Hi all.
Just thought I would ask as I have never done it before.
Say you find a property but the landlord wants in rather than $.
No problems working with that but what sort of percentage of the development proceeds (after all expenses) is fair.
Assumptions:
- Developer assumes development costs/ risks
- land owner keeps property (ie no sale before developing) and gets a fair market price of land + % of development proceeds once sold.
I was thinking 20-33% would be fair. Especially if the land value is high.
Your thoughts ?
In this case, who is "the developer" – you, the landlord/vendor/owner, or a third party?
Generally speaking, the reward will be commensurate with the risk.Oh yes, now I re-read, a little ambiguous.
Developer.
There landlords reward would be for the following
- holding costs for the property (as they would receive they payment for land sale AFTER the development is done and sold.
- associated risks
- and I guess and incentive to sell
Would be a little tricky however you would need to agree (with a documented valuation of the before and post development values – from an independent valuation firm not an REA).
You would then both share in the development profit (with both parties contractually bound for paying for the development costs & well as just in case breakup etc).
Nathopoly,
You're share of profits is in the range. I've seen as much as 50% of the profits handed over if the original owner is willing to risk the entire value of his/her land if things go wrong. Joint ventures like this can be great as you save on the interest and require less equity. For what it's worth, most of the time in my experience when parties don't know each other, reaching formal agreement on terms after each party has received their independent legal advice is difficult.
Thanks Scott & Secure Server 1.
Wow a 50% profit share. I guess that would be for large land parcels with phased building or some other incentive like high land value.
Both of those situations would make for a higher profit ratio on the cost of building – land holding costs so I guess a higher % would be completely reasonable.
Im I on the right line of thought there or ?
Pretty much. It was a larger deal where the owner was putting up some substantial equity. If things went wrong they would have been heavily out of pocket
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