Property development question.
 

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

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

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.

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

HERE IN VERY OVER BUILD S FLA

zoning is a big driver of value

is 6 units the max or just proposed

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.

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

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.

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.

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

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

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.

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.

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.

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.

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.

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

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.

What is the current zoning of the land?

Residential. And you can have three, three story high, properties on a section., and this is two sections. The council (city hall) are very friendly towards higher density so the eight properties in the 1000 square meter would be an option without too much asking.

That's what I'm wondering. There is the 8.4 mil "profit" so I'm thinking I get the 8.4 not 3.96. But somewhere in between is where developers operate. As it is I could get more than that with the two ordinary houses on the adjoined two properties equalling 1000 square meters. A friend bought a very ordinary place in an ordinary back street location for 2.2 :eek: so it shows how nuts the property market is around here.

Why not partner with the developer so you share in the profits. As a landowner, you only get what the land is worth. The developer makes the profits because they are putting their money at risk. There are lots of other costs associated with developing a property such as paying the General, architects, engineers, permitting, and zoning changes, if needed. There are also palms that need to be greased.

So, you tell them you put up the land, they pay for the architect, engineers... and you guys split the profits.

Yes, developers also have an established good working relationship with "all of the above", whereas I wold be the new boy.

Plus I don't have the cash or the friendly banker relationship to have the money to do it on my own. I just want to be armed with knowledge so I'm not giving too much money away to the other guy. So hence trying to quantify what the land is worth in the best possible scenario.

Just re-saying...

Exactly. We're all going to die or life will be more normalised.

As NZ said we have really supply problems here in New Zealand. Container ships don't bother to come here because we are too much like small fry and they can get back on schedule by sailing straight past us.

18 to 24 months... Not long.

if you own it
talk to a bank about a loan
then apply an adjustment 20% ? or so

Great advice. Once you sell it, it's gone. No going back. As I've always said about property - buy it and hang onto it, and don't sweat the details. I may wait and see if we all live or die (or go bust) with the new Southern Africa covid. 18 to 24 months isn't long in the bigger picture of things :)