Land Development Startup
 

Quick question for the ballas in this forum. My family has a property located in Carlsbad, CA. 6,300 Sq. Ft. land value of $395,000.00. We are looking to build 2 townhomes on this property and sell them for a reasonable price. The plans are close to being approved by the city and construction to begin shortly.

With this being said, say we profit a cool $800-900k from this project and want to startup a land development company with this money. What would be the best way to start? buy another piece of land with about 80% of the bankroll, or buy 4-5 properties. Any advice you guys have is appreciated, also if anyone works for a company like this or does this for a living please pm me or respond here with any helpfull advice. The housing market is down in California, but I hear right now is a great time to buy land cheap and in a couple years it is supposed to be picking back up. anyways ill write more later but its 5 am and i cant really think straight. thanks fellas.

Re: Land Development Startup
 

2 townhomes on 7000 sqft parcel profit of 450K per townhome if you can do this just repeat this as many times as you can. Even if your including the 400k property as profit. 250K profit per townhome is juicy even in the 1m-1.5mil price range.

Re: Land Development Startup
 

The problem you will have in California is getting everything approved to build a building. I know people who wanted to build 1 house on a large lot in the middle of nowhere in SLO county and it took close to five years to get everything approved. Butterfly studies, Tree growth studies, Water Table studies, etc. etc.

Also with as little cash as you will have, you need to do these one at a time Id think. Carrying costs can eat up any profit and leave you in a cashflow crunch if you end up holding the property for any time. I know it is California, but even cheap million dollar homes take awhile to sell sometimes.

I know a couple of other builders who tried building spec homes in different areas. First time they had to hold a house for 6-12 months to get it sold, they went back to contractor work because of the stress.

Re: Land Development Startup
 

IMO, it would be better to start slower and work from there. Build and sell two, build and sell two more. Once you've got some more experience you might start thinking about buying 4 or 5 properties at a time. But frankly, there is not shortage of good deals in real estate, so there is no reason to rush.

My understanding is that investing in raw land is one of the most risky of RE investments. So that's another advantage to taking it slow. You are risking much less all at once. BR management.

Re: Land Development Startup
 

[ QUOTE ]
IMO, it would be better to start slower and work from there. Build and sell two, build and sell two more. Once you've got some more experience you might start thinking about buying 4 or 5 properties at a time. But frankly, there is not shortage of good deals in real estate, so there is no reason to rush.

My understanding is that investing in raw land is one of the most risky of RE investments. So that's another advantage to taking it slow. You are risking much less all at once. BR management.

[/ QUOTE ]

nice post, thanks for the great advice, that is the thing im not sure where to start once im finished with this project, im wondering if its better to start building/buying land is a specific city/town or just find various vacant land lots in diff. locations in good areas.

Re: Land Development Startup
 

Godson-
you've got to email me the original of your avatar, I've got to see it full size.

Re: Land Development Startup
 

[ QUOTE ]
The problem you will have in California is getting everything approved to build a building. I know people who wanted to build 1 house on a large lot in the middle of nowhere in SLO county and it took close to five years to get everything approved. Butterfly studies, Tree growth studies, Water Table studies, etc. etc.

Also with as little cash as you will have, you need to do these one at a time Id think. Carrying costs can eat up any profit and leave you in a cashflow crunch if you end up holding the property for any time. I know it is California, but even cheap million dollar homes take awhile to sell sometimes.

I know a couple of other builders who tried building spec homes in different areas. First time they had to hold a house for 6-12 months to get it sold, they went back to contractor work because of the stress.

[/ QUOTE ]

You should have no problem getting this approved in Carlsbad. I currently have a project going to put 6 units on an acre of land in El Cajon. San Diego is encouraging affordable housing and it should go right threw. Appartment conversion is slow but what your talking about should be no problem.

Re: Land Development Startup
 

I am an appraiser in Colorado and I have lots of experience with land development. I would advise you to find some partners if you are new to the business. There are many things that can go wrong with land development. Likewise, there are plenty of opportunities. PM me if you would like to talk.

Re: Land Development Startup
 

it was my understanding that land never depreciates. am i totally wrong here, or is there some truth to this statement?

Re: Land Development Startup
 

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it was my understanding that land never depreciates. am i totally wrong here, or is there some truth to this statement?

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Sometimes it goes up, sometimes it goes down. Take for instance the following graphic take from here

http://photos1.blogger.com/blogger2/...here-q3-06.jpg

Note the dip in real prices the last few months of 1982 and at the start of 1991.

Re: Land Development Startup
 

Hi Godson,

Sounds like you have an awesome project going on. I would recomend you and your family getting as much education on the subject as possible. There are some good land development seminars out there, most notably by Scott Scheel at creativecommercialrealestate.com. There are also websites for real estate investors, reiclub.com, richdad.com

There are some areas where buying land can be a good buy right now. About 2 hours from you in the high desert, Victorville, Hesperia and Apple Valley will see another population explosion in the next 3 years due to the expansion of the SCLA and the jobs that will come with that. A lot of the developers and investors clients at my company are picking up land based on the poplation projections.

Does your family have development experience? If not, partnering might be good idea for bigger unfamiliar projects.

Re: Land Development Startup
 

I think townhomes are the way to go right now. The apartment conversion/small condo projects around SD are dieing out. The market for them is way overcrowded, but a project like this should be pretty sucessful. How much are you planning on selling each unit. Mine are going to be priced at $500K in El Cajon so I imagine that you will be able to sell them significantly higher in Carlsbad.

Re: Land Development Startup
 

[ QUOTE ]
[ QUOTE ]
IMO, it would be better to start slower and work from there. Build and sell two, build and sell two more. Once you've got some more experience you might start thinking about buying 4 or 5 properties at a time. But frankly, there is not shortage of good deals in real estate, so there is no reason to rush.

My understanding is that investing in raw land is one of the most risky of RE investments. So that's another advantage to taking it slow. You are risking much less all at once. BR management.

[/ QUOTE ]

nice post, thanks for the great advice, that is the thing im not sure where to start once im finished with this project, im wondering if its better to start building/buying land is a specific city/town or just find various vacant land lots in diff. locations in good areas.

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It seems to me that if your projects are concentrated in a particular area, you'll have a much easier time managing them. I think that this is what I'd do until I developed a better feel for the business. Also, the more you build the more contacts you will develop that can help you when you want to branch out into different areas.

I guess my general advice would be to be very careful and conservative. IMO, RE development is a field that is very lucrative but also very risky. And its my observation that its pretty easy to get overextended cashflow-wise in RE development. I'd take it very slowly. Probably I'd concentrate on one locale building a few homes at a time. Build up slowly and do quality work. Develop relationships w/ contractors, bankers, etc. Then once you've got a reputation and experience, start to branch out. Even if concentrating you efforts to a smaller local will create a smaller bottom line for you, its still worth it. Its just easy to bite off more than you can chew in this field. One or two million isn't that much money in RE development. You don't want to end up broke w/ 10 unfinished houses rotting away.

You want the last buck not the fast buck.