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Author Topic: Residential Development Feasibility  (Read 1766 times)

Offline MCD

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Residential Development Feasibility
« on: April 12, 2006, 09:41:28 am »
I searched and couldn't find a cut and dry answer for my question. I would like to know the key componets of a market study/feasibility study for a residential development. I just need the components of a preliminary study. I don't need to determine exact costs yet or need to thoroughly analyze the environment or topo of the prospective site. What I'm looking for is a basic tool to use to see if a housing development would be feasibile in a certain area.

So far, I have a list of criteria such as population and income demographics, area schools, area amentities (commercial establishments, other neighborhoods, transportation, etc), housing prices, zoning requirements (ie. houses per lot, set backs, design standards, etc), site access, and available utilities. Is there anything I should add to get a feel of what I would be getting into?

My second question, is there a rule of thumb I should be using as far as land cost goes? What is a good cost per lot to be paying and still make money? $30k-$40k per lot?? I'm located in south central PA if that helps any.

Offline lender4developers

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Re:Residential Development Feasibility
« Reply #1 on: April 14, 2006, 06:24:16 pm »
Besides the items that you have listed, I would recommend researching the following as well:

- enviromental restrictions (wet lands, etc)
- demand for housing in the area & types of housing that sells
- status of local real estate market (still hot or cooling off?)
- does the city and/or county offer any tax payer subsidies (bond issuances) to developers for new units built & sold?
- what is the local labor & material rates to determine your costs to build
- see what the rates will be for insurance coverage, permits & other fees
- research lenders who will finance developments in this area to determine what your financing costs will be (upfront & at closing) as well as how much they will loan you

They last item will be very important since most commercial lenders who finance residential developments will provide you with 50% to 60% LTV to purchase the land, and maybe 60% to 70% to cover construction costs for the infrastructure & units.

Keep in mind that you will have a lot of up front fees to pay including commitment fees to the lender which can quickly ad up.

Offline NancyChadwick

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    • Land Buying & Selling
Re:Residential Development Feasibility
« Reply #2 on: April 18, 2006, 05:19:12 am »
To determine feasibility of a site for development, I'd consider the following:

1. what could be built (SF detached, attached, etc)
2. how many lots could possibly be subdivided
3. what would the new home on the lot sell for
4. improvement costs (horizontal)

Basic rule of thumb in my area (southeast PA) is the lot cost less cost of horizontal improvements should not exceed 25% of the new homesite value.

PA licensed RE Broker (Lic #RM061216B)  & Instructor (Lic #RI002050L), specializing in land brokerage, subdivision & development
Land Buying & Selling


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