We have a 4-lot townhouse paper lot subdivision. Keeping the existing 3,100 sf house and subdividing the remainder flat land. This is four fee-simple townhouse lots, 2,300 sf each. Can build 2 stories up to 1750 sf with 2 car garage. We plan to refresh and resell the house and sell the four paper lots to a builder. A question for anyone who has done this in the OC: 1. what did the paper lots clear relative to finished home sales price? We are working on a few of these in other OC locations. Thank you for your help...
Lender · Irvine, CA · Member since 2014 · 9 posts · 8 votes
1mo
Nice infill play, and 20 minutes from me, I'm in the OC too. I'll be straight with you, I don't have closed paper-lot comps in hand that I'd want to quote you as gospel, so I won't throw out a number I can't defend. But here's the framework I'd use to pin your residual.
For OC infill townhouse paper lots, finished lots tend to clear somewhere in the 25-35% of finished retail range, but that band is wide for a reason, and where you land inside it depends on a few things: how much entitlement risk is actually gone at the point of sale (fully mapped and ready-to-pull vs. still-conditional moves the number a lot), your offsite and site-development load (utilities, grading, any shared driveway/access or fire-access requirements on a 4-pack like this), density and the per-lot buildable footprint, and honestly just builder appetite in that pocket right now, which has been choppy. On a 2,300 sf lot supporting ~1,750 sf two-story with a 2-car garage, a merchant builder is going to back into your lot price from their retail comp minus vertical cost minus their margin, so the cleaner and more shovel-ready you deliver the lots, the tighter to the top of that range you'll clear.
The keep-and-refresh house helps you two ways you probably already know, it carries some cost during the entitlement/sale window and it anchors a retail comp for the buyer's underwriting.
Full disclosure so I'm not being cute, I'm a direct lender on the construction and land side (founder of a lending shop here in the OC), so I look at these residuals for a living, that's the lens I'm answering from, not a pitch.
Genuinely curious on your end since you're running a few of these: are you finding builders will tie up the paper lots at close of your subdivision, or are they making you carry them finished until they've got their own vertical financing lined up? That timing piece seems to be where the OC deals are living or dying right now.
Nathaniel, very thorough reply. Thank you. I find my builder buyers through residential vertical lenders. I will reach out to lenders who have funded builds/remodels recently in the project area and ask if they had a builder who would like this project. I will usually get 3 to 5 buyer builders using this method. Answer to your question depends on how many builders want it and are ready for it. That is the hard part.