All Forum Posts by: Ben Glaser

I recently came across a property that was pre-platted. I thought I could do an easy flip to a builder, but it got overly complicated and I ended up backing out. Mostly due to issues with the land itself and the high development costs.

But it got me thinking that there is opportunity in undeveloped land. Builders need land, many of the large home builders near me would rather buy lots than large parcels of undeveloped land.

I've identified 3 great spots. I've done some preliminary research. Based on some other developments I know what builders are paying for raw land, lots, and how many lots they are getting on average per acre. I've also talked to a few of the excavation companies and have a rough idea of what the sitework would cost.

NOW - I reached out to 2 of the owners. Both are somewhat interested, but not motivated. I'm sure I can get one of them to accept a contract from me for the right price.

But there are a lot of unknowns, since I've never done this.

1) What is the time line for a project like this?
2) How do developers ride out these costs over a long development period?
3) Should I try to partner with an excavation company?
4) Do banks ever take a carried interest in a project like this?

I'm sure there are 101 other questions I could ask, but I don't even know where to start. I need to be able to figure out all the details before I end up asking for investors etc.

Quote from @Eric James:

Quote from @Han T.:

Not sure how the numbers on your end work. But here's an arbitary example:

Buy land: 400k

After permit/zoning/drawings/etc done: land value = 1m (cost of permit/zoning/etc only 200k)

Build Phase 1 (50 units), costs 5M, entire project appraise for 7M.

Build Phase 2 (50 units), costs 5M, project appraise & eventually sells for 15M.

At each stage, the value of the land./project increase more than the costs put in and that's how Developers, just like the BRRRR deals, add value and make money.

What makes the second 50 units worth twice as much as the first 50 units?

@Eric James I think he's saying the entire project. 50 units 7M, second phase 50 units also 7M, equating to $15M total.

Quote from @Han T.:

Not sure how the numbers on your end work. But here's an arbitary example:

Buy land: 400k

After permit/zoning/drawings/etc done: land value = 1m (cost of permit/zoning/etc only 200k)

Build Phase 1 (50 units), costs 5M, entire project appraise for 7M.

Build Phase 2 (50 units), costs 5M, project appraise & eventually sells for 15M.

At each stage, the value of the land./project increase more than the costs put in and that's how Developers, just like the BRRRR deals, add value and make money.

 What's your cost per sqft? I'm in the midwest, metro area. 

How are developers making money?

From estimates I've received there is zero money in any project I can find. Industrial, multifamily, and residential. 

Do I need to GC the project myself? Is there something I'm overlooking?

All the larger projects in my area, contract top tier contractors/builders for multifamily or commercial/industrial which can't be cheap. I don't know how they possibly make money. When I read the business journal, many of these projects sell within months or years of completion. They sometimes share the cost to build and it might be $40M to build and $42M sold. It doesn't make sense to take that big of a risk for that little of a return even though the actual return on investment is higher considering you're only putting a fraction of that in due to leveraged debt.

What am I missing? What do I need to learn about making these deals work?

Quote from @Spencer Cuvelier:

Congratulations - sounds like you're off to a great start! 

Has your partner done an investment like this before? If so, I would lean into him & see how he decides whether he's making a good/sound investment decision or not. 

I would start by conducting some sort of market research: look into the area and find out what makes it good. See if there's competition in the area, what supply & demand looks like, vacancy rates in the submarket, trends, and potential growth. 

Request a pro forma statement from the developer. This will show projected income/expenses, expected ROI, and cash flow projections. Review the numbers and don't hesitate to ask questions - pay attention to contingencies, development fees, other costs associated with the process.

Understand the legal/regulatory framework - be sure to understand the requirements involved with the dev process, see if the project requires any special permits, zoning changes, or environmental clearances. 

Check the development plans - ask questions about the design, layout, amenitites, and if its appropriate for the target market/audience. Consider other factors such as location, proximity to amenitites, and the quality of the surrounding buildings/infrastructure. 

If you're specifically looking for tools to use to punch in projections/numbers, BiggerPockets has a rental property + house flipping calculator and a real estate analysis tool. If you're looking for more, just google it and plenty of results will show. 

Investing in RE is no quick and easy process, be sure to take your time, research, analyze and make an informed decision that aligns with your investments goals & risk tolerance. 

Thanks for the advice. I do fully intend to lean on the developer spearheading the project, but I do like to know at least the basics on how to evaluate the deal.

I am looking at potentially investing money into a condo development project.

It's in a good area, the guy I would be partnering with already has the lot, he's working on plans, and everything seems like it's lined up. 

CAVEAT: I have never done a deal or invested in any real estate besides a single family home before. 

What I need is details on how to analyze the deal and make sure I'm making a good investment decision. 

Any help would be very appreciated! I know someone is going to say hire someone and that is sound advice, I don't even know where to start and I would like to know at least the very basics on analyzing an investment because I like to personally know what I'm doing and I will also hire someone when the discussions get more serious.

Quote from @Ronald Rohde:

You're not getting screwed. This is why nobody builds these small buildings. Costs are too high, tenants too weak to sign NNN leases ahead of development.

Do you own the land yet?

I understand where you’re coming from on pre-leasing and tenant quality. Wouldn’t this also apply to storage units? 

Storage units and flex space are very similar and different. But they are very popular right now and tons of investors swarming to buy, build, and invest in them 

They also have additional costs to build and manage compared to flex space such as additional doors, dividers, and overhead (on-site manager etc).

So I’m wondering, with a similar client base (and even shorter terms, often month to month) why is flex space such a bad investment? 

Quote from @Henry Clark:

@Tammy Renee Johnson; @Ben Glaser

Use the magnifying lookup function at the top right.  lookup my name and Industrial/Flex post.  This is a story line as we have been developing one of our sites.

Henry thanks for the tip, much appreciated. Will follow. 

I'm looking to build smaller warehouses. Flex space and 4-5k sqft warehouses in an industrial area in the Midwest. 

I did research on price per sq ft and found that it would be $20-30 per sqft. I never trust basic estimates, so I figured it was fair to assume 2x+ maybe $80/sqft. 

Now I'm getting bids in at $140-170/sqft. not including the lot, ground work, etc. Seems very high for mostly unfinished steel frame building. Concrete floors, open rafter roof, and drywall walls (no paint).

I know home builders in the area are building 2500-3000 sqft houses for $200/sqft and I know a guy that builds duplexes for exactly $160/sqft. 

Am I getting screwed? 

Anyone currently building the same, would like to know your building costs.

Quote from @Ronald Rohde:

No offense, but why would they? Time is quite valuable, are you looking to hire a fee developer? paying for turn key? I'm happy to do a legal consultation, but other than that...

Thanks for the offer, Ronald.

I was hoping to connect with others that have developed or invested in similar properties. I'm not asking for a "take-only" relationship, network is everything. I know a good amount of successful people in other real estate types, and I myself have had my own success outside of real estate. Always open to sharing my experience and helping others any way that I can, free of charge.