Entrepreneurial profit/incentive

[BRCJR]

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[Joe Flacco]

It is difficult to gauge the change in land values and same with costs right now.

 

[Terrel L. Shields]

It is difficult to gauge the change in land values

I am lucky enough to be in an area where there are tons of land sales. And across the classes of zoning, there seems to be a minimum of difference in prices, largely because most zoning can be changed readily here. The commercial land is being bought and redeveloped. The old NAPA parts store is gone, the tire shop next door closed up and all the land behind is being cleared to develop. A long languishing subdivision is being repurposed for apartments. The carwash is sold and to be demolished. The seller kept the equipment. A bank bought a tract from a family who had owned the woodlot since the 1930s. They are developing about half of it for a new bank building. We have several new subdivisions under construction and rumor has it we get a Casey's. If so, the EZ Mart is toast. Don't know how it stayed in biz to begin with. That's a town of 3,400. Remarkable growth in the past 3 years.

 

[Russ Kitzberger]

In one of my markets, they are knocking down perfectly fine ranch and older homes at $150-700k and building these. That photo is from my backyard and was a ranch home.

EP on the $500k+/- tear down properties which are in an exclusive village was 20-30% before the lumber shortage. Time will tell what/if they get EP out of this one that doesn't match anything in the neighborhood.

 

[glenn walker]

So called entrepreneurial profit is not always the same as builder profit-ON a builder profit it changes depending on what type of construction and the market trend. In good times or booms I know builders at 25% or even higher-BUT- in slow times I have known builders who in order to keep staff and workers employed they will net out at less than 10%. On Entrepreneurial profit it's baked into the cake and I am going to sell the property for the highest price possible and if I can catch a buyer and get it appraised the appraiser will never know what my preferential profit really is . When I put on my Appraiser hat I really don;t care what profit anyone makes as long as my comparables support the value.

 

[Terrel L. Shields]

tear down properties

So far most of the tear downs here needed torn down. Sold right at lot value or above, so much for the notion that the land sale will incorporate a deduction for the cost to cure the old structure. Some older 2 stories here are being bought and remodeled- and some of the big old 120 year old houses that were cut up into 2-4 unit apartments are being bought and rebuilt as SFR. Selling $50-100k and reselling at $250-350k. Many buyers seem to be Hispanic builders who are doing this while perhaps running their main business as roofers, framers, etc.

 

[Russ Kitzberger]

So called entrepreneurial profit is not always the same as builder profit-ON a builder profit it changes depending on what type of construction and the market trend. In good times or booms I know builders at 25% or even higher-BUT- in slow times I have known builders who in order to keep staff and workers employed they will net out at less than 10%. On Entrepreneurial profit it's baked into the cake and I am going to sell the property for the highest price possible and if I can catch a buyer and get it appraised the appraiser will never know what my preferential profit really is . When I put on my Appraiser hat I really don;t care what profit anyone makes as long as my comparables support the value.

We have Dr's and rich folk who are buying these, tearing them down, and then paying builders to do spec. That is how it works in commercial as well. EP is separate, but builders are usually the ones who start the trend, as they use their excess capacity to keep crews busy and can accept less EP than a developer/builder separation would.

If you need evidence of this model, look at the national homebuilders who are also developers, they sell for less than local developers who sell to builders, who sells to end-users.

So far most of the tear downs here needed torn down. Sold right at lot value or above, so much for the notion that the land sale will incorporate a deduction for the cost to cure the old structure. Some older 2 stories here are being bought and remodeled- and some of the big old 120 year old houses that were cut up into 2-4 unit apartments are being bought and rebuilt as SFR. Selling $50-100k and reselling at $250-350k. Many buyers seem to be Hispanic builders who are doing this while perhaps running their main business as roofers, framers, etc.

Used to be the case here too, mixed now between the 3- builders, developers, and builder/developer national brands.

 

[Joe Flacco]

Almost all land sales are tear downs in my coverage area and when the builders are competing with people trying to buy a personal residence and you see prices at the lower end moving higher but fewer being acquired by builders it is hard to say if it is the depreciation on the older homes that is decreasing with site values staying the same or if the land values are increasing with the increasing prices at the low end.

 

[Terrel L. Shields]

I have known builders who in order to keep staff and workers employed they will net out at less than 10%. On Entrepreneurial profit

Here we saw a few builders in 2010-12 who were selling new homes at $80/SF well below the cost book pricing. But they were shedding themselves of lots that cost property tax, keeping crews busy and as workers themselves, were doing framing and such side by side with their employees. So they made wages at least, but were getting rid of those lots and the tax. At one point, banks were selling lots for $6,000 - $10,000 each. Had I been a risk taker (I am too old for that) - I would have bet the farm and bought 20 south of me for $11,000 each in a greenfield subdivision that had only 2 developed lots. In the past 2 years the last of the available lots are selling for $60,000. Ironically that is the original asking price in 2007 when things collapsed and the co-developer who was the guy who built my home back in 1991, committed suicide over it. Sad end.

national brands.

Lennar and Horton etc. are not much of a factor here.

 

[Joe Flacco]

In some neighborhoods when you have very recent tear down sales you can see the change in site values but in a lot of neighborhoods not many. You don't always know if it was a tear down sale until you see a listing for proposed new construction on the lot or unless it was acquired by a known builder. They are not marketed as land. Just mixed in with all the single family listings.