Rental Property Investor · Loganville, GA · Member since 2015 · 30 posts · 9 votes
The seller approached me to sell 5 acres of land less then 5 miles from downtown Nashville. The land is zoned for the building of 21 units (the project was approved by the city). He inherited the land
along with many other properties from his father, who was a builder and passed away. He is selling it all.
I have no experience developing anything but I have a hunch that this might be a great opportunity. My question is: What would be a good price to pay for the land?
Just an idea: consider building in phases. The purpose is to reduce your cost of funds expense as low as possible. Borrow just enough to build 4 or 5 houses. As you sell, use those funds to finance the next phase.
It depends on the sales price of the final product, and that depends on where exactly the lot is. 21 units on 5 acres is really low density, so it would also depend on the neighborhood plan and whether you can rezone it. If you want to private message me the details I can give you a good ball park price.
Alternatively, we are always looking for land to develop so if you wanted to wholesale it over to us or just pass the lead along for a fee that would be great as well.
Since the project is fully approved by the city, you value the property on a residual basis. Assuming you plan to service the site and build out the units yourself (ie. No construction has commenced), the Maximum Raw (Approved) Land Value is estimated as follows:
REVENUE:
Gross Unit Revenue (for the 21 units)
Less: sales tax (if applicable)
Plus: Any other sales revenue or recoveries
= Net Completed Project Revenue
CONSTRUCTION COST:
Hard Construction Cost
Soft Construction Cost
Municipal/Regional/State/Federal Charges
Builder Profit
= Cost to Builder
Net Completed Project Revenue - Cost to Builder = Maximum Serviced Land Value
SERVICING COST:
Hard Servicing Cost
Soft Servicing/Development Cost
Developer Profit
= Cost to Developer
Maximum Serviced Land Value - Cost to Developer = Max Raw (Approved) Land Value
Mark Matos I would start by looking at existing structures around that area. If the lot is flat or wooded and need to be cleared. Looking at price per acre on similar lots in that area of the subject property. A partner recently wholesaled 5 acres for 10k per pad for 60 pads zoned R10. Zoning in the area of the land the price can range and as Sean Davidson and Mario Policicchio mention it depends on who plans to develop the land.
You could Wholesale it to Sean and make some dough and learn somethings a long the way
Mario Policicchio I read your profile and see that you have an intensive background in multifamily and commercial investments. When dealing with redevelopment of apartments while maintaining the same land use is your valuation the same as initial development from raw land?
I would echo what @Sean Davidson said about it all depending on the final product sale price.
When you say the city approved the project. What project did they approve and who told you they approved it?
Were plans/surveys actually submitted to the city and they ACTUALLY approved it? There is a big difference between "yeah that sounds good" vs here is a stamp, you may proceed with your plans. That's something you need to know.
Would love to meet up with you and take a look at your project.
Jamie Parker the residual analysis process is the same, yes. Although, there are of course some important differences to consider when valuing raw land vs. a redevelopment property.
When redeveloping a property, there is often less risk involved in the pre-construction phase than the risks involved in a typical raw land development (ie. entitlement risk and timeline, servicing costs and timeline, water/sewer allocation availability, geotechnical aspects of the land, uncertainty as to the number of professional reports required, etc). Since a building (same land use) has been built on the parcel previously, many of the reports/issues have been done/addressed. If we perform the same residual analysis as we would for raw land, we would find that there would be less preconstruction costs involved, and a lower builder/developer profit would be required due to the lower level of risk. All else being equal, the land cost/value would be higher than it would be if the same land parcel was raw, unapproved land.
While the person who develops it might have to get modifications approved, the current project has been approved and stamped.
@Sean Davidson an estimated sale of each unit for 150k would place a total revenue of roughly $3,150,000 after individually selling each unit. While renting them for $1000 (very reasonable for the area) each would place a gross revenue of 21k a month.
According to a developer I know, the cost of developing the whole thing would be up to 2mil, but thats a rough estimate based on previous projects he has developed before.
Just an idea: consider building in phases. The purpose is to reduce your cost of funds expense as low as possible. Borrow just enough to build 4 or 5 houses. As you sell, use those funds to finance the next phase.