Newbie considering JV w/developer- what should I get for my land?
Thanks to BP, I have finally become a REI- exciting but lots to learn!
Just bought at auction for $~212K a 1940's SFH 1800 sqft 3/2 with a pool (ok, currently a frog pond) on a double lot that could be rehabbed and then held and rented, or flipped. It's in a multifamily zoned area, can rent for > 90 days (no ST vacation rentals) in a superb location in downtown Dunedin FL (voted most walkable small town in US or something like that.)
Two major choices- I am still trying to figure out which would be more profitable, but need help figuring out the numbers on option 2. well, on option 1, as well, but that will be a separate post!
1) FLIP or REHAB AND RENT OUT: Currently in for 215k, need 20k mold remediation then about 85K-100K rehab, might be able to sell for $350-390K. For a bit more rehab, could turn it into a 2/1 with an attached 1/1, and even reno the garage for another 1/1, with good rents over the winter months.
2) SCRAPE AND BUILD: On the other hand, I approached a high quality local developer who proposes we do a JV- I bring the land, he brings his reputation, expertise and oversight of the development and construction, and clients- he has several would-be buyers looking to build in the area. I would get "market value" for my land, he would develop the 3 houses that can legally be built, adding 18% onto the building costs as his GC/developer fee, and then we would split any profits over that.
We don't see eye to eye on what the "market value" of the land would be- he says it's what I bought the place at auction for, i.e. $212K. I say it's what it would fetch on the market, but there really aren't many comps except on the other end of my block where someone demo'ed a house (anticipating later construction) on a same-sized double lot (102x134) but their cross street is a quiet street, and mine is busy. Their 2 empty lots are valued by the county appraiser's office at @139,077 each (with an adjustment of 1.01) and mine is valued at $230,868 (with a .84 adjustment probably because of the busy street and more setbacks). The "just market value" of their land is then listed at $250K (the county defines JMV as "The price at which a property, if offered for sale in the open market, with a reasonable time for the seller to find a purchaser, would transfer for cash or its equivalent, under prevailing market conditions between parties who have knowledge of the uses to which the property may be put, both seeking to maximize their gains and neither being in a position to take advantage of the exigencies of the other.")
I am very interested in learning by participating in this deal but I don't know whether i am getting screwed through 1) him assessing my basis too low by valuing it at 212 instead of 250k and 2) the terms of the overall deal.
I am leaning towards doing the JV since there are other places where I can learn about rehabbing and renting, or flipping, but this property offers a great opportunity to participate in a development with a high quality experienced guy who is very well connected.
Should I just take his terms, or push back?