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To get the best land:
- Bid only on the best parcels.
- Prepare to pay 90%-100% of the asking price (if it’s reasonable).
- Schedule a meeting with the seller. “Relationships are built on mutuality of trust,” Grant said. “That’s why face-to-face meetings are so important. The seller gets to know your track record and past successes.”
- Bring photos of your homes and literature about your company, and tell the seller about awards you’ve won.
- Offer to build one or two “quick delivery” (spec) homes. “You must be financially prepared to do that,” Grant noted.
Your spec home must be well-designed and competitively priced — not to make a lot of money, but to absorb lots. The landowner wants to know that you’re a good bet to do business with. Pricing and design are good indications.
Don’t Dawdle Over Land
When Hernandez finds out about a piece of land, his goal is to sketch a site plan, prepare a pro forma and send a letter of intent within 24 hours.
“If you can do that, you won’t miss out on the opportunity,” said the builder. “You’ll at least be in the conversation. Many times, it’s the first guy in the door who gets the most attention from the seller.”
To enhance the likelihood of getting a deal approved:
- Be familiar with zoning so you can develop a pro forma and site plan to suit.
- Identify your risk. “Only issue a letter of intent if there’s little or know risk of getting hurt,” Hernandez advised.
To reduce your risk:
- Know who’s likely to buy homes on the land you’re considering.
- Know about the local regulatory environment.
- Know how long the project will take to complete.
If a national builder is eyeing the same parcel, you may have the hometown advantage. “Since you’re local, you know who to call and can probably get the information sooner,” Hernandez pointed out.
To reduce your risk further, get a financial partner to invest in the land. Your goal is to use as little of your money as possible to tie up land and get it developed.
Alternately, you can split the lots and land with another builder. “Obviously, you’d differentiate your product so you’re not going head to head with each other,” said Hernandez.
Whether or not you split a parcel with another builder, it is a good idea to differentiate your product. “If you build what everyone else has, you won’t get the land unless you’re related to the seller,” said Hernandez.
A few ways to set yourself apart from the competition are by building more density, building a product no one else in the market does or by doing a mixed-use project.
Determine What the Seller Envisions — and Deliver
“The key to this is getting into the mind of the landowner and finding out what they want,” said Rutenberg. “If you can find a common thread — whatever they want and what works for you — that’s fine. It’s a good deal.”
'PRO Builder: Business Planning' Available at BuilderBooks.com
The "PRO Builder: Business Planning," available at BuilderBooks.com, offers step-by-step exercises and proven methods for establishing your company’s goals, developing strategies, setting priorities and evaluating results. It includes an electronic spreadsheet on CD ROM for developing the financial section of your business plan To view or purchase this publication, click here, or call 800-223-2665 to order.
Business Management Publications Available at BuilderBooks.com
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University of Housing Offers Courses on Business Management
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