Approved development not looking profitable - Ideas?
Hi all - Our residential development plan has had a "budget bust", so I'm looking for other alternatives. Here's the story:
Background: Since the early 80's my family has owned 8.5 acres with our SFH on it in a good location in this university town, an area which has only improved over the decades. Now the property is in a very good location with very few other vacant lands still available for development anywhere within a mile or two. Nearly all lands within a couple miles have now been built out, and it's all residential and lower impact commercial such as banks and churches, no gas stations or Walmarts. The paved road passing by the property is definitely considered a desirable area. There are a number of nice neighborhoods in the area, some absolute mansions, the schools are top notch, there is nice retail shopping less than a mile away in one direction, and within 2 miles two other directions, no 'ugly' commercial, and there are no blighted or poor areas nearby.
Our SFH is in a corner of the property, and we decided to look into developing the rest of the property into a residential development. We ended up going through the entire design process all the way through to receiving a construction permit for 14 new vacant residential lots averaging 0.26 acres, only to find out after receiving 5 bids from established local construction companies that the development seems to be a break-even scenario, at best. And since time would most likely be a factor in selling the lots, we'd almost surely actually lose money. Also, since we already owned the property my calculations don't even consider the value of the raw land (which they should). By researching nearby comps and talking to a professional appraiser, these 14 lots would sell for an average of about $80K each = $1,120,000 total. And the costs of developing (planning, permitting, construction, etc) would total over $1,100,000 ... which puts the costs at $78,500 per lot. And I feel certain the costs would actually be higher, for several reasons, including the fact that our local construction contractors will only provide a base price for their work, which they then 'adjust' "if" they encounter things like clay, rock or water. I know for certain they will encounter clay and rock, and I think at least a little water is very possible too. I was told by the low bidder that the worst case scenario would be $1.1M ... so the $1.1M total cost figure I stated above would increase to more like $1.4M
Halted. So it's almost certain we would lose money if we proceeded, especially if we consider the underlying raw land's value, which we certainly should consider (why give it away). But at this point, we have halted progress and have been looking into different possibilities on how to proceed.
One simpler alternative. The 8.5 acres actually consists of 2 long, narrow parcels, and our local officials have told me that the parcels could each be split once into buildable residential lots without being required to follow any of the residential development codes: No DOT roads, stormwater drains, stormwater basin, curbs, gutters, lighting, landscaping, etc. The locations of where the split lines would go are very obvious, and they'd result in our existing SFH being on a 1.86 AC lot and we'd have for sale 3 new vacant lots: 1.7 AC, 1.86 AC and 2.9 AC. These lots could opt for well and septic, or since water and sewer pass right by the property, owners could choose to connect to either/both. I estimate these 3 lots would sell for an average of $200K each. And the total costs to get them ready for sale should not exceed $50K, and probably less. The bulk of that would be a new simple paved drive about 240' long. We would not curb it, and there are no requirements to install stormwater pipes, lighting, follow DOT road specs, etc. So we might net $525K this way, after RE fees.
Revise the plan? Since the property abuts only other residential parcels, local codes won't allow commercial without a land use change, and even then it is very, very unlikely we would get that approved. This is a university town, and we have very liberal/left local leaders. And at this point with about $100K paid out already, I'm not inclined to throw more money into re-planning/re-permitting without being convinced we'd be likely to do better than the 'simple split' plan.
So, I'm asking if you have any other ideas. Are we better off to do the 'simple split' and sell the 3 large lots, which we really cannot lose on? Or do you have another suggestion that has a chance at bettering the 'simple split'?
I've tried to state all of the relevant info, but feel free to ask for any other details I may have forgotten.
Sorry this is so long ... Thank you all.