As an integral part of the planning process, buying the land for a development one must decide whose name is the land going to be under or what legal entity is going to be placed as the landowner.
For example, is it going to be under your personal name, or under your partner’s name/names or under a corporate name.
The above questions need to be answered almost immediately as it’s crucial and needs to be decided who is the borrower and the amount of money that is required to buy the land, but also who are the borrowers if it is more than one borrower is not enough to get the full loan for the overall real estate development process.
Circumstance can be different for any individual or any parties, so there can be many variations and that needs to be verified and answered before you can proceed further.
In different countries, there may be different legal frameworks to govern the purchase of properties and you need to comprehend them before you go ahead with the sales. As a developer coming to make this decision are crucial and fundamental, so you need to work on them before you proceed further.
I would highly recommend that you hold an interview with each of these professionals as you will be putting your future in their hands so please hire only those professionals who have successful and proven practices and please do not compromise on this for any reason whatsoever.
To be clear, have your company financial portfolio ready with you when you meet these professionals, and be sure to present your company business plan to them and show them where you and your company are planning to be in the near future.
As a word of caution, do not hire a Lawyer, Accountant or a Finance broker if they are your friends and please be prepared with your company presentation materials when you meet these professionals.
You need to state these objectives clearly to these professionals, they will need to work with your and your company to achieve these objectives.
The next logical step would be to start putting in the applications to the local building control authorities for building a townhouse or townhouses in your land. Now there is a distinct possibility that the authorities might reject your application and if so what would you do with the land that you have bought? These are real questions that you need to have answers to before you can embark on a journey to purchase the land.
Well to start off, you can do the basic necessary step, that is, doing some “Research”. If you notice, most big multi corporations do this simple basic step before going off to purchase any land or building. So, my advice to you would be the same.
It’s in your best interest you must do this, let’s say it’s a necessary evil since a large sum of money will be involved and you cannot get this wrong. If you are working in a company and you get this wrong, your career might in jeopardy or might lose your life savings on this venture if you get it wrong.
I’m sure you can figure out all these questions from the data you have and lastly what will be the estimated cost to build such a townhouse?
My advice to you would be to pay a visit to the local authorities there and figure out the different development rules they may have for each land parcel. There might be different rules for each type of building in different land parcels you may want to purchase. These are basically the building zones that the authorities have in place, but an architect knows these rules, it’s their job. So, pay a visit to a local architect at their office and let them explain to you the quick and easy ways to determine a development site’s land capacity. Why may you ask?
Simple, the architect can tell you how many houses or units you can have in that plot of land and with that data, you can pretty much figure out how much money you can sell these homes for, in short profit!
There would not be much use of doing all this if you cannot make a profit, right?
For example, you buy a land for $100K and you are allowed to build 10 units, each unit costing you about $40K to build out, so that is $40K x 10 units that is, $400K and land cost another $100K and any other additional miscellaneous costs you may have, for example, that is another $100K, the total development cost is $600K now. Everything impacts your development costs, so now you must work out and see what price to sell each house at, maybe about $650K or $700K to make a decent profit to stay afloat in good times and bad. Now all this is only possible if the land is bought at$100K.
Let’s start with the Land negotiation first, you must deal directly with the landowners, this is my advice and nobody else. Once you know the owner, ask to see the land titles documents, and make sure the name of the owner is correct before you venture any further with the deal.
Next, find out what is the price the owner is willing or comfortable to sell off this land, of course he/she is going to tell you a price. With that price in mind, do a quick calculation there and then and you can easily estimate the building cost and all if it’s profitable for you to go ahead with the sale.
Don’t just accept the price, try to bargain a bit, talk about the current surrounding prices and what people are selling around his/her place. That’s why research is important for you to do and have so that you can negotiate. And see if the seller will agree to a lower price, if he does, then good you have more profit to yourself and if not, then you know where is his/her limit.
After you have successfully negotiated the purchase, talk to your lawyer immediately to prepare the contract documents. Next talk to your accountant and your finance broker, next go and design your project and make an application to the local authorities and seek their permission to develop the land.
Once you have built these homes, get an experienced and professional real estate agent in that vicinity to help you market and sell these homes quickly. The soon the better since you can get faster “returns on investment’.
Of course, you need to factor in the commissions of these agents to your profit margin.
Well, if you have reached this stage, you are now a developer. Good luck with your sales.