Raw Land Development San Antonio, TX Area
I own 120 acres in a high residential development area in San Antonio, Texas. I have the property listed with an agent but question whether I should try to subdivide/develope the land myself. What do I need to do to research this to determine if this is a viable option
subdividing and getting the property ready for building can easily double the value of the property. Ideally youd have it where a developer could purchase and start building the next day. It will take time and cause headaches but its well worth it.
My experience so far indicates that it varies. I may change it based on the deal and how attractive I need to make it in order to obtain equity funding.
Most commonly, I use a structure whereby investors get their money out first and then possibly a preferred % return before I see any profit split. In this scenario, if returns exceed this preferred return threshold, then there is a split between them and me on the amount above the preffered %. This split also varies. Sometimes it is 50/50 and sometimes better for me.
One catch here is that I also take an investment management fee on the amount raised regardless. This means that if I am charging a 2% investment management fee and raise $1 million, I receive $20,000 as an upfront fee when funded.
These can be structured thousands of different ways and I think the key is to match the structure with the perceived risk of the investment. If riskier, use a preferred return to gain more investor comfort. If less risky, use no preferred return and possibly use a profit split.
IN answer to your comment on wanting to tie to investor return, this can be achieve by setting up a tier structure, where profit splits change based on how high % return is (for example: between 10-20% = 50/50. Above 20% = 70/30). I think offering a flat return is difficult to fund, since they are taking risk that they may not get it, yet are capped it you do really well. This is why I like the tiering structure. THey typically have no problem sharing more with me if I am exceeding their return requirnments.
I agree with the 35% IRR on the land entitlement assumption. Have experienced this requirement from outside investors and actually am looking at an entitlement play right now where my money will require propsect of at least a 35% IRR to do the deal.