Land

[Derrick H.]

Hello BP

I am new to the wholesale and flipping game. I am about to get my real estate license (will be an investor friendly realtor in a week) but it was more or less to learn everything I can to be an affective investor and realtor. I have come across some land and I know how to determine the ARV and the formula for wholesaling properties. My question is how do you evaluate land. Do you go by the tax assessment that may not be fully accurate or do you compare it with other land like you do with comps? I've seen several ways but want to know the most efficient way to assess the value. Any help would be greatly appreciated.

[Robbie Reutzel]

Hi @Derrick H.,

It depends on what the end use will be. Assuming it's buildable, if you are selling to a developer who is going to do a new build you need to know what his building costs will be and then determine ARV by comping it out and then back out how much you can pay for the land.

For instance, say the $/sq. ft. is $100 and you've mostly seen 1500 sq. ft. 3 bed 2 bath houses selling for $300K in the area. Building a 1500 sq. ft. house would cost $150,000.00 If the developer wants 12%ROI based on ARV he will need $36K in profit, there's also some soft costs, let's call that 12% as well.

So, to figure out your maximum allowable offer (MAO) for the land you would back it out:

ARV-Construction costs-soft costs-required profit-wholesaler fee=MAO

$300,000-$150,000-$36,000-$36,000-$10,000=$68,000 is your MAO

Obviously there are a lot of variables here and they will be much different in your market than here in Boston but you get the idea.  Of course this all goes out the window if it's not buildable or the end use is not a new build.

Good luck with it!