Land Lot Development - How much to pay?

Question

I recently came across some Raw Land in Forsyth Area roughly a little more than 5 acres. I am not sure how to calculate if its a deal and how much of I should be paying. The newly constructed homes in the area are selling for around 185k at about 2000 sq ft on 5-6k sqft lots. Any feedback is greatly appreciated.

How many houses could you build per acre?

Approx cost per house to be built (if around 2k sqft)?

How much should I pay per acre?

What kind of development costs should I factor in?

How many houses could you build per acre?

Approx cost per house to be built (if around 2k sqft)?

How much should I pay per acre?

What kind of development costs should I factor in?

Mike Salisbury · Answer

Starting point is the zoning dept. The current zoning will dictate how many houses per acre and other constraints for roads, setbacks and allowable sq. ft. within the current zoning. Rezoning is costly but may be worth it to have a product (house) that is in demand but under-represented in your marketplace. Local experience will dictate what consumers in that area are looking for and if demand is being met.

Cost:$75 per sq. ft. is about right for suburban Atlanta. That is for construction costs- not incl. commissions, debt burden, permitting, insurance. Keep in mind that larger builders can go much lower (on cost)  based on their volume and operational efficiencies.

Price Per acre: research recent, local, raw land closings of similarly zoned land - same as comp. for SFR.

Development costs: The infrastructure (Storm water, sanitary sewer, water, power and retention pond), curb/gutter, streets  are extremely expensive. And eat into buildable sq. ft..  Followed by grading, engineering fees, and lastly bonds with the local municipality to ensure your work is completed to the county's satisfaction.

Sight unseen, Estate lots require the least amount of infrastructure if the zoning and market will allow.

I am willing to help with any other questions you may have, I am a licensed contractor and have looked at a lot of land.

Will Barnard · Answer

Due diligence is key here, not only on the property itself but the local market too.

As to the property, you will want a phase 1 environmental report as well as a highest and best use report. You will need to speak with zoning, building and safety, the fire department, and possibly other government agencies. How many lots you can subdivide this particular parcel into will depend on your findings from these agencies.

As to rice, you need to work backwards. Once you know how many houses you can build, then you can figure construction costs, permits, infrastructure, due diligence costs, etc. Then your profit margin and whatever is left is what you can pay for the dirt.

Jeremy Dyer · Answer

@Will Barnard & @Mike SAlisbury

Thank you for the advice gentleman, I will start with what you said and go from their.  Mike, if you had some time I would like to discuss further if you could give me a call.