What Are The Average Returns For Small Parcel Development?
I am a seasoned investor of rental properties in Florida. This is what I know and what I do.
I have joined a group of four other individuals and formed an LLC. First this is going to be hard because there are five equal partners, and all must agree. The "leader" of the group is really pushing to develop small parcels (7 - 10 acres). For example, the first deal that was proposed was to buy a 10 acre parcel and divide it into 10 - 1 acre lots. When subdivided, then sell the ten lots. All of this is to occur over a 12 month period while borrowing 90% Intrest Only.
This is much more simplified than developing a subdivision, no roads or utilities. Just purchase large pieces of raw land and break it into smaller pieces.
Where I need help is to determine what the baseline profit margin should be. For example, if our cost basis is 20k per lot, then what is the baseline return? I am very aware that a 12% return in RE is better than an 8% return in the stock market, etc. What are the baselines returns that small time developers should see before it is determined a waste of time?
Thanks in advance
WH
Based on ur post and my experience the usual return is 25%. I know several investors who do small parcel development and generate 25% and up. I have targeted tracks of land had had these investor groups purchase land and subdivide incase I didnt want all of the lots.
hiker1967:
Do you have a counterpart in Tallahassee?
The adjacent areas to Tallahassee have many acres of land. We are not in a shortage of land but of general investing formulas. Our first analysis for purchase is a 20 acre parcel, where only 7 acres can be built on and the other is wetlands. The purchase price is 86 k. We were going to break the 7 acres into 7 - 1 acre lots.
I would like to take it a step further and develop the lots and put a road in ( I would imagine that this would yield a higher margin ). Is there a standard for the cost to develop the land (.i.e., a percentage or cost per lot or cost per acre. In other words, how can I forcast the development cost for analysis purposes without getting too percise?
I like the idea of having the builder lined up to buy the lots when they are developed. At which phase of the investment would you solicit the builders and would you require the builder to buy all 7 lots or just a few.
Thanks in Advance
Wes
Also, would you sell to the builder at appraised value or would you sell at a discount? If a discount, then how much is too much?
Wes