How Much Does A Developer Typically Pay For Raw Land?
How much ROI (return on investment) does a developer typically want to make on the land portion of a single-family housing development?
I have heard developers want to make 25% from the total package (sale of lot + house). However, the developers I have spoken to seem to want around 45-50% profit just on the sale of the land. Example, if I have 10 acres to sell, they want to pay me about $4m, while they can sell the improved lots for at least $9m.
I have been figuring the following: 27 lots x $350,000 = $9,450,000. Based on $45,000 per lot, subtract $1,215,000 for development costs = $8,235,000 to determine the net income from land sale.
If the developer wants a 40% profit, he would get $3,294,000. I would be paid the remainder, $4,941,000.
Three questions:
1) Are my calculations for development costs too low? I figured $45,000 per lot. I have heard that is typical around here (DuPage County, Illinois)
2) Is 40% a good return on investment for the developer?
3) Why would a developer not jump at an opportunity like this if he can make 40%? There are no drawbacks to the property. Quite a few developers have come to the same conclusion; they would put up about 27 homes. Improved lots around here go for at least $350,000, so I am being conservative in my figures, even factoring in a 40% profit for the developer, not the typical 25-30% I have heard is common.
If the developer can sell the improved lots for $9 million, how much should I reasonably expect for the land?
Thanks,
H. Mir
How did you go about getting your absentee owner list? Thanks in advance.
local tax appraisor office...
can someone maybe tell me what a good starting point would be for sq ft???