Let’s take for example a typical multi-family property in Brooklyn that might have excess FAR. This property is 100% residential and has 4 legal residential units.
482 Warren Street, Brooklyn, NY, 11217
The lot dimensions are 20.17 ft by 100 ft which means a lot size of 2,017 square feet. The building currently has 3,200 sq ft of built floor space. A floor area ratio calculation is easy, you simply divide 3,200 by 2,017 to get a current or built floor area ratio (FAR) of 1.59.
The Zoned FAR for this property is 2.43. That means there is excess, buildable square footage in this lot! To calculate the maximum buildable square footage, you simply multiply 2.43 by the lot size of 2,017 sq ft to get 4,901 sq ft.
A maximum buildable square footage of 4,901 sq ft is much more than the current built square footage of 3,200. In fact, there is 1,701 sq ft of remaining buildable square feet on this lot.
This property was listed in late 2017 for approximately $1,000 PPSF and is described as fully renovated and turnkey. As a result, you don’t need to calculate what you could make by renovating the existing space and flipping it higher. Let’s assume that it costs you $400 PPSF to build the new square footage up to the same specs as the existing structure. That means the buildout will cost $680,400.
Even though there can be a premium for larger structures, let’s assume for the sake of simplicity that the resale valuation is still $1,000 PPSF. As a result, your sale price will be $4,901,000. Even if you had purchased it at $3,200,000 and spent $680,400 your cost basis would still be $3,880,400 and you would turn a hefty profit of $1,020,600.