How Land Becomes Home: The Process of Community Development in Dollars

by Don Westphal

TTracking in detail the rise in value of a manufactured home community from raw land to a completed, filled project would be the subject of a book. This article is a condensed look at the increase in value through the various stages of the development process.

The Land Whether it’s zoned or not, the raw land is valued on a per-acre basis. Several factors influence its value, including location, size, topography, availability of sewer and water.

The Approval Process

Zoning: Once optioned, if the property is not zoned, achieving the difficult rezoning milestone results in the next jump in value. Based on initial sketches one can determine the number of homesites that can be obtained. At the completion of this phase value shifts then from the value per acre to value per site.

All Images Courtesy of Don Westphal

Local site plan approval: Detailed engineering plans may or may not be needed at this stage in the planning process depending on local and state regulations. This process further defines the lot yield and dictates the level of improvements required for the finished project. This leads to another increase in the value proposition.

Engineered construction plans and Permit to construct: At this stage, the value takes another jump. Bids can be taken from contractors and accurate construction costs calculated.

Construction

Construction on site: Construction, inspection, and licensing complete the approval process and allows the value to relate to actual costs; land, approvals, consultants, engineering, and hard construction costs. We now are ready to occupy homesites. At this point in time, the value of a completed site is slightly above the cost to construct.

Project Fill Sales and occupancy: Now the value shifts to the value of the revenue-producing occupied sites. During the initial fill-up period of two to three years, the per lot value achieves a slow, but steady increase. From that stage to complete fill-up, the value increases at a faster pace reaching 145% of the cost. I am told that achieving $450 per month rent is essential to the viability of developing in today’s market. An added value in the scenerio could be the availability of additional sites, permitted or not for future expansion. These potential sites have a higher value since they will not likely require substantial additional overhead and amenity costs.

Fully occupied community: This step in the process completes the value-added proposition that began with the initial purchase of the land and results in the ultimate worth of the project. In past years, we could gauge the value of a community by simply multiplying the monthly rent by 100 ($450 X 100 = $45,000.00). Not so in today’s market when sites with fees of $450 per month are selling to major industry players in some markets for as much as $100,000.00.

Many factors influence the value at the various stages outlined above, Location, market demand, construction costs, competition, and the marketing and financing skills of the community owner or purchaser.

It is hoped that this overview illustrates an exceptional opportunity for investors at each step in the development of a new community. MHV

Don Westphal retired after more than 50 years since the mid 1960s when he designed his first Manufactured Home community and RV resort as a Landscape Architect student. He still enjoys sharing his experiences and the association with long-time clients and industry friends. He can be reached at Donaldcwestphal40@gmail.com.

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