Quote from @Jay Hinrichs:
Loudoun County Virginia
80 acre parcel
Entitlement for 30 1 to 1.5 acre estate lots and 40 acre remainder parcel with large million dollar home.
Purchase price 3.5 mil
EM deposits non refundable 50k up front 50k during
Entitlement cost ( survey, geo , water , artifacts, Soils Engineer , city fees) 350k
Capital partner ME provide all the cash up front. 450k to my client who found and prosecuted the plat
Multiple offers from all the biggest builders in that market IE Toll Lennar DR and a few regionals.
Closed today with 1.1 million cash profit PLUS the 40 acres and home value about at least 2 mil free and clear.
My fee is double my money so we made 450k today.
My client made about 650k in cash and the property free and clear..
This is the value of a TRUE capital partner one that knows development willing to take on some risk for high reward.
this is the smallest of 3 I had going with this company.. The other two are much larger with much larger investments from me and profits on one of them in the 8 figures for my clients..
My client is mid 30s just had a baby.. However is a civil engineer and worked for a big developer in NYC so very experienced.
The buyer was one of the companies named above it will hit the market for pre sales in a few months.
This is the 5th Entitlement project I have funded over the last 5 or 6 years in addition I did a 60 lot one in Orlando for a developer there and a 110 lot one in the Atlanta area for a build to rent developer who then sold to Lennar for build to rent .. On those I actually bought the land and they paid for the entitlements and then they paid me off my return on those was not 100% per annum like these but it was north of 30% per annum.. These deals have so much meat on the bone that paying a capital partner is a no brainier..
we do the same thing Jay but we look at this as return on entitlement spend and return on land purchase. we separate the two measurements. for return on entitlement spend its the total value of the land gain proven through either an appraisal pre and post entitlement from an institutional level appraiser by Berkadia or sale price divided by all of the soft costs needed to get the site to the finish line. we look for sites that are at least a 5x and typically focus more on single parcel sites that aren't assemblages and do it by going vertical not horizontal. as many have said there is much more risk in this strategy that you are doing that led to a lot of bankruptcies. also focusing on the luxury in my opinion isn't a scalable strategy.
DR Horton made it through the recession and expanded by being in the part of the market that had the highest absorption which tends to be lots 5000-7000 sq ft and under the average price per square foot. in addition all of the land entitlement groups that we work with that do this at scale (20 at a time, not one at a time) only work with and target national builders.
As of 2024, the largest U.S. homebuilder by deliveries is D.R. Horton, closing 90,777 homes and capturing 13.6% of the market, followed by Lennar Corporation with 73,087 closings. PulteGroup ranks third with 28,603 deliveries, while NVR, Inc. follows with 20,662. Sekisui House, after acquiring MDC Holdings, has become the fifth-largest builder with an estimated 15,000 homes delivered annually. Meritage Homes recorded 13,976 closings, slightly ahead of KB Homewith 13,236. Taylor Morrison delivered 11,495 homes, while Clayton Properties Group completed 9,957, and Toll Brothers rounded out the top ten with 9,597 closings. These figures reflect home closings for 2023.
As of December 2024, the median sales price for new houses in the United States was $427,000, with an average sales price of $513,600. DR Horton in our market built 2000 sq ft homes in rural areas and smaller homes at 1500 and the only ones they made money on were 1500. they sold the ones above 2000 sq ft at losses or break even close to $150 per square foot.
Again, different strategies but in my opinion the larger you get the lower the risk you want and as others have pointed out I think your deals in the build to rent sector or with larger tract builders is where we focus and probably others as well. maybe this was a special deal.
in a few weeks once we get the appraisal back on an infill lot we have I'll show you how we made almost a million dollars on a site that's 0.1 acres and urban with very little risk backed by appraisals. we didn't have to wait 18 months or invest 500k either. we barely needed a capital partner too and every deal we entitle we would develop. I'm not sure about your partner here if he has the backing or experience as an engineer but my experience with engineers is they don't have practical real world experience like you have by doing projects all over the nation.
I want to say as someone who's followed you as well this is amazing results. I always love reading your case studies and as you know look up to you. I just always like to play devils advocate and say what we see in the marketplace when it comes to raising or pooling funds for large scale developments and entitlements, there isn't any interest in luxury.
