First Time Development Project
The thoughts of developing a residential project have been racing in my head. I've never done it before and now here I am with an offer to purchase a lot that is appx. 2.83 acres and is approved to be subdivided contigent to each lot being of at least 5000 sq. ft. There is no connections for power and water yet. I have not bought the parcel of land, just rendering upon what a smart investor would do. I've decided to come here and ask for help. The property is located in a small city nearby an airport. I noticed a very large apartment complex being built about half a mile away from the property I am intrested in. The selling price of the property is $100k. I've been researching the average price of the homes nearby the property. The medium seems to be about $60K for a 2bd/1bth 1 car garage on a 7000sq ft lot. Is this deal worth my efforts or should i just run away from it?
Your First Time Developer
Some questions:
1. Has the current owner gotten official final subdivision approval from the municipality?
2. If so, how many lots have been approved?
3. Has somebody done an estimate of the costs for site improvements (everything except building the houses--ie, putting in streets, curbs, sidewalks, stormwater management, etc)? If so, what is that number?
4. Would there be public water and sewer or septic and well?
Being as I am a beginning investor, thank you for your input.
1) The current owner has official fianl subdivision approval from municipality.
2) The lot is allowed to be divided into 12 subdivisions @ minimum of 5000 sq.ft.
3)The streets,curbs, and stormwater management has not been estimated yet.
4)The homes will be provided with public water from a canal.
Sorry for not putting enough information in my post. Thanks for all the info.
Thanks for your additional info.
The estimate for site improvements is important in determining if this deal would work and also it's necessary to verify if public sewer would be available.
The price/lot is around $8,300. The house on the lot would sell for around $60K which, using a rule of thumb, translates into lot + its share of improvements = $15K. Again using a ROT, this means that for the deal to make sense to a builder, the per-lot site improvements can't exceed $6,500. But you (and the seller?) don't know what that last cost item is.
If your plan would be to put the property under contract and then assign it to a builder, the builder might analyze the numbers roughly the same way as I did above. If so, there's not much room for you to get an assignment fee. $15K less 8,300 less site improv. costs less your fee.
Rules of thumb are just that--a way to work rough numbers quickly. Builders in my area use ROT similar to those stated above.
If the seller has gotten a subdivision plan approved, the municipality should be making it a condition of approval for X$ to be escrowed for installation of the site improvements. In my area this is called a "developer escrow." See if the seller can give you the info. Also, have the seller give you all documents (approval letters, etc) issued by the municipality. Finally, I would suggest you consult a RE attorney to look at the documents and help you if you decide to submit a purchase offer.
What about public sewer?? You didn't mention of public sewer is available. If not, do not proceed b/c no county in their right mind is going to issue septic tank permits for 5,000 sq. ft. lots.
When you say the seller has received final approval from the gov't to subdivide, please explain what you mean?? Does that mean he has a letter from the zoning office stating what the zoning would allow, or do you have an approved preliminary plat that has gone before the planning commission and county commissioners? Something tells me they have not really received final and official approval for the subdivision into 12 lots but I could be wrong. More info would help.
Does the property already have a lot existing road frontage on an improved street? Will you need to install a new street? If so, I don't see how you can do this and make the numbers work @ a $60,000 retail home price. No matter where you are, streets are expensive and you can't do all that for only $6K a lot.
Also, what do you mean by public water is via a canal? I am picturing an open man-made stream of water...is that correct?? Or do you mean there is a true water line like an 8" ductile iron pipe with public water that is safe to drink?
Just saw your post, a month later. But I noticed it was "nearby an airport." How close? Make sure you're not in the flight path, or you won't be able to build residential, though commercial's probably OK.