How to structure deals with developers

Question

I am interested in purchasing some raw land that is zoned residential.  If I were to partner with a developer to build houses to sell, how would you structure a deal? A percentage of every builds profit upon selling?

Kyle Haskell · Answer

Thanks Dustin this is great info. I don't have many details other than it's 11 acres with a future road through planned.

Dustin Tucker · Answer

Hello Kyle,

There are lots of things to consider, and there are lots of different types of Zoning for residential.

For example you could be zoned residential, but the minimum lot size could be 1 acre, and you are buying 1 acre, in that case you wouldn't need a developer, you would just need a builder.

For example, lets say you have 5 acres and a perfect rectangle property, that has an existing street that runs the long ways of the property so you won't have to put in any streets, you will simply need to get with a surveyor, figure out your minimum lot widths from zoning, and file with the municipality to get your property subdivided into lots.

Once you have subdivided lots, you can either sell the lots outright to a builder, the cleanest transaction.

Option 2, you could try to partner with a builder so you can split the profits, most builder's will want you to guarantee the loan, and still charge a build fee before profit splits.

Option3, you can hire the builder, obtain the financing, and keep all the profits.

Option 4, you could do any combination of 1,2, and 3.  I mean if you have 10 lots, you could sell 3 to recoup some cash, you could partner on 3 to get your credibility, and you could build the last 3 yourself.

If you can get me the following I can get you a better idea of what you are looking at, you can also email me if you don't want your info shared on the forum.