Anyone sold townhouse paper lots to a builder?

Question

We have a 4-lot townhouse paper lot subdivision. Keeping the existing 3,100 sf house and subdividing the remainder flat land. This is four fee-simple townhouse lots, 2,300 sf each. Can build 2 stories up to 1750 sf with 2 car garage. We plan to refresh and resell the house and sell the four paper lots to a builder. A question for anyone who has done this: 1. What did the paper lots clear relative to finished home sales price? We are working on a few of these in Orange County locations. Thank you for your help...

Alev Sharma · Answer

Joe, I don't think there's a clean percentage for this, because builders basically work backwards from the finished sale price. They take what a 1,750 sf townhome would sell for there, subtract building costs, site work and utilities, fees, a couple years of carry, and the profit they need to make (usually somewhere in the 12 to 20 percent range). Whatever is left over is what they'll pay you for the lot.

In SoCal I've usually seen raw paper lots go for roughly 15 to 25 percent of the finished price, and more if the plans are approved and permits are close to ready. Whether utilities are already stubbed to each lot makes a big difference too.

I'd have two or three local builders run their own numbers on it now. Where they push back will tell you which costs are hurting your price, and most of them will want all four lots in one deal anyway.

Jay Hinrichs · Answer

can t really know paper lot value until you have hard costs for the utls etc.

Rick Albert · Answer

Would you provide RTI (Ready to Issue Permits)? Where is the lot specifically? I haven't worked directly in this space but know developers who have. I think the challenge is the 1,750 sq. ft. is on the smaller side so the resale is going to be low but many of the costs like architectural and engineering is the same so you lose on economies of scale. With that said, there is a buyer for every property, it just comes down to price.

In terms of what the resale is compared to the initial dirt, I don't think there is a general rule but it would be pretty wide because the carrying costs are high (it could be a few years before you even break ground).

Happy to chat more about it.

In terms of what the resale is compared to the initial dirt, I don't think there is a general rule but it would be pretty wide because the carrying costs are high (it could be a few years before you even break ground).

Happy to chat more about it.

Anyone sold townhouse paper lots to a builder?

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