February 21, 2024

Fryer And Brown

Creating Your Dream Home

What Determines the Buying Price For Land For Real Estate Development?

As mentioned in my previous article ‘obtaining development approval for your land’, I discussed the importance of market research in regard to many aspects of the development at the early stages, such as knowing whether you have purchased the land at the right price, knowing the number of ‘units’ you can ‘grow’ on the land, knowing the correct zoning and height regulations for the land just to name a few! I have written this article because I want to reinforce the importance of market research to you before you go and buy the land and before you go about throwing your money away!

Most of us do this because we are passionate about real estate development, but we also do it to make a profit!!!!! And as the old saying goes ‘you don’t go broke making a profit’. And that is what developing is about. I am getting a little of track here, but I also want to reinforce the important point that you do want to make a profit, but you must also guarantee your team (eg BUILDER) is happy and makes a profit! So, getting back to market research, this is the time where you do some work. You spend some money on gas/petrol and throw on the boots and get out and about in your ‘patch’, the area you are making your own! This is another story, and something very important to your success also. That is, choosing the right patch. I will help you with that later.

As a professional developer, you will be doing this at the most fundamental level as it is essential to your success in this business! You will learn about and become very familiar with Qualitative, Quantitative research and market analysis.

You must determine the different locations in your town/city eg ‘richville’, ‘poorsville’, ‘mediocresville’ and so on. You see what I am getting at? This is the start of your market segmentation! Can you put boundaries on this information? What about boundaries on the areas you wish to start your development career in? Do you know how much you should be buying land for in your patch, not an estimate, exact figures? You need to, this is what I will show you how to do. This is what Real Estate Development Market Research is all about!

So basically what I am getting at here is, you need to know the exact price you should be buying your land at!!!!! Not a guess price because Mrs Jones told you that Bob down the road sold for $X so that block your looking at is on the corner so you would have to pay at least $X more! Stuff that is tangible, and also not stuff you have bought from an online real estate marketing site that gives you prices of the latest sales in the area, or what they claim to be the latest sales, that is the problem, because we talk about ‘real time’ market research and in this game that is the ONLY thing that counts. Developers who rely on this information are off the mark and have missed the boat. Markets change and to obtain research that is 3,6, 9 or 12 months old is exactly that, OLD! You need yesterdays prices and today’s prices, I hear you asking how do I get that? Through learning the right way! How do I learn the right way? By learning from someone who has done it over and over again successfully, by choosing the right mentor and following a system that works no questions asked!

As the media continue to push down our necks all the negative garbage that is happening in the property arena, and you see more and more property developers not doing well, you must obviously ask the question, why are they doing so bad? What did they do wrong? The fundamental answer to your question is in the above! If they had done their market research and if they had been vigilant, there would not be so many of them in the predicament they are in now. Eg Florida, their research would have told them that ‘units’ (residential dwellings) were starting to stock pile and developments would have been put on hold. New markets analysed and a lot of money saved! Remember, after expansion always comes recession, and after recession always comes expansion and this will not change! So you ask the question, how then do I know when the change between recession and expansion will start? DO YOUR MARKET RESEARCH HOW I SHOW YOU AND YOU WILL KNOW. You will be ahead of the game!