Starting a Land Development Business 2

[CRAIGSTANLEY]

Land Developing is a subject that really interests me....Although not competent in site design....I am thinking about dedicating some time to learning this subject and the art of developing land

Assume I have a PE liscense and sufficient overhead funds are availiable....What is the best way to become a land developer

Is it worth extra time to pick up a survey liscence as well as a PE?....Will a surveying liscense be worth it's weight in gold when I get into land developing....or is it better to contract this service out

Some rich guy once told me...Don't try to learn everything....Let someone else learn everything and hire them cheap

Seems like the developer makes the big bucks...the engineer get a piece of the pie....and the surveyor grabs a piece as well...but the developer turns the big profit

Is there any engineers that buy/design/construct out there?

What do you think about the future of this business?

Craig

 

[jimbo]

1. Takes major money to develop, not just overhead. Need a reliable financing source.

2. You do not need to be a land surveyor. That is a separate struggle all by itself. Hire them.

 

[RDK]

I recently looked at buying a small 6-lot sub division and developing it in partnership with a sewer/water/road contractor and a house construction contractor.

The cost of the land would have been $150k.
The cost of the utilities would have been 120k for municipal and another 50k for electrical, gas cable and telephone.

In addition to having to put up ALL the money ourselves (no bank would use undeveloped speculation land for collateral) we would have had to put a bond in place for the value of the improvements.

Total out of pocket before we could start digging would have been 150k+120k+50k+120k=$440,000. (The water/sewer contractor would have carried some of it and that would not strictly speaking be an out of pocket cost.)

Then we would have had to build at least one speculation house before the other lots would sell, say another $150k. (But we would have gotten our bond back by then.)

A developer developed the lots and he is selling them for at $60k each. Gross profit will be $40k but he has only sold 2 and will have to sit on the other 4 until next spring at the earliest and it took him one month of full time work to negotiate his development agreement with the City. He still has to pay his lawyers and accountants, interest overhead etc.

I doubt if he will put 20k in his pocket before personal income taxes. Not a lot for the risk, effort and aggravation.

Remember in any business it is not how much money flows through your hands that matters; it’s how much sticks.




Rick Kitson MBA P.Eng

Construction Project Management
From conception to completion

http://www.kitsonengineering.com

 

[johnhan76]

RDK is right on the money - it takes a lot of $$ just to get started. one thing to remember is that there are some economies of scale at work. Also the higher density developments usually lead to higher profits.

 

[RDK]

Higher density may also mean higher total start up costs.

The numbers that I supplied were obviously for one small development, any other different development may have drastically different costs but the same basic influences will apply.

To develop land you must have all or at least most of the cash (or get credit from the vendor and or contractors) on hand to buy the land, to install the water, sewage, electricity, gas, telephone etc as well as most likely to be able to put up a bond for the value of the work on top of that.

Banks and investors are reluctant to invest in land development. It is highly speculative and it may be a long time before the land can be sold. In my town we have 40-year-old developments with infill lots left. Someone has paid for the land, the improvements and the taxes for all this time. They may have been better off to have given the fully developed land away in the first place.

Also a new development needs some houses built on speculation before it will attract people to the development. That means that you have to build several houses before you will see any return.


Rick Kitson MBA P.Eng

Construction Project Management
From conception to completion

http://www.kitsonengineering.com