Development Opportunity but limited experience
Memphis, TN · Member since 2021 · 41 posts · 6 votes
Development Opportunity but limited experience
Most Popular Reply
Kristi KandelPro Member
Developer · Fort Myers Beach, FL · Member since 2018 · 383 posts · 195 votesQuote from @Kenneth Bell:
@Kesha Hamilton
Hey Kesha,
I would also not buy land until you have done all needed DD and have an exit that will work. If you can tie up the land and give yourself enough time so see if the value is there. You also need to understand what the current zoning is and and current development value. You could possibly rezone for greater density if possible. Until you have a proper valuation for raw land you cannot make an offer. Land valuation is a derivative of the value that can be placed on the land. This takes some dd and homework to come up with.
@Kenneth Bell thank you! I was just explaining to someone the other day about how land is priced for development / redevelopment and why there typically aren't sales prices on those listings. Being a developer means you find the highest and best use for a piece of property. EVERYONE has a different idea of what that highest and best use could be based on their experience and experience along with the AHJ's allowed uses in the zoning/probability of rezoning.
With that being said, since there are so many variables that exactly why a property owner would be shooting themselves in the foot if they set an asking price b/c their idea of what the highest and best use might be might not actually be the actual best use.
For example lets take a paved parking lot:
1. You could rent it to a food truck to use 1x a week for $100 a day or $400 a month
2. You could rent it to a plumbing company to park their vehicles for $1200 a month
3. You could build a flex-space building for the plumbing company to relocate their office and warehouse AND have enough parking and now you get 5-10K a month or more in rent.
Each way you're making money on the property, it just depends upon the type of use you can envision. Each scenario would change how much each person could pay for the land to make it profitable for them.
15 Replies
- 2yAndy EdgemonPro MemberMember since 2023 · 28 posts · 18 votes
It depends on the land honestly. Is the land next to an establish road with utilities? If it's just road frontage land that you can turn into lots it's not that bad. If it's small road frontage but acreage deeper then you need to meet with an architect, and civil engineer to see how you can build a community. A lot going on there. Tree clearing, grubbing, moving dirt for cut/fill operations, storm water, power, gas, water, fire access etc. not a small task but doable. If you are going to JV for land purchase I would definitely get quotes from architect, engineers, and estimated civil cost. Have all that factored in your deal then who would manger construction, and who would manger contractors during the new houses being built. That's quite a bit of up front cost before you see any return on investment. Especially considering zoning approvals, permits for land development (Local and State) moving equipment in, then permits for individual houses before you can even sell or market.
- Title Representative · Irvine, CA · Member since 2017 · 874 posts · 519 votes2y
Yes, you can JV with a homebuilder and come up with some type of preferred return and/or waterfall structure to share in the return.
- Memphis, TN · Member since 2021 · 41 posts · 6 votes2yWould you suggest just purchasing and then stepping back to let the developer handle everything else? What is a waterfall structure?
Quote from @Bryant Brislin:
Yes, you can JV with a homebuilder and come up with some type of preferred return and/or waterfall structure to share in the return.
- Title Representative · Irvine, CA · Member since 2017 · 874 posts · 519 votes2y
@Kesha Hamilton a waterfall is a way of distributing profits. You may want to get a book on preferred returns, waterfalls, etc. You really want to make sure that the land you are buying doesn't have any major constraints that can't be overcome, or even if they can be remediated, at what cost, i.e. environmental, soils/geotechnical, adequate access, zoning, etc. So you likely need to involve either a consultant or developer prior to make sure you don't buy something that doesn't have a fatal flaw or constraints that make the project not pencil out financially.
- Memphis, TN · Member since 2021 · 41 posts · 6 votes2y
Quote from @Andy Edgemon:
It depends on the land honestly. Is the land next to an establish road with utilities? If it's just road frontage land that you can turn into lots it's not that bad. If it's small road frontage but acreage deeper then you need to meet with an architect, and civil engineer to see how you can build a community. A lot going on there. Tree clearing, grubbing, moving dirt for cut/fill operations, storm water, power, gas, water, fire access etc. not a small task but doable. If you are going to JV for land purchase I would definitely get quotes from architect, engineers, and estimated civil cost. Have all that factored in your deal then who would manger construction, and who would manger contractors during the new houses being built. That's quite a bit of up front cost before you see any return on investment. Especially considering zoning approvals, permits for land development (Local and State) moving equipment in, then permits for individual houses before you can even sell or market.
Thank you; The land is on established roads and already has utilities/water at the street. So you're suggesting getting under contract (just my partner and I) and then getting all those quotes from architects, engineers, etc to see what the costs would be and get an answer on all the "hows"? If we partner with a builder I am assuming they'd get a percentage of ownership and at that time we'd let them handle everything dealing with the actual development- land clearing, managing the contractors, as well as all other costs. We have bought the land and would think if they have part ownership they can invest everything else. My partner are thinking to buy it first and THEN bring in the developer, but securing it ourselves first...Just trying to figure out the best logistics of all this...
- Memphis, TN · Member since 2021 · 41 posts · 6 votes2y
Quote from @Bryant Brislin:
@Kesha Hamilton a waterfall is a way of distributing profits. You may want to get a book on preferred returns, waterfalls, etc. You really want to make sure that the land you are buying doesn't have any major constraints that can't be overcome, or even if they can be remediated, at what cost, i.e. environmental, soils/geotechnical, adequate access, zoning, etc. So you likely need to involve either a consultant or developer prior to make sure you don't buy something that doesn't have a fatal flaw or constraints that make the project not pencil out financially.
I will research waterfalls, etc- thank you. The perc test has already been done so it's been deemed suitable for building. We will be looking into zoning, etc and consult engineers and architetcs to ensure it's a viable project in those other areas.
- 2yRobert EllisBusiness MemberDeveloper · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
Quote from @Kesha Hamilton:
I'm a licensed Realtor and investor. There's an awesome opportunity to purchase a large parcel of land that is prime property & location for development. I've sold new construction but never developed homes and it was suggested that JV'ing with a developer would be ideal. My business partner has purchased large parcels of land, but never developed homes. How would you approach this type of project if you have the ability to purchase but limited experience on actual development? Maybe agreeing to a % from the sale of each home in addition to listing the homes once the construction starts?
if you don't have experience don't buy raw land. buy entitled land or partner with an experienced developer. we are working on 4-5 rezoning applications at a time. I don't buy large tracts of land. I buy underpriced land. make sure there is value
Section 8 Launch52 Reviews - 12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes2y
Does it involve horizontal construction or just vertical ?
- 2yKristi KandelPro MemberDeveloper · Fort Myers Beach, FL · Member since 2018 · 383 posts · 195 votes
Quote from @Kesha Hamilton:
I'm a licensed Realtor and investor. There's an awesome opportunity to purchase a large parcel of land that is prime property & location for development. I've sold new construction but never developed homes and it was suggested that JV'ing with a developer would be ideal. My business partner has purchased large parcels of land, but never developed homes. How would you approach this type of project if you have the ability to purchase but limited experience on actual development? Maybe agreeing to a % from the sale of each home in addition to listing the homes once the construction starts?
1. Start with calling the planning dept at the city to define the zoning and allowed density
2. Work with the city and local brokers to identify the exact product type to meet the housing needs of the area. (Apartments, townhouses, condos, etc.)
3. Run the numbers in the UW to see how big of a gap you have for new construction of those units
4. Talk to planning at the city about available funds they for housing projects like TIFs, CRAs, Housing vouchers, housing grants, etc.
5. Repeat that research at the county and state levels.
6 review all info vs your UW and see if there is a land value above $0 that makes the deal work in today’s market.
7. potentially consider a JV project with the property owner after doing the above as a way to make the deal work.Separately, you'll want to make sure that you've engaged your strategic partners. Brokers (versed in these development deals to help you negotiate the right contract terms), Lenders willing to fund a construction and permanent loan, architects & engineers vs in land development to help site plan the project, contractors to price the project to help dial in your UW.
I've been a RE developer for 17 years working on projects nationwide. Building the right team of strategic partners is key to effectively completing development/new construction projects. It's simple but it's not easy.
If you shoot me a DM I'll send you information about our upcoming Free webinars and other resources we've created to empower local entrepreneurs and investors to transform underutilized properties into awesome community assets that benefit all.
- Developer · Charlotte, NC · Member since 2014 · 208 posts · 101 votes2y
@Kesha Hamilton
Hey Kesha,
I would also not buy land until you have done all needed DD and have an exit that will work. If you can tie up the land and give yourself enough time so see if the value is there. You also need to understand what the current zoning is and and current development value. You could possibly rezone for greater density if possible. Until you have a proper valuation for raw land you cannot make an offer. Land valuation is a derivative of the value that can be placed on the land. This takes some dd and homework to come up with.
- 2yKristi KandelPro MemberDeveloper · Fort Myers Beach, FL · Member since 2018 · 383 posts · 195 votes
Quote from @Kenneth Bell:
@Kesha Hamilton
Hey Kesha,
I would also not buy land until you have done all needed DD and have an exit that will work. If you can tie up the land and give yourself enough time so see if the value is there. You also need to understand what the current zoning is and and current development value. You could possibly rezone for greater density if possible. Until you have a proper valuation for raw land you cannot make an offer. Land valuation is a derivative of the value that can be placed on the land. This takes some dd and homework to come up with.
@Kenneth Bell thank you! I was just explaining to someone the other day about how land is priced for development / redevelopment and why there typically aren't sales prices on those listings. Being a developer means you find the highest and best use for a piece of property. EVERYONE has a different idea of what that highest and best use could be based on their experience and experience along with the AHJ's allowed uses in the zoning/probability of rezoning.
With that being said, since there are so many variables that exactly why a property owner would be shooting themselves in the foot if they set an asking price b/c their idea of what the highest and best use might be might not actually be the actual best use.
For example lets take a paved parking lot:
1. You could rent it to a food truck to use 1x a week for $100 a day or $400 a month
2. You could rent it to a plumbing company to park their vehicles for $1200 a month
3. You could build a flex-space building for the plumbing company to relocate their office and warehouse AND have enough parking and now you get 5-10K a month or more in rent.
Each way you're making money on the property, it just depends upon the type of use you can envision. Each scenario would change how much each person could pay for the land to make it profitable for them.
- Memphis, TN · Member since 2021 · 41 posts · 6 votes2y
Quote from @Kristi Kandel:
Quote from @Kesha Hamilton:
I'm a licensed Realtor and investor. There's an awesome opportunity to purchase a large parcel of land that is prime property & location for development. I've sold new construction but never developed homes and it was suggested that JV'ing with a developer would be ideal. My business partner has purchased large parcels of land, but never developed homes. How would you approach this type of project if you have the ability to purchase but limited experience on actual development? Maybe agreeing to a % from the sale of each home in addition to listing the homes once the construction starts?
1. Start with calling the planning dept at the city to define the zoning and allowed density
2. Work with the city and local brokers to identify the exact product type to meet the housing needs of the area. (Apartments, townhouses, condos, etc.)
3. Run the numbers in the UW to see how big of a gap you have for new construction of those units
4. Talk to planning at the city about available funds they for housing projects like TIFs, CRAs, Housing vouchers, housing grants, etc.
5. Repeat that research at the county and state levels.
6 review all info vs your UW and see if there is a land value above $0 that makes the deal work in today’s market.
7. potentially consider a JV project with the property owner after doing the above as a way to make the deal work.Separately, you'll want to make sure that you've engaged your strategic partners. Brokers (versed in these development deals to help you negotiate the right contract terms), Lenders willing to fund a construction and permanent loan, architects & engineers vs in land development to help site plan the project, contractors to price the project to help dial in your UW.
I've been a RE developer for 17 years working on projects nationwide. Building the right team of strategic partners is key to effectively completing development/new construction projects. It's simple but it's not easy.
If you shoot me a DM I'll send you information about our upcoming Free webinars and other resources we've created to empower local entrepreneurs and investors to transform underutilized properties into awesome community assets that benefit all.
Thank you SO much for this! I'd love to connect w/ you. I will send you a message shortly.
- 2yKristi KandelPro MemberDeveloper · Fort Myers Beach, FL · Member since 2018 · 383 posts · 195 votes
Quote from @Kesha Hamilton:
Quote from @Kristi Kandel:
Quote from @Kesha Hamilton:
I'm a licensed Realtor and investor. There's an awesome opportunity to purchase a large parcel of land that is prime property & location for development. I've sold new construction but never developed homes and it was suggested that JV'ing with a developer would be ideal. My business partner has purchased large parcels of land, but never developed homes. How would you approach this type of project if you have the ability to purchase but limited experience on actual development? Maybe agreeing to a % from the sale of each home in addition to listing the homes once the construction starts?
1. Start with calling the planning dept at the city to define the zoning and allowed density
2. Work with the city and local brokers to identify the exact product type to meet the housing needs of the area. (Apartments, townhouses, condos, etc.)
3. Run the numbers in the UW to see how big of a gap you have for new construction of those units
4. Talk to planning at the city about available funds they for housing projects like TIFs, CRAs, Housing vouchers, housing grants, etc.
5. Repeat that research at the county and state levels.
6 review all info vs your UW and see if there is a land value above $0 that makes the deal work in today’s market.
7. potentially consider a JV project with the property owner after doing the above as a way to make the deal work.Separately, you'll want to make sure that you've engaged your strategic partners. Brokers (versed in these development deals to help you negotiate the right contract terms), Lenders willing to fund a construction and permanent loan, architects & engineers vs in land development to help site plan the project, contractors to price the project to help dial in your UW.
I've been a RE developer for 17 years working on projects nationwide. Building the right team of strategic partners is key to effectively completing development/new construction projects. It's simple but it's not easy.
If you shoot me a DM I'll send you information about our upcoming Free webinars and other resources we've created to empower local entrepreneurs and investors to transform underutilized properties into awesome community assets that benefit all.
Thank you SO much for this! I'd love to connect w/ you. I will send you a message shortly.
@Kesha Hamilton You're welcome! This is why we are building out resources. To help people in your position because it's 100% possible for anyone to become a developer, you just need the right resources and partners.
- Member since 2024 · 1k+ posts · 351 votes2y
- Member since 2024 · 2 posts · 0 votes2y
Find an proactive product solution based on offsite construction maybe a good option, it's put you in control by dealing with the whole construction value chain even if you are new entrant. check this post on linkedin:
https://www.linkedin.com/posts/karl-dixon-2b964656_offsite-m...
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