Property development question.

[Bill Douglas]

Property development question.

The situation. I have some beachfront land property developers are interested in buying to do a six or eight townhouse development on.

The numbers. Let’s work it out for six townhouses. Six times the sale price of each townhouse at 1.9 million = $11,400,00.00 The build cost plus infrastructure, plus site driveways, landscaping etc is (very roughly) $3,000,000.00 This means $8,400,000.00 after costs.

The question. What is the most the land is worth. Obviously developers want to make a big profit margin to make it worthwhile taking all the risk. But I don’t need to sell, so they have to make it VERY attractive to me, to accept their offer.

A point to consider. It would probably be cheaper for them to hire a hit man to bump me off then deal with my estate for the land LOL

[drcoastline]

Try and locate the most recent sales and use those as comps to get a per square foot cost.

[Bill Douglas]

I can't really get the square foot cost of the land as there haven't been any land sales to developers in the area that are comparable. The developers already owned the land for some time. The square foot cost of the buildings/water/electricity/driveways/landscaping is reasonably conservative at 3 million according to a couple of building contractors.

[p911dad]

Bill, since what we are talking about is a subdivision (although small), maybe you can use subdivision analysis. Look up the article "Subdivision Analysis" by Chris Ponsar, MAI. This might be useful for you to see how the income approach to land valuation might work in your case. The developers have already probably done something like this and have a number for you in mind, (obviously advantageous to them!). Or, since big money is at stake, maybe you should hire a professional appraiser, not simply an agent to get a free valuation. Glenn

[nota]

HERE IN VERY OVER BUILD S FLA

zoning is a big driver of value

is 6 units the max or just proposed

[Bill Douglas]

There is a recent development 150m down the road that has six on it. so that's what I did the numbers on. It could have four duplexes so eight sold at 1.6m I guess. Thanks Glenn I'll research that.

[nzporsche944s2]

Bill, my brother is a property developer in Auckland and I've done a couple with him (multi dwelling developments - one was 5 houses, one was 3 houses, and a single house). A few things to consider from a NZ perspective (assuming your property is in NZ);

- build costs are through the roof right now. You are lucky to be able to finish a dwelling for $2500 per square metre. This is driven by a shortage of materials and tradespeople and of course greed.

- The local council will want a development contribution that is based on the rateable value of the land. For one development in Greenlane, Auckland we had to pay $122,000 to the council just to subdivide our own land (approx $1,000 per square metre)

Depending on the footprint and spec of the houses I would highly doubt they could build 6 townhouses for $3m - my estimate would be a build cost of double that after consents, contribution, and infrastructure.

Just my 2 cents

[Dantilla]

Perhaps form a partnership with the developers, where you share the profits upon sale.

Or better yet, if they plan on keeping them as rentals, you may have steady income.

[Bill Douglas]

Thanks NZ. this is the sort of info I need. I'm just bouncing numbers around as you can imagine. The ones down the road are six 150 square meter places, so with your numbers that is 6X375,000=2.25 mil so (my guess) is not too far off. The land is 1,000 square meters on Lyall Bay Wellington's beachfront.

[Bill Douglas]

Originally Posted by Dantilla

Perhaps form a partnership with the developers, where you share the profits upon sale.

Or better yet, if they plan on keeping them as rentals, you may have steady income.

I think so. I'm just trying to quantify what the land is worth to know my position in the negotiations.

[wilnj]

Maybe let the market know you’re willing to sell and see if there are any other buyers in the market?

[pwd72s]

Advice..factor in taxes...ways to avoid a portion of them. (edit) Meaning, the highest offer may not mean the most ending up in your pocket.

[Bill Douglas]

Originally Posted by wilnj

Maybe let the market know you’re willing to sell and see if there are any other buyers in the market?

Yes, I don't want to do the buyer a favor. But I don't want to say it's for sale until I've done my research and have decided if I really do want to sell, and it really is for sale.

Originally Posted by pwd72s

Advice..factor in taxes...ways to avoid a portion of them. (edit) Meaning, the highest offer may not mean the most ending up in your pocket.

Taxes, yes that' can be the frightening it. But with local tax laws, the fact I've owned the properties for over 10 years I don't have to pay any capital gains tax. But I'll make sure with this one.

[rusnak]

Tell them you want to retain equity in the finished project. But definitely get some cash up front.

[Bill Douglas]

Originally Posted by rusnak

Tell them you want to retain equity in the finished project. But definitely get some cash up front.

Yes, it would be nice to have one to live in, plus one as a rental. But first and foremost the cash.

[drcoastline]

Originally Posted by Bill Douglas

Yes, it would be nice to have one to live in, plus one as a rental. But first and foremost the cash.

It is very common here for a seller to get cash and a completed unit.

[Bill Douglas]

Originally Posted by drcoastline

It is very common here for a seller to get cash and a completed unit.

Interesting, thanks.

So guys, the big question. What is the most the land is worth.

[URY914]

Originally Posted by Bill Douglas

Interesting, thanks.

So guys, the big question. What is the most the land is worth.

It is worth the highest price they'll pay for it.

[sc_rufctr]

Originally Posted by Bill Douglas

Interesting, thanks.

So guys, the big question. What is the most the land is worth.

Based on your description and there's nothing blocking the development I'd say 660k per unit or $3,960,000 total for the land package.
(Assuming the market in New Zealand is similar to Australia)

That may sound like a lot but recently I saw a beach front block of land for sale that was zoned for 3 stories. The asking price was $2.2 million and it sold very quickly.

But I wouldn't consider doing anything like this right now. I'd wait until the pandemic is well behind us.

[WPOZZZ]

What is the current zoning of the land?