Question On Joint Venture With Developers In FL
Some of you may remember me from posting over the last year or so on TCI. I started out investing in rental properties here in Central Florida about two years ago. I was intending to keep those rentals for a long term investment (20 years) but the FL market got so hot (and I bought so cheap) that I sold them all for a very nice profit to investors from South Florida.
Anyway, you may also remember I came across some land last May and some lots very cheap as well. I partnered with my father in law (he is a silent partner mostly) and bought 36 lots and 85 acres. We still have the land (85 acres) and 17 of the 36 lots left and my luck continues to get better. Heres why: I had some written offers (on 85 acres) for nearly four times what I paid for it but I never liked the final terms so never sold it. Much to my amazement, the nearby city has recently informed me that the land next to mine is getting annexed. Once that is done, I will be able get annexed and get city water and sewer and get rezoned from 1 unit per acre to 4! As all of you residential commercial guys know, and I have learned, higher density is the key!
I have many interested buyers (even at the 1 acre density) but I think I want to stay in the deal and take it all the way to the buildable, developed lots stage. Then sell to builders for a lot larger profit. My delimna is the development costs. I have been told it will be about 1 million dollars to do the whole project not counting my original (very low) land costs. I have also been told that I would net at least 250, quarter acre-lots valued at about $35,000 to $50,000 each for a gross of $8 million to $12. 5 million and a net of $6 to $10 million to me (and paw-in-law).
I can do this one of two ways: borrrow the money for the development costs ( I think we can handle the interest only payments for a few years, but would be nervous) or find a builder to joint venture with us.
So here is my question: Do you all think a builder would do a deal if I said to the builder " you pay all the development costs (the 1 mill) on the deal and I put up my land. After the lots are ready to build on, builder gets deeded to him the amount of lots equal to his investment divided by a wholesale price for the lots say for example $25,000 each giving him 40 lots? I get the remaining 210 lots and would maybe consider giving him first option on those at a set price. Is this workable or silly? Keep in mind, large parcels, at a decent price (in a great area I might add) zoned residential, is hard to find in FL. Any other ideas or pitfalls to watch out for are welcome. Remember , I am new at this.
Thanks for responding.
1. Yes, one million $. But, even if it is $2,000,000 then the builder just gets more lots. I am sure the builder would know his costs up front via bids, engineering studies, etc. before hand. There is much development in this area right now. One of the fastest growing areas in the world today actually. Just 1.8 miles up the road they sell 350 new homes a month in an active lifestyle retirement/golfing community called The Villages. New Home depot just broke ground up the road along with Super Target.
2. Local Comps
3. Value is a lot that is platted, in a subdivision and ready to build on minus final clearing of trees etc. Lot values seem to go up weekly here. Just in May this year, I bought 36 lots (right next to the 85 acres) for $17,000 each. Have sold 19 (wholesale to builders) so far and the last two sold for $38,000. Had an apraisial to borrow money on them last week and it came in at an average of $40,000 for the left over 17 lots! Point being, by the time lots are ready 35 to 50K is very conservative.
4. $220,000 and up
5. Yes, it is in the state of FL "future land use" plan for 4 units per acre and the city has told me that it fits their criteria and would easily be rezoned for 4.
6. Phases would be ok
Some questions...
1. What are the costs for site improvements (everything except the cost of house construction)? If it's $1mil for 250 lots, that sounds cheap ($4K/lot).
2. How did you arrive at the lot value of $35K-50K?
3. Is $35K-50K the value of an approved but unimproved lot?
4. What would the new house on its lot sell for?
5. How do you know you will be able to get your property rezoned to 4 DUA--has the city told you that?
6. Would the city approve a 250-lot subdivision where site improvements are installed in phases or would they require all the improvements to be done at the same time with all of the cost escrowed?
Sounds like you made a strong investment and just need help developing the lots. It appears to be a good fit for one of the larger builders. Perhaps you should contact the builders / developers in that area and let them know what you've got. They have done this plenty of times and can handle the financing and pay you a set price per lot under a take down schedule over time (18-24 months would be normal).
I'm familiar with the Villages and that area is a boom town. The lot values continue to go up because land is becoming more scarce. Good luck.
[addsig]
You may want to consider getting a committment from a builder for like say, the first phase of the project. Get some good earnest money from him and go to the bank for the construction loan. I live in a hot area also and If I were you that's how I would attack it. If you can get it approved and get the water and sewer, gotta do it.
Here the builders are happy to commit to buy when developed because lots are in such demand.
Wish we were a little closer, we'd love to help you with the infrastructure.
Good Luck
Thanks for the replies. I was wondering about that one idea my self yesterday (the idea of getting commitments on a set amount of lots from builders and earnest money too). Then borrowing based on those instead of joint venturing.
There is one thing that could go terribly wrong here and that is if the guy next door for some reason does not annex into the city. He says he is but it has not happened yet.. I have to be contigious to be annexed. [ Edited by Ricker on Date 12/21/2004 ]