We want to develop on vacant land that we believe to be $600K present fair value. Our desire is to negotiate with land owner (motivated seller but not distressed) to pay for the land in 2 years time (post design-build-flip). What would be considered a fair price given current interest rates and what other variables should also be considered. I'm thinking lease option is the way forward though unsure of how to structure and prices to pay. I'd be open to any other financial mechanisms that would secure also the land.
Thanks for reading and extra thanks if you respond!
12 posts and 9 are redundant
You as a buyer do not want to ever ever ever improve a house in a lease option agreement
@Bill Gulley should be able to help you with that
And you going to need an excellent development oriented real estate attorney
Really, first question, have you done any developing before?
I'd bet the P/Z, building/development office needs to run some zoning changes through on vacant land before building a subdivision. That usually requires the owner to apply for a zoning change.
For that process, you'll need some engineering accomplished, site plan, water retention, concentration of land usage, utility plans, street plans, etc.
How many acres are there? 600K tells us nothing, that could be 5 acres or 200 acres, big difference.
You can't take on development or construction liabilities based on an option, unless it's your money you are spending up front, may not be a good thing.
Set the land into a Trust or corporate entity, then join that entity as a partner with the owner having a buy sell agreement. The entity can proceed with zoning and development.
You need a Professional Engineer for a development, you'll have surveying and other engineering aspects required by the state, county and probably city.
You need an attorney to set up the entity and provide a buy sell agreement between partners, indemnification agreements, methods of payments as lots/properties sell. Are you going to pre-sell lots?
This is no DIY thing for a first timer, get professional assistance and someone who has a success record with your zoning boards, it gets political.
As to price.....who knows? What is the highest and best use, if that is for the development planned, run the pro-forma on cost, what the market price will be for the finished improvements, lot costs should not exceed about 20% of the sale price, 10% if you expect a profit off the lot. From that you can see what your maximum offer will be for raw land. Good luck :)
Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com
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