Land Development Budgeting

General Real Estate Investing
1

Hi Gold River, and Any One Chip-in help thanks
I read your post on subject: showcase, realized you have plenty of experience in construction field, I would like to seek help from you…
I’m working on a possible/maybe deal for land development, which is a 4 AC land, I may take 1.5 AC to develop a 4-unit building (will fill in hamburger, pizza, small grocery store…), the building about 74 ft wide/ 130ft long (have the drawing). Could you please help me in this kind of budget calculation? (I suppose, I can talk to any developer, but, would like to gain some knowledge b/4 talk to them).
As you mentioned in another post for pouring concrete about $350/64sqft (mobile home lots), for 1.5ac, it is $354,375. How about the building? disregard the interior, what is the cost to build an empty building? when builder builds the building, do they usually include laying out water pipe, electrical? (the site already has those two)

After the building completion, do I need to fill tenants before I refinance to pay off the construction loan and land loan? OR, can I refinance right after the building construction completion? before I can find tenant to fill in, the property does not generate income, will this be causing difficulty to refinance ? (to pay off construction loan) (I’m worry for the refinancing because I don’t have any large liquid assets nor collaterals).

The vacant land which I will get a loan of 65% to ~195,000 to pay to the Seller, w/ the land value ~300,000, so, I probably still eligible to own 30% of the land value, Do you think will this be qualify me to get a construction loan?

(if I can have 3 units lease out, I should have gross rent income 3000x3=> 108,000/yr gross rent income. Do you think it is easy to re-sale at 9 cap for 1.2 Mill?

Please help. Thanks
te06

2

Hi,

I am going to partially answer this question as there has not been enough information provided to create a complete answer!

First developers create projects, and you are the developer if this is your project! You hire the general contractor or you act as general contractor and manage and sub-contract the project.

If you talk to a developer they believe you potentially want to put your land up and subordinate your property to construction financing! This is a way land owners can help themselfs sell thier land quickly is to make it easy for a developer to create a project! Developers very rairly will consider becoming partners as they generally have cash, professional resources, expertise and avoid conflict and disagreements by undertaking thier own projects!

You are seeking to purchase 4 acres however your talking about initially building on 1.5 acres, is this property currently subdivided? It really needs to be subdivided in order to provide land rights for individual construction and permanent mortgage financing!

Who studied your market to determine each of these 4 units should average 2400 sq. ft. each? Are unit’s 32.5 x 74 feet standard in your area? What is commercial vacancy rates? Average available rental / lease unit days on market? What is the commercial market rents / lease for your area per square foot and what’s offered as ammenities?

Generally speaking most all commercial structures are built as shells and build outs are held out until a specific business lease’s the space and determines thier business needs! Bathrooms have to be walled in and enclosed as part of shell construction! In your state are units required to have fire sprinkler systems for a 4 unit building?

This development site will need water, electrical, gas, sewer, phone and cable onsite along with fire hydrants, storm water drains, and possible fire stand pipes for building sprinkler systems! Since this is a 4 acre property future use will be potentially included in the first project to provide services for the potential second and third projects on site, this potentially ads additional cost in the first stage providing adiquate sized piping or load sizing for future service!

Do not buy the land and then expect to get construction financing seperately! Once you buy the land you effect your credit score and debt to income ratio, and although this is a commercial property the lender still needs you to qualify for the financing!

I really hope market rents are better than $1.25 per square foot per month!

You are going to need to discuss financing with a local broker and determine a plan to qualify for construction and permanent financing, your probable going to need somewhere between 10 and 25% in the project in cash!

Gross rent multiplier: Take’s price divided by gross rent’s!

Cap rate: is net operating income after deducting fixed expenses and variable expenses from gross income! Divide net operating income by price = Cap Rate! In this case I calculate a 18 cap rate!

Gross Income Operating Expenses = NOI (Net Operating Income)

Generally speaking commercial real estate follows a 50 / 50 rule of expenses and debt service as you still have all the cost’s and expenses of properties like apartments! The biggest cost of commercial real estate is owner contribution to tenant build out’s!

A $6k contribution to tenant build out in a one year lease is equivelent to 40% of fixed and variable expenses at $1.25 per sq. ft. or $3k per month per unit!

                     GR
3

I think you need a lot more information here.

First, all answers are regional. In my area you’re off by 2x what the rent would go for. Rents around here are $8-$10/sq ft per year in a prime location. Lots of the buildings are metal buildings though. Construction costs for the building are quite low, maybe $50/ sq ft finished the way you describe. The fact that you’re looking at buying 5 acres to build this building and use only 1.5 tells me you’re not in a big city somewhere, and your costs may be similar to what they are around here.

Another big cost will be storm water plans. 1.5 acres of concrete can’t be poured without storm water plans. That involves and engineering company and lots of dirt work before you can pour. I figure $200/yard for concrete.

What part of the country are you in? What is the going rate for leases? What is the population of your town? What kind of building is standard there?