All Forum Posts by: Peter Wentworth

So just a bit more detail on this.  The land (roughly 10 acres) is all waterfront on a pond (hence the higher value).  The current owner has an old small seasonal place  on it that isn't worth much.  The owner created a subdivision with 5 lots (one with the existing 800ft2 cabin).    The owner was going to give a lot to each of their children, but the kids have decided they just assume sell the whole thing.   We are potentially interested in purchasing the whole thing and building a retirement home on one or more of the lots and selling off the rest.      I approached the current owner and asked about buying just the one lot we wanted at it's market value (established by an appraisal they had done).   The response was they don't want to deal with selling everything separately but would just prefer to sell the whole thing and then let that person sell of the lots if they choose.  

I'm trying to establish an offer price for the whole thing.   My logic is that if a developer or speculator comes in and buy's the whole thing,  they need to build in a reasonable profit margin and account for their risk and cost of having to sell it off.    If the market value of a lot is say $150K, then the max revenue from selling all five is $750K.     So is it reasonable to argue that it will likely take me (or anyone else at least a year) to sell the land,  so the value needs to be discounted to an NPV for one year minimum and that a profit margin of 20% is not unreasonable.   Also,  I will need to pay 6%  commission to a broker to resell.   Therefore assuming a 10% discount factor for the time value of money + 20% profit +6 %  says that the maximum prices I should pay would be;    750X.9*.8*.94= $507K

I can tweak the assumptions a bit, but I'm wondering if anybody feels that this is a reasonable approach or can suggest a better way of coming up with a price.      I should add that the reason we want this particular land is that we own the adjacent property.   

thanks

I'm looking at purchasing an existing 5 Lot subdivision in Maine and then selling the lots off.  The market value of the unimproved lots is $150K each.   What kind of price should I be looking at to purchase the entire subdivision assuming I will make no improvements.  I will only be taking on the risk & cost of reselling them.