What Return On Investment Do Developers Require?
How much ROI (return on investment) does a developer typically want to make on the land portion of a single-family housing development?
I have heard developers want to make 25% from the total package (sale of lot + house). However, the developers I have spoken to seem to want around 45-50% profit just on the sale of the land. Example, if I have 10 acres to sell, they want to pay me about $4m, while they can sell the improved lots for at least $9m.
I have been figuring the following: 27 lots x $350,000 = $9,450,000. Subtract $1,215,000 for development costs = $8,235,000 as net income from land sale. If the developer wants a 40% profit, he would get $3,294,000. I would be paid the remainder, $4,941,000.
Two questions:
1) are my calculations for development costs too low? I figured $45,000 per lot.
2) Is 40% a good return on investment for the developer?
3) Why would a developer not jump at an opportunity like this? There are no drawbacks to the property. Quite a few developers have come to the same conclusion; they would put up about 27 homes. Improved lots around here go for at least $350,000, so I am being conservative in my figures, even factoring in a 40% profit for the developer, not the typical 25-30% I have heard is common.
If the developer can sell the improved lots for $9 million, how much should I reasonably expect for the land?
Thanks,
H. Mir
[ Edited by Mirovy on Date 06/16/2005 ][ Edited by Mirovy on Date 06/17/2005 ]
I think the term flipping has beeing grossly misused in the news.
I consider what I have done in several cases in CA flipping as I closed escrow on a Thursday, listed on the next Sunday, and accepted an offer on the following Tuesday.
No one has come to arest me.
The new article the I read from OH I think talked about the buying parties (buyer, broker, loan broker, apprasier, etc) being in bed together to low ball the value.
This I agree is criminal. See what TX defines as flipping.
Thank You, cjmazur !!
Do you work in CA?
Question for Money4RE: Do buyers using conventional financing face the same 90 day restriction as those using FHA? Does the "and/or assign" really work in Texas?
Thank You Sammy, I appreciate your knowledge.