How would you price your units?

Once you have gotten an estimate on your per unit value what is your next step?

How far are you in the process? What are your next steps? In part one we discussed the per units value (this was determined from broker in the area). But let’s say that you wanted to just take it to the point where you have the tentative track map approved and have actually sold it to a developer. How would you price that? Is there a kind of formula you can use to see what kind of percentage all parties (developers, construction companies, etc.) involved will make?

You may be thinking this way to see what they are looking for as their profit before you have even sold it. You really need to be careful here because they really just may be trying to get your selling price!

And believe me, this is not an easy thing to do!

Before this is determined, you need to look at all of your options. And you need to define what you are doing. Are the additional units being added from vacant land, or are you adding units from reconstructing a current building with lesser units?

In this case, there a couple of different directions a buyer can look at. You might have a buyer who might contract with a general contractor to build specific units for individuals, or you could have those same units just rented out. Essentially, what you need to do it calculate what the total expense would be for the construction and then what their revenue would be out of that, and then get a return on that investment.

Now here’s food for thought. In the commercial world, I typically look for minimum yields, a minimum return on my money for at least 10%. If it doesn’t hit 10%, I wouldn’t even waste my time. Now that isn’t the norm. Most other investors are happy to get 6, 7 or even 8%. Why? Because that is double of what their mutual fund is paying! So what does this mean for you?

That’s right-your new challenge is to market it! Your challenge is going to be to market it and get it placed quickly.

Something else you need to be concerned about it is the entitlement standpoint. Make sure to check with your state laws concerning the timeframe. We’ll discuss this more in part III.