my taxes...

Brian