Issue 13
Part II - here is the link to part I: https://www.middlehousinghelp.com/newsletters/adus-and-middle-housing-report/posts/evaluatingdevelopmentoptionslargelot
Last week, we were looking at a lot that had either middle housing or subdivision potential. At maximum density, it might be able to house up to 30 potential units with one of the following configurations:
The lot is within city limits (in a Tier 1 City) and over 25,000 square feet. The city may allow the owner to divide that up into five lots. What might one build on five lots?
- 5 single family residences
- 5 single family residences with one or two ADUs each (up to 15 potential units)
- 4-6 units per lot (up to a maximum of 30 potential units)
Also as a reminder, the configuration of the lot is as follows with the street at the left and a highway at the right. It is long and narrow, so getting car access to the back will assuredly eat up a portion of the buildable square footage. We also don't know what additional requirements may be alloted for this property such as tree protection, stormwater requirements, etc. But for the purposes of this example, we are going to assume that 80% of the potential listed above can be realized.
In order to determine an appropriate either price to pay for this property OR amount to list the property for, we must reverse-engineer the potential yield from an income standpoint. Of course, we don't know what the developer is going to want to do, but by evaluating the potential a few different ways, we can arrive at some logical pricing.
Let's look again at the potential once we subtract 20% for roads, infrastructure, and other requirements:
- 5 single family residences x 80% = 4 single family residences
- 5 single family residences with one or two ADUs each (up to 15 potential units) = 4 SFR + 2 ADUs each = 12 potential units
- 4-6 units per lot (up to a maximum of 30 potential units) = 24 units once we subtract 20%
Now let's reverse-engineer potential end pricing for each of these. We are going to start with 4 single family residences because that is the easiest to determine.
4 SINGLE FAMILY UNITS:
These are the easiest to evaluate because:
- They are most prevalent in your market, so finding comps is easy
- They would sell fee simple
- They are usually the most in-demand product
Assuming the developer would develop product that is somewhere around the median sales price or below (remember - this is in an area that is seeing some greater density with townhomes and multi-family nearby and there is a highway at the back of the property), find comps for similar new product for something that is median-sized for that area for new product (likely homes that are approximately 1800-2000 square feet and 3 bedrooms) on a lot size that is approximately 5000 square feet with a shared driveway. Remember to also account for the highway.
For the purposes of this example, let's say your findings indicated a price of $800,000 per house for a maximum gross profit of $3,200,000. Put a pin in that number for just a second because there is a second number you need next...
10 Things Real Estate Agents Need to Know About Middle Housing
-FREE VIDEO -
Click below to watch now!
https://www.middlehousinghelp.com/10-things-agents-need-to-know-about-adus-and-middle-housing
