How can I estimate what it the land is worth?

Question

I found an ugly house on a lot a lot that's zoned R2.  The house is a tear down but the upside is that 2 units can be built on the lot  How do I estimate what I should offer the owner for the lot?  How can I estimate what it costs to build 2 3/1 units?

Karen Margrave · Answer

@Arthur Botting   You say you found an ugly house on a lot, that's zoned R2, the question is, did you buy it? How much did you pay for it? How big is the lot? What is in the neighborhood? What are rents in the neighborhood?

The fact something is zoned R2 doesn't matter if the lot isn't big enough to support 2 units, parking, set backs, etc. The devils in the details.

As for Steven J. comment about ARV, that has nothing to do with new construction. You aren't "repairing" you are looking at building new, and those values are based on actual appraisals of what will be built. You can also do comps on the completed house to get an idea of approximate value. Also, finding money for new construction is completely different than buying something that's already built, then fixing and flipping.

Remember, if you are bringing something to the deal (if you're a contractor, agent, architect, or something of real value) you look at things a little differently than a person that has to hire people for every job etc.

Also, assessed value has nothing to do with anything, nor do zestimates from Zillow, or any of those sites. Base your information on actual sales.

If you already own the lot, you may be able to get a developer/builder to joint venture the deal with you. However; you need to get a grasp on new construction or you'll have no idea if it's a good deal, or a bad one.

Steven J. · Answer

You need a developer on your team. Find a knowledgable guy who can quick pick up money to throw at this type of deal.

From what I've been told you get the ARV for the properties to be built. Lets say you build a duplex and its worth 400k ARV. If the average price is $80/sq foot and each unit is 1200 sq feet ($80 X 2400 sq feet = $192,000). You'll have to include on top of that the expenses for tear down/demo, utilities hook up, admin costs for the design, etc. I'm not an expert on this; thats why you need to have one on your team. They'd be glad to have you finding those types of deals for you.

As for what you offer the seller it comes down to what can be built, how much will it cost, and whats the profit desired? Using the above example:

400K ARV
	- $192,000 for build
	- $XXX.XX for utilities
	- $XXX.XX for admin
	- $XXX.XX for your wholesale fee
	- $XXX.XX profit for your builder

= Max Allowable Offer

I may be way off on this, but I've had a developer tell me he looks for acquiring the land at 50% of the assessed value.