All Forum Posts by: Trenton Miller

I’m diving into the world of tract home development and looking to learn more about the financial analysis process for unimproved land. Specifically, I’m interested in understanding the costs, potential returns, risks, and strategies involved in transforming raw land into a residential neighborhood.  If you have insights on any of these topics, I’d love to hear from you!

1. Land Acquisition and Initial Costs
- How do you determine if a land parcel is worth its asking price?
- What are some hidden costs associated with purchasing unimproved land, such as property taxes, closing costs, or financing fees?
- What’s the best approach for financing land purchases, especially if development will span multiple phases?

2. Due Diligence and Feasibility Studies
- What studies or tests are essential before purchasing raw land? I’d love to hear about environmental assessments, soil tests, and any other pre-development evaluations.
- How do you factor in the costs of rezoning or obtaining permits, if necessary?

3. Site Improvement and Infrastructure Development
- What does it typically cost to prepare land for residential use, from clearing to grading?
- How can I estimate expenses for installing utilities and creating roads, sidewalks, and drainage systems?
- Any advice on cost-saving strategies for infrastructure?

4. Construction Costs and Building Phases
- How do you calculate per-home construction costs for tract developments? Are there specific factors to consider when building multiple units?
- For those who build in phases, how do you structure budgets and plan cash flow to cover extended construction timelines?

5. Soft Costs and Professional Fees
- Could you share insights on budgeting for architects, engineers, project managers, and legal fees?
- What portion of the total budget should be allocated for marketing and insurance?

6. Carrying Costs and Contingency Funds
- How do you estimate carrying costs, including taxes, maintenance, and interest, if the project spans several years?
- What’s a safe contingency budget percentage to include for unexpected expenses?

7. Revenue and Market Analysis
- How do you conduct market analysis to estimate potential revenue? Do you have a go-to process for researching comparable properties or absorption rates?
- What are some methods for projecting cash flow from home sales and determining an appropriate discounted cash flow (DCF) rate?

8. Profitability Metrics
- What metrics do you rely on to assess the profitability of a land development project?
- How do you calculate return on investment (ROI) and internal rate of return (IRR) for a project with staggered cash flows?

9. Risk Management and Exit Strategies
- What are the main risks you consider when analyzing raw land for tract home development?
- Any suggestions for backup strategies, like selling undeveloped land or leasing, if the market or project plan changes?

10. Cash Flow and Financing Tips
- How do you structure financing for a large-scale development? What financing options are best suited for long-term projects?
- How can I best estimate a breakeven point, and what techniques help maintain positive cash flow through all stages?

Whether you’re an experienced developer, real estate investor, or construction professional, your advice would be invaluable. This is a big project, and understanding the financial analysis side is essential to making it a success. Thank you in advance for sharing your knowledge and helping bring a new perspective on land development to life!

Have your friend look into house hacking.  There is a wealth of information regarding the topic here on BiggerPockets.  Best of luck!

Quote from @Greg H.:

Facebook Marketplace, Facebook Group for your city or Craigslist are your best options

You can also list them on OfferUp. Keep in mind you most likely will not get top dollar for them.  Also, if you're planning on selling them you will have to uninstall them as opposed to demolishing them which will cause the demolition phase of your remodel to move slower and will potentially cost more.

As A wholesaler you have a contract to sell the property between you and the homeowner.  A Realtor should have a contract with the homeowner not a 3rd party.  If they do it, it's not a Realtor I woild work with. 

Call your county's community development department and inquire there.  That should be a good starting point.  It will most likely be sold as is at an auction on the courthouse steps.  Be aware that it was most likely seized for failure to pay property taxes, which means if you buy it those taxes must be paid in full as well at the time of purchase.

I wouldn't start talking to lenders just yet.  What I would do it dive deep into the BiggerPockets community and learn as much as you can before jumping into anything.  Real estate is exciting but you really need to understand what you are doing.  You can talk to lenders however they will not talk to you, they will be talking to your Dad.  That's the reality of the situation.  Great job saving up but continue to save that money for now.  

I would let your contractor do the cabinets if he/she is already performing work in the house.  Just have your contractor take the kitchen dimensions with window center and plumbing center measurements and have him/her take them to a cabinet wholesaler.  The majority of the time they will design the kitchen for you in regards to cabinet sizing, fillers, panels ect for no additional charge as long as you purchase through them.  I would also not do the kitchen island.  This is a rental and there's no need to splurge on unneeded items.  The only thing an island may do is make the kitchen more appealing to potential tenants.  You don't recoup your investment through appeal.  

I place signage in the front yard with my contact information on it.  When I get a call inquiring about the property I tell them that they can view the property on set days when I will be present.  I do not do showings by appointment.  I also tell them upfront that there will be an application fee for each adult occupying the property.  The fee alone weeds out 90% of non-serious tenants.  

The first thing I would look at does your lease allow sub-leasing.  Second, no do not tell them they are paying more.  BiggerPockets also has many lease templates available for your use.  Just search in the FilePlace.  The link can be found at the bottom of the page in the site footer.

Tell him a more qualified tenant applied and was selected.