How do I find a profit in devlopment in current market. North Carolina

Question

i am looking to purchase 2.4 acres from develop 24-30 town home units. However the numbers don't seem to be in my favor.  The development would be phase two of a current 30 unit town home complex. The area is zoned and currently has sewer, water, and gas. The land is $160000. The 30 current units are all occupied with mostly home owners. Homes sold and selling between 100k-106k. It was plan to build and sell for similar price (quality and affordable housing). The construction cost at the low end($120 per sqft)alone seems to place the selling price at $144000. Not including land purchase, soft cost, etc. Is there any way to get numbers to match current area market? As stated in previous post I am a newbie. I am open and receptive to all information and constructive criticism. I'm hungry. When I eat everybody can get a plate.

J Scott · Answer

First, unless you have a good bit of experience and have done this before, I doubt you'd hit $60/sf if you had to put in utilities, separate meters, sidewalks and other common things you'll find with multi-family development.

That said, even if you do hit $60/sf, I don't see how the numbers work if the units are larger than 1200 sf (given you ARV projections).

Manolo D. · Answer

That price point, you need to get workers or subs that you could hire 180 days a year, if not, they will charge you more because you have less job. Like for me, I do not hire subs 80% of the time, I have an in-house crew to do everything, but we keep them working for 2-3 months then go on break for 2 weeks, that is my cycle. The more volume work you bring, the cheaper they are. Seems to me like you could not get that much volume. Everybody is saying you stay away from the deal, I suggest you take their advice. Those margins for me isn't even worth running the numbers. According to my mock numbers, I have a parameter set right now at 40% of market price = land + hard construction cost.

Terrance Merck · Answer

Thanks @chris Martin

Chris Martin · Answer

The assumptions: improved lots, taps paid, site plans already accepted, plots already defined, county fees already paid. Are any lots already pre-sold? Are you getting deeds to the 24-30 (what is it?) lots? What contracts are in place?

Sorry, I'm skeptical. Sounds like a builder ready to exit a development that isn't profitable. Unless you have a contractor's license (and experience doing this kind of development)  or have a contractor to do the development on board, this is an opportunity not worth pursuing.

Terrance Merck · Answer

@ keithb is this scenario possible or even close in winston salem area in todays market. Taking into account soft cost, land acquisition, etc.

(The townhomes I built for $60/ft were selling for less than $100/ft, they were selling at $91/ft.)

Jared S. · Answer

Oh I gotcha.  Yea, in Central FL, in certain areas, you can sell a lower end (no granite, no stainles steel, or other higher end finishes, etc) for the high 200k's.  where i am, in a nice area and on a decent lot, you can build a more basic home, 2000 sq ft home, and get high 200k's for it.  Even older homes built in the 70s can fetch over 200k where i am... and that may be 1600 sq ft.

Keith Bloemendaal · Answer

The townhomes I built for $60/ft were selling for less than $100/ft, they were selling at $91/ft. Market driven of course. Again, these were multi family, not single family. We also developed the land, but it was purchased in the higher end of the market, then we were building these in a lower end. They were also 1200' homes, not 2k sq ft homes. Also, when you build at $60-$70/ft you are putting the lowest grade finishes in, so in no way could you sell for $280k for a 2k ft home, at least not here. Most important here, I believe, is your market. Everyone will have different costs, sales prices, etc. BTW, I am from central Florida, what part are you in?

Jared S. · Answer

Keith B,

No money in building at $60 per sq ft.  If you're selling the homes for $120 per sq ft, how is there no money in it (is it that land, finance costs, impact fees, etc) are eating all the profit?

I'm not expert but I do wor in th ebuilding industry, and where I live, if i could build a home at $60 per sq ft, i could do well, even part-time building a few per yr.

Ex:  lot 50k, impact fees 10k, financing fees and all the soft costs say another 10k... so thats 70k.  build a 2000 sq ft house at 60/sq ft so that's another 120k.  So all in at about 180k.  that home can sell for 280k where i live.  that's 100k gross profit.

Terrance Merck · Answer

@keithBloemendaal thanks for the clarity.

Terrance Merck · Answer

I'm finding that anything above $80 per sqft is not worth the chase for this type of project in this area. ( $80 per sqft includes all other cost) The First phase of current town homes developed are selling and sold between 98k-110k. Does anyone no how to cut cost, maintain quality and make a profit or am I dreaming?

How do I find a profit in devlopment in current market. North Carolina

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