All Forum Posts by: Bart Pair

Investors can be way more complicated, more costly, and take more time to procure than traditional bank financing.

Big government projects like airports can take years longer than anticipated.

It is not uncommon to see investors who think they have gotten in early and picked up a huge deal run out of money as the development they were counting on near their property takes way longer to happen then they thought.

The DRI process alone can take years and it only takes a small group of citizens or an environmental group to bog this down even longer.

I'd pursue option contracts with clear language to extend the option for many years in situations like this.

We are a civil engineering firm and we do this. It is generally charged out as lump sum fee, but can also be done hourly.

The comments above are right that most civil engineering firms are banking on getting the engineering for the project, but don't count on getting a reduced fee because of this fact.

We only cut due diligence fees for clients we have worked with before and that have proven to pay their bills on time (most other firms are the same in this regard.)

But you may not want a deal on the Due Diligence. That situation creates a bit of a conflict of interest.

Now, most engineers are honest and wouldn't knowingly sugar coat a Due Diligence report, but they also tend to be problem solvers at heart who think highly of their skills and love a challenge.

So, if I go into the due diligence phase with the mindset that I am doing the engineering portion of the project there is a chance I might have rose colored glasses on when I find potential problems during the due diligence and unconsciously underestimate their impact on the project's feasibility.

Many larger development companies have gone to hiring separate engineering firms just to conduct due diligence because of this concern. (In fact, we have clients that we only due diligence for and it is fine with us.)

Franklin,

I have to say everything I have read on this thread scares the hell out of me. You could be getting a very expensive lesson in development if you aren't careful. (Don't mean to be harsh, but my being blunt now could save you $100s of thousands of dollars).

Home builders, like the one you link to, generally do nothing more than build the house on a "Pad Ready" lot. They don't build the roads, run the utilities, do the subdivision permitting, handle the stormwater design, environmental issues, zoning, grading, or anything else that goes into building a residential subdvision.

There is a huge amount of expense involved with getting a site "pad ready" for a builders like these and unfortunately there are no "rules of thumb" that are going to let you quickly estimate what this is going to cost.

You have a lot of due diligence to do my friend before you go down this road.

For starters,

Is the land even zoned to build these single family homes on it? (And by the way, if it is zoned single family 1 unit per acre, odds are you won't be getting 15 single family lots on 15 acres - the roads, and stormwater requirements alone will eat into this significantly. Add recreational areas and other things that many local cities now require for subdivisions and you may only get 10 or 11 lots.)

How far away are utilities from the site? If you don't have adequate water, sewer and electric out in front of your site than you may have to spend a lot of money just to get it there.

What impact fees will your development have? Many cities and counties went crazy during the boom implementing huge impact fees for schools, treatment plants, roads, parks, etc. I have seen areas where this added an extra $5k - $15k to the cost of each lot.

Is the site even buildable? Are there wetlands on it? Does it have easements or other encumbrances that prohibit building on all or part of it?

I could go on and on, and I haven't even raised the question of who is actually going to buy/rent these single family homes once you build them.

Yes, I am trying to scare you a little Franklin - not because I don't think you should go into development, but because I want you to make sure you don't have any nasty surprises down the road when it is to late.

If you are going to wait a year, then the loan you get now will have to be paid off when you demo the property. (Unless as Rick is asking, the value of the land itself is worth more than the loan.)

But most likely, you will need to get a construction loan or some other type of financing to do the construction an rebuild.

Double check with your local agency about what permitting requirements you may need to meet when you demo the entire site.

It may not be anything for a simple duplex, but you could be causing yourself problems that a simply refurbishing and expanding the existing structure could avoid.

I know a lot of developers who are holding property longer right now - not cause they want to but because they have to.

In my experience, developing a piece of property gets harder every day.

Goverment agencies are constantly "Taking Land Value" from properties when they add little bits of requirements that need to be met for each new development.

Stormwater and wetlands are the biggy in my area right now. I am watching changes in requirements being pushed through that are causing properties to lose 10% of their buildable area. Area they could have built on 18 months ago is no longer buildable.

Holding land is riskier than most people realize. The value of what you own is not in your control.

Hey Jonathan,

don't give up so quickly.

If you really think there is a large demand for this project right now and you have a unique piece of land and a great opportunity, then think about bringing in a majority partner.

Get the land tied up cheaply and shop the project around to the best developers in the area. You will most likely have to give up the majority of your profits but in exchange you will get the experience you couldn't get anywhere else.

Bart

Dan,

if it is a new development in a high end neighborhood with an HOA and a recorded final plat of the property you should be in pretty good shape.

The recoreded plat should tell you if it is an actual buildable lot and what if any easements or conservation tracts may encroach on the property.

Wetlands and other environmental factors and archeaological concersn were probably already handled if the development is new.

The only real outlier might be if the lot is in a flood plain. That isn't a deal killer usually as for a single family lot you only need to bring in fill and do some extra paper work to raise the site.

However, the instance where this is a problem is when stormwater runoff from other properties flows across your site. Then you can't just bring in fill to raise the site because you would be blocking runoff and flooding others and you may have a real development issue.

If the development is not new - than the wetlands and environmental issues I mentioned above could come into play.

So here is the checklist.

1. Make sure plat shows buildable recorded lot with no significant encumbrances.
2. Make sure stormwater runoff from other properties doesn't flow across your site that could cause building problems.
3. Make sure the site is outside a flood zone.
4. Make sure there are no "new" wetlands or threatened species on your site that could prohibit development.

Oh one other thing - make sure the person your are lending the money to hasn't used this lot as collateral already. And if you do lend the money record the lien on the property immediately.

Bart

Cody,

I would suggest working with a brokerage that specializes in commercial property or vacant land.

Commercial deals often can be far more complex than residential so you will learn a lot more.

Corey has provided a sound answer.

The key thing to understand is that lthe ender is going to set the amount of money they will lend you based on what they appraise the completed value of your project to be and the Loan to Value ratio they are comfortable with based on that appraisal.

So you need to know what the appraised value of your completed project may be, figure out what the bank will lend you based on their current LTV, and then figure out if that is enough cash to

*Buy the Property
*Conduct all Due Diligence and Design
*Aquire Permitting
*Construct the Project
*Market the Project & Sell/Lease & Manage Depending

Oh yeah, and you want some cash left over for you when it is all said and done. :D