Land Deal
This is what I've got: 2 acres for sale, subdividable into 0.5 ac lots. There is a house on the lot but its a scraper, I doubt it would pass termite for a conventional loan. Could rent it out for $800-900/mo since the lot is gorgeous. Lots across the street go for around $150K, the seller wants out (because of all the subdivisions popping up around them) and are looking for $275K, they would probably take less.
The land and house were paid for a long time ago but the seller took out a $60K loan of some kind that is costing him $1000/mo - sounds like a hard money rate to me - but this is all he owes.
What's wrong with this picture? The lot is one of about 12 (various sizes up to the 2 ac of this one) that are on this horseshoe of a street that loops off of a good size street and then back on again. All around this cluster of lots are subdivisions. Across the street are more subdivisions. These lots are mostly owned by Indians ( American) who have obviously been resisting the encroachment of tract homes. It would seem that some (my seller included) are giving up and want to head to greener pastures. Some of the lots have normal houses, some are trashed with burned out cars, old mobile homes and tons of other junk. There appears to be a lot of land clearing and clean up going on at a couple of the lots closer to the main road - someone might already be moving on some development. My seller's lot is in one corner of the loop, i.e., not accessible without driving past the other lots and the junk.
So, the question. Sooner or later this property is going to worth more than twice what I can get it for. Question is how long will that take (dont know, a year or 2? 10?) and what kind of deal could I make this guy? Maybe just get it as cheap as I can and option it to a developer with deeper pockets that could wait it out. Less money for me but sooner.
Ideas? Thanks.
Molotov
Can the 2 AC parcel be subdivided so that each new lot fronts on the existing street? Yield of 3 lots?
Difficult to tell what's going on in the immediate area. I would want to know more about lot sales and house sales there before I gave the seller a price. You indicate lots have sold for $150K across the street from the 2 AC parcel. This is near the junk?
Hi Nancy - thanks for weighing in.
Draw a straight line across the top of the page. This is the Main Drag. Now draw a box dropping down from the Main Drag (Main Drag is the top of the box) with a 'U' shaped loop inside the box attaching at the top left and right to the main drag. The 'U' is Indian Rd, there are parcels on either side of Indian Rd within the box. My subject property is at the bottom left hand corner of the box. There is not enough street frontage on Indian Rd. to have 3 or 4 divided lots on the existing street (might be able to do 2). At the top of the page (above the Main Drag are subdivisions w/ 0.5 ac lots. All around the box are subdivisions w/ 0.5 ac lots.
BTW, I am in CA, not Baltimore (not sure how that got in there).
Molotov
molotov,
Thanks for describing the scene.
I think the number of doable lots is the first thing to nail down. Have you checked the current zoning ordinance and also the subdiv & land development ordinance to asertain min. lot width and also any provisions/restrictions for flag lots? Public water and sewer or on-site?
In order to figure out potential flip value to a builder, you'll need to know projected sale value of the new homes, # of lots, and ballpark idea of site improvement costs. Hopefully, the latter will be minimal (no new road--just permits, site prep, util connection fees). Here's a quick screening rule of thumb:
new const value (house on lot) x 25% minus lot improv. costs = raw lot value
Now, if you want to flip to builder, there's got to be some room left in the raw lot value for your cut. However, if the seller wants $275K and assuming a max of 2 lots, I think the new homes here would have to sell for at least $600K to make a flip to a builder feasible.
new constr $600K x 25% = $150,000 less improv costs
lot acq say $125,000