Residentiol Land development cost?

13 Replies

Hi

Thanks to BP community in advance for giving the advice.

I see a 5 acre  flat land, near to my place in Atlanta , in residentiol neighbourhood.

how much would it cost to develop the land for home sites ( each Parcel with 0.5 acres)?

The land cost is 400k.

Thanks

That's an impossible question to answer.  I'm in on a deal like this, though quite a bit bigger.  It has taken YEARS now and the first shovel of dirt is yet to move.  Wetlands, drainage, approvals from neighbors.  Approvals from cities. Approvals from counties.  Installation of sewer, water, electric, drainage.  Upgrades to these utilities outside our parcel.  Building roads.  I knew when I got in that it was a long term investment.  But its been almost five years now.

Jon Holder is Right on the money! No lender will loan you the money to build until it is shovel ready. Plus you need skin in the game at least 15 to 20% down.

Loan to Value:

Up to 80% for Multi Family, 75% for all others.

Loan to Cost:

Up to 90% cost loans are available for select properties

Construction Loans:: Floating over LIBOR or PRIME; fixed over LIBOR

DEFINITION OF 'LOAN-TO-COST RATIO - LTC'

A ratio used in commercial real estate construction to compare the amount of the loan used to finance a project to the cost to build the project. If the project cost $1 million to complete and the borrower was asking for $800,000, the loan-to-cost (LTC) ratio would be 80%. The costs included in the $1 million cost figure would be land, construction materials, construction labor, professional fees, permits and so on.

INVESTOPEDIA EXPLAINS 'LOAN-TO-COST RATIO - LTC'

The LTC ratio helps commercial real estate lenders assess the risk of making a construction loan. The higher the LTC ratio, the higher the risk. A similar, commonly used metric, the loan-to-value ratio, compares the amount of the loan to the fair-market value of the project.

Plus you have hard cost and soft cost.

Soft Costs Explained

  • Soft costs are those not directly related to the physical construction of the building, but that are still necessary to complete the project. They include such things as architectural and engineering costs, marketing and sales expenses, taxes, finance charges, insurance, interest payments and general administration costs. These costs often cannot be charged directly to a specific project, which is why they're sometimes called indirect costs.

What Goes Into Hard Costs

  • Hard costs are the direct costs of a construction project. They typically include such things as labor, materials, basic building services, shell features, interior enclosures, fit-out costs, and basic mechanical and electrical systems. Hard costs for a project can also include things that are not part of the construction contract but that are still necessary to make the building usable, such as furniture, fixtures, equipment and specialized mechanical or electrical services. These costs are often paid directly by the project owner, rather than through the construction contractor.

Do your home work first!

As Jon said, it's impossible to know...

But, you can start with these numbers:

- Assume 5 buildable lots (depending on the layout of the 5 acres, the requirements for streets/sidewalks/etc may mean that up to 50% of the land is shared space)

- That puts your land cost at $80K/lot

- Assume $100/square foot building costs.  We've built for $60/sf in that area, but that didn't include running water/sewer/electric, didn't include streets or sidewalks, didn't include lot clearing, etc.  So, $100/sf is probably reasonable.

Using the average house size you'd likely build and the ARV for that size house, and using the $80K/lot cost and $100/sf build cost, you should be able to determine if the numbers are anywhere in the ballpark of working...

Thank you all for the thoughtfull information.

J Scott, thanks for giving the ball park numbers.

Thanks

Thripura

@Thripura Vemireddy  

  if these are large lots and have sewer and water and paved roads your cost will be quite high... just figure a running foot for lot road frontage.. the more the frontage the greater the cost. Although if this is semi rural I would think water and septic would work with a country type lane.

but to be specific in our market here in Oregon it cost us between 35 and 50k a lot to fully improve a residential subdivision of 5 to 6k sq foot lots with 50 to 60 foot road frontages. This is an all in cost.

The one I have under construction now is 27 lots... and that is coming out right at 900k all in.  We bought the land for 700k  so 1.6 all in we needed 500k down and got a land and development loan from our local bank for 1.1... they will then roll that into verticals at 5 specs at a time and pre sales do not count against the specs. Unfortunatly our build costs have gone up we are at 85 a foot Plus lot costs.. with a 350 sale price for 2k to 2.2k sq ft homes.

I'll add too, that just because you can put say 12 homes on 5 acres, that may not be the best route, you need to consider the market. It may be better to put 4 or 5 homes, there will probably be a cut off as to the size of developments meeting other requirements, like water retention, curbs and gutters, utility requirements. The  initial analysis is the highest and best use, will $500K homes be more appropriate and marketable than $300 or $200K homes? So the assumption is not that more is better, you have to cost it out to the development requirements by the size of the project, concentration requirements.

Lot costs shouldn't exceed a third of the home value, 20/25% is better, if it exceeds that your buyers will have financing issues with excess land values.

Use J. Scott's approach as to lot finished lot costs will tell you the price range to target. :) 

Although I have heard ATL area is coming back nicely, my father has a rental home 3800+ sq ft he built 5yrs ago that he can't even sell for $100 per sq ft north of Atlanta. Make sure you do a proper competitive market analysis. Are you the general contractor or are you looking to develop and sell to home builder? 

In my area, I can get a development shovel ready in 6mos or less, and my typical *ball park per lot development costs are $20k depending on size/scope. I recently helped a developer put together a 19 lot piece with 5K-6K sq ft lots and it ended up being $15k per lot plus indirect costs (engineering, stormwater permits, DOT permits etc...) I generally start at $20k per lot, check zoning, allow for roads and stormwater and see if it comes close to working before even entertaining it.

All, what a great read for someone developing two lots for the first time and not knowing all of the cost just getting to the build. This is an old thread but I am glad I came across it. Thanks.

great find for me. We have a 2 acre property in palmetto,FL (Tampa area) that has a house on the corner. We split the parcel and can get 6 lots out of the remaining 1.6acres. we would need to run a new road and culture de sac to get the necessary frontage. I was quoted 100-125k in build cost for the road and utilities running construction as a preliminary estimate. Which would be $22,000/lot when including expenses to my guy doing the work. This is my first Dev like this and that expenses caught me off guard. We are going forward as of right now because we have a $0 lot cost due getting a great deal on the house and being able.to resell it with less land for more than we bought it for. Anyone know east coast of fl? Does this Dev cost seem reasonable?

I know base utilities and impact fees in tampa are around 8-9k per lot. I don't k ow about the road cost... but I imagine your local builders association would have some good folks to refer you to.

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