Real Estate Development – Three Ways to Check a Real Estate Development Site Before You Buy!

Real estate development projects begin with the identification of potential development sites. Doing your homework at this early stage is vital to reduce the inherent risks as much as possible. We have found that by effectively controlling the site, the costs and risks associated with real estate development can be reduced.

Once we have identified a promising site, we verify that there are no potential restrictions on the land that could prevent the development project from proceeding. Once we are sure that it will be a viable development, we try to immobilize or control the property as soon as we can.

An important part of our feasibility process is calculating our “residual land value.” This is what the land is worth to us, based on the bottom line and the profit we can make from developing the land. This figure may have little to do with the sale price of the property, which will generally be based on the real estate agent’s estimate of value to owner-occupier or investor buyers.

After we have let the agent know that we are interested in the property, we prefer that the seller begin negotiations. Whenever possible, we like to buy from motivated sellers. There are simply too many opportunities and there is no need to waste valuable time trying to negotiate with unmotivated suppliers. If you’re not good at negotiating, you may want to consider a buyer’s agent.

We typically start our offers below the residual value of the land that we calculate in our feasibility study. While final price is important, we also look for value, which may mean having our experienced real estate lawyer propose favorable terms and conditions.

Like most investors we love to grab a bargain, however if it’s the right place and the numbers show we’ll make a decent profit, we’re always prepared to pay a fair price, based on the residual value of our land, which is what the earth is worth to us.

The best scenario is always a win/win situation for both parties. The residual value of the land that we have calculated may well be higher than the seller’s reserve price, because we plan to add value. In that case, we can usually comfortably agree on a price that makes both parties happy.

We never get excited and only proceed if the numbers work.

There are several creative buying strategies that can help make a development project easier, more profitable, or both.

delayed settlement

This is probably the most common way to control a site. Usually, but not always, a higher purchase price is paid in exchange for a delayed settlement. Our goal is to have our development approved during this time, giving us the ability to either sell the property at a higher price upon development approval or start our development soon after settlement, saving on interest payments and other costs. of maintenance.

Joint ventures with the land owner

Generally, the Owner can agree to exchange his lot for housing unit(s). An independent Appraiser/Appraiser is normally hired to determine both the value of the land and the value of the new housing unit and, if they are not equal in value, a monetary adjustment may be paid when development is complete.

We find that joint ventures are a great way for newcomers to get started, allowing them to share some of the profit and share some of the risk. Of course, you should always obtain appropriate legal and financial advice to protect your best interests in any such deal.

property options

One option is an Owner agreement in which, for a relatively small non-refundable fee, a developer has the right, but not the obligation, to purchase the property on a predetermined date. This usually gives a developer time to get a Development Permit approved. Options also allow developers to “reserve” a property and purchase it at a later time if they so choose.