Investing In Land
I have read about people who buy a lot of land and then have it turned into individual lots and sell them one lot at a time. What is this called?
What are some things to look for when you're going to buy some land to resell...I mean, when you buy land it usually (at least any way I can think of) doesn't have a positive income. So what kinds of things do you look for when you think you will be able to buy and resell for profit?
JB
[addsig]
Subdividing, I think, is what you're referring to. Taking one parcel and creating 2 or more parcels through the subdivision process.
You can do several different things. You can put land under contract with or without subdivision approval and then assign to a builder. You can put land under contract with subdivision contingencies, get the approvals, close with the seller and then sell the property to a builder. In either case, if you're talking about land zoned for residential use, you want to find situations where the numbers would make sense for the builder, since the builder is your ultimate buyer.
To do this, I feel you would need to:
1. ball park # of lots (site yield)
2. determine what the end product (house on lot) would sell for
3. ball park site improvement costs (street, curb, sidewalk, etc.)
You can analyze a deal via pro forma but first you can use a quick rule of thumb:
raw lot value = 25% X end product value minus per-lot improvement costs
If you plan to assign or sell to a builder, then there has to be enough spread between what you pay for the lot and what the builder will pay (the raw lot value).
Thank you
I don't know if this is exactly what you are telling me, but my next question is...
Should I wholesale the property, get it under contract and then assign it to a builder?
JB
[addsig]
Quote:
On 2004-03-21 11:06, jbinvestor wrote:
Thank you
I don't know if this is exactly what you are telling me, but my next question is...
Should I wholesale the property, get it under contract and then assign it to a builder?
JB
I think that's going to be deal-specific. It may be helpful to assign to a builder before you get deeply into the approval process because the municipality may try to impose conditions that would significantly increase site improvement costs, thereby decreasing the value of the land. If you assign to a builder sooner rather than later, the builder would take on the task of getting approvals and "negotiate" conditions with the municipality.
I don't delve into this type of RE, but I have a friend who is a multimillionaire doing what you are talking about. What he does, and a couple of other guys I can think of, is buy a tract of land in a RURAL county, where land is cheap. The main qualification is that the land has a lot of road frontage. This way he doesn't even have to pay for a road. He simply surveys off individual lots. To give you an idea of how lucrative this can be, he bought one 80 acre parcel for about 3k/acre, and then sold 2 acre lots for 20k. This seems to be much more common in rural counties so it makes me wonder if it would even work in urban areas. Personally, I could not do what he does and feel good about it, although he does not have any problem with it. It just seems like a crime to me to take a beautiful stretch of country road and turn it into side by side urban sprawl. That's not saying it's wrong, that's just my personal bias.