Need Advice on Land Development

[hogan00]

Hi everyone

I need some advice. I have the opportunity to purchase a 50 acre plot of residential zoned land for $150,000 to $160,000. The land is adjacent to a newly develop parcel of land which has been fully sub divided and all the lots are now serviced. The developer has sold 10 of 40 lots and sales are currently slow.

The property is located in Gatineau, Quebec. I think the land is a reasonably good deal, however I`m not sure how much money and effort is involved in sub dividing and developing individual lots from this parcel.

I would love to hear from any investors that have had experience in this area.

Thanks in advance.

 

[Ken15]

I paid $3500/m of road (to finished asphalt) through my subdivision in Waterloo, ON in 2004. This was to service 200m of road for a 40 unit townhome development.

Hope this helps.

Ken

 

[Thomas Beyer]

QUOTE (hogan00 @ Dec 26 2008, 10:38 PM) Hi everyone

I need some advice. I have the opportunity to purchase a 50 acre plot of residential zoned land for $150,000 to $160,000. The land is adjacent to a newly develop parcel of land which has been fully sub divided and all the lots are now serviced. The developer has sold 10 of 40 lots and sales are currently slow.

The property is located in Gatineau, Quebec. I think the land is a reasonably good deal, however I`m not sure how much money and effort is involved in sub dividing and developing individual lots from this parcel.

I would love to hear from any investors that have had experience in this area.

Thanks in advance.
What is the zoning on the lot ? single only ? multi-family ? medium-density ? Residential has usually numerous sub-zonings !

it costs between $15,000 to $30,000 per lot to bring it from unserviced to serviced .. depending on labor rates, market, area, government levies .. plus there is potentially add`l "letters of credit" to guarantee to municipality a broken water pipe 3 years after completion will be fixed by developer ! Ask the municiplality what the requirements are !

Financing right now is VERY hard, likely not more than 50% of cost, and not more than your own cash in, and at interest rates between prime +4 to 15% !! So work financing costs and availability into your analysis !

What does the neighbor`s lots sell for each ?

 

[hogan00]

QUOTE (thomasbeyer2000 @ Dec 27 2008, 11:54 AM) What is the zoning on the lot ? single only ? multi-family ? medium-density ? Residential has usually numerous sub-zonings !

it costs between $15,000 to $30,000 per lot to bring it from unserviced to serviced .. depending on labor rates, market, area, government levies .. plus there is potentially add`l "letters of credit" to guarantee to municipality a broken water pipe 3 years after completion will be fixed by developer ! Ask the municiplality what the requirements are !

Financing right now is VERY hard, likely not more than 50% of cost, and not more than your own cash in, and at interest rates between prime +4 to 15% !! So work financing costs and availability into your analysis !

What does the neighbor`s lots sell for each ?

They`re going for $30,000 to $40,000

 

[Thomas Beyer]

QUOTE (hogan00 @ Dec 27 2008, 01:34 PM) They`re going for $30,000 to $40,000
pretty tight margin .. but doable IF there is demand .. and if you can get credit at reasonable rates ..

ROI has to be higher with land development as it is more risky ..

An interim solution is to buy the land all cash, get it subdivided and approved by city into lots with plans for roads WITHOUT servicing .. then it has more value and can be sold as is to another developer for more money .. but the real uplift is when you service the individual lots ! Get a clear view on servicing costs and financing .. and demand .. then do a go / no-go decision !

 

[realdeals]

My suggestion is to do a financial plan with estimates (until more solid numbers are known) - the cost of the land is just the beginning. there will be engineering, legal, accounting, contractors, etc. etc. to factor in. How many lots can you make from the 50 acres, what amenities, will you provide, what will the WOW factor be? Who is the target market for these lots? What is the marketing plan?

You might consider finding a partner who has the experience and make a deal based on the success of the project. There are also some good property development books available.
Timing is a big issue - right now the market is pretty slow (if not dead) but that will pick up. The margins need to be really high to justify the risks these days. For financing, I would suggest some joint venture partners be in place along with a mortgage broker before going too far along. The lender will definitely want to see your development plan with solid numbers backed up by written quotes. If your team does not include an experienced developer, it may be tougher to finance. And one last thing....have fun - turning raw land into housing lots can be very rewarding both financially and emotionally.

Bill

 

[StevenRoorda]

I have been working in the land development industry for over 20 years and the most problematic thing now is the rules, regulations, and the process to get the job completed. The numbers quoted above are in the ballpark of the costs I have seen recently - quite a range because of so many unknowns.

The biggest issue is the zoning, official plans, provincial rules and legislation that could cause many problems before you begin. I have been paid tens of thousands of dollars to do research on a piece of property before an owner decided to purchase. It is about 50% chance that they decide to purchase because many of the properties have some problem associated with them. Sewage capacity, urban boundaries, zoning densities, water capacity, environmental concerns, have all made various projects non-viable. To top it all off, the process can sometimes takes years to get through before you can sell anything.

Due diligence is something you will need to spend some money on before you purchase.

Steve