Home builder Looking into Raw Land Development

[Patrick Rowe]

I've been in the home building business for about 6 years and know I'm interested in doing land development to sell lots to home builders. I had a engineer look at 56 acres of land and determine that I could get between 90-101 lots out of the 56 acres. I had a local real estate agent pull some comps in the area and she said that retail value of homes could sale for between $189-$199,000. The engineer also said that the cost to put 4600 lineal feet the street,curb and gutter would cost $2,070,000 ($450 lineal feet). This price doesn't include the utilities. Also the asking price for the land is $560,000. Also the property would not need to be rezone. Also base off the $189,000 homes sale price I would sale the lot for around $37,800 -$40,000. I would like to get some input from experience land developers on soft cost and also how would you approach this deal if you needed partners to do this deal.

[Jay Hinrichs]

@Patrick Rowe

  pretty tough these days to do ground up A and D and construction and make money selling homes at 189k... unless they are very very small homes.

I just platted a 27 lot development here in Oregon .. I got an A and D loan from my commercial bank ( first one they have done in 8 years so I was VERY proud that they gave it to me.)

the deal went like this.

Lots are 2 worth about 90 or so.. I could bulk sell to DR Horton or Lennar for 80k finish my 2300 sq ft two story will sell for 360k.

We paid:  700k for the dirt

WE paid:  45k per lot all in .. Soft cost ( 200k) and all utls roads etc. and these are 5k sq ft lots so not a lot of lineal feet.. we did though have 500 feet of off site storm. and a 200k on site storm system.

So 26k raw per lot 45k per lot so we are in them 61k and could bulk sell as mentioned for 80k to a public builder. not a huge profit.. since we had to put up almost 700k in cash to get this done.  There are FAR and FEW lenders that will do A and D today.. unless you are very well cashed up.. another words you need to show MAJOR liquidity.

Our build cost will be right at 80 a foot or 175k ish per house ... add in 65k per lot that's 240k add in another 30kk in sales holding tax  insurance both construction and liability. and you 270 to 290k all in sell at 360k and your at 60k to 70k net profit per house.. X 27 = 1,500,00 on a 700k Cash investment over 24 months or so.. Once we went hard on the dirt IE we closed it took 1 year to go vertical. one year to build out and sell all homes.

So 2 mil just for the roads and no utils you can double that cost so you will be in the lots like we are about 40k just for utls if you pay 500k for the dirt.. thats a negligible cost so your all in on finished lots at 45k each... which is probably about right.. So how do you make any money on this deal... this is like much land in areas that prices are sub 200k for finished product .. its really worth NOTHING>  no way there Is any money in this for you or a builder.

Unless your numbers are way off but I don't think they are that far off.. pipe is pipe asphalt is asphalt concrete is concrete...

I am doing a 24 lot one in Charleston SC right now and its running 35k a lot to develop because we don't have to do elaborate storm sewer .. and its all sand.