Multiple lots development in San Jose: anticipated 30% return in 1.5 years. Your gut feeling?
Greetings everyone.
As some of you know, I'm building a new house in San Jose, documented here: http://www.biggerpockets.com/forums/522/topics/154... , which scheduled to be finished in a couple of months. So I'm itching to look for a similar project.
I'm really passionate about spec homes and major addition projects in better neighborhoods in the Bay Area ($300+/sqft). That's why on my hunt for projects to line up after I finish the current, my cousin (broker) introduced me to the following.
I've been reading on this sub-forum that some of you been suggesting to keep the return at least 20% to make sure it's worth the time & effort. Please give inputs/advice on this deal.
+ High overview numbers:
- Land acquisition: ~$2M
- Soft cost: $600k
- Construction cost: $2M-$2.25M
- Sale price: $7.2M
- Closing costs: $850K
- Net return: $6.35M - ($4.6M-$4.85M) = $1.75M-$1.5M
==> %of return: ~30-35%
His office wants to structure as follow, roughly:
+ Partnership structure:
- Broker firm (owner of project): up to 50%
- Max 6 partners, preferably less
- Min to enter: $500K
- Min for project to start: $1.5M from partners other than the broker firm.
I would be both investing and building the project to have my skin in the game. It's a 6 units subdivision that has all plans approved waiting for permits to be pulled (I'll verify with the building department this week).
So, those who have a better sense of market condition in the next year or so for Bay Area - Silicon Valley: what's your gut feeling about this project?
Anything I should check/know in term of paperwork, legal documents, structure of the partnership, etc... ?
I'm talking to some of my clients to see if they're interested in joining. So I'd like to arm myself with as much knowledge as possible before asking.
Thank you.