Flipping Unimproved Land???
I have an accepted offer to buy a lot right in the middle of a residential area. It is .67 acres and zoning should easily allow about 6 units to be built on the property. I have 2 developers who are interested in it but they would like to put more than 6 units (townhomes) on it. I stand to make a lot of profit if the city will allow the proposals. Now I don't know what is the best way to take it from here. I don't want to lose it by waiting to long. I don't want either developer to feel like I am cheating them if I give it to one and not the other (they don't know about eachother) after they've spent time drwing up a proposal. I don't really want them to know what I make. The seller owns a title company so unless I buy and then sell he will see how much I make, but then again he knows I am going to make money on it. I would much rather do a simultaneous close so I don't have to use my money however I do have cash if I needed to use it. Mostly I don't want to buy and get stuck with it. Any advice or clarification of my jumbled thoughts would be appreciated.
Josh
[addsig]
If you're concerned about getting stuck w/ the property and it sounds like you don't want to develop it yourself, would any of the following work for you.
Dump it as quickly as possible, and let the builder deal w/ getting permits thru the zoning/planning.
if you don't some carry risk, a JV w/ one of the builders might work
Sounds like the lot is 29185.2 sq. ft. and 6 units yields 4864.2sq. ft. per unit. That is a huge amount of land by CA standards.
In some places here they allow 18 units / acre for condo/townhouse. doing the math I come up w/ 12 units which would dictate a different sales price than 6 units.
Some realtors or contractors should be able to tell to the value/sq. ft for vacant townhouse/condo land.
Josh,
You want to get the land under contract before the developers go straight to the seller or purchase an option on the land. Once you control the land - not before - is when you start discussing the property with third party buyers to flip to.
I believe that the money that one generates as profit in real estate is directly proportionate to their level of knowledge related to the deal. Knowledge is your only leverage in this type of deal. If a third party obtains your knowledge, there is no longer a need for you in the deal.
Do not be concerned about how much money you will make on the deal or if your seller or future buyer sees it at closing. Your seller is selling and your buyer is buying it at a price that suits their needs and they wouldn't be doing so if they weren't comfortable with the deal.
Also - talk to the city regarding the rezoning of the land to your buyer's desired use. If they tell you that your rezoning request would only happen when hell freezes over, you now know that the buyers are more than likely not going to get their desired approvals.
Get to know your local planning commissioners and city planners - they unknowingly control substantial portions of our incomes as investors.
FYI - I am speaking from experience - I am working on a 160 acre deal right now that is similar to yours in structure and I am closing on a 48 acre deal in August that is almost identical to my 160 acre deal.
Does the current zoning allow for more than 6 units or would that require a change of zoning? Is current zoning for SFD?
One last thought with regards to the price and use of the land from the previous post:
In my area a developer/builder will buy land at roughly $1.50 psf for multi-family uses that will allow approximately 6 or more units per acre. It is rather uncommon around here to see more than 8 units per acre (very different from California) and most apartment developers are paying roughly $2.00 psf currently.
Is the nieghborhood single-family homes or multi-unit townhome units?
There are MFU townhomes around the place. Current zoning is A1 but the master plan allows R2, 5 to 9 units per acre. in otherwords there would be a zoning change but it is pretty much a sure thing to get 6 buildings on the property. However my developers want to get more than 6 units to be worth their while.
At what point do I walk away?
Josh
[addsig]
I would tie up the property with a zoning approval contengency. I'd go for the zoning and once you have that either develop the land yourself or sell it off.
I don't know about Utah, but here there's no such thing as a sure thing in getting subdivision approval. And when it comes to zoning changes, this can be even more speculative.
Before you sign with one of the developers whose deal would be contingent on changing the zoning, I would do some due diligence. Contact a RE attorney who is plugged into the local network and who knows the municipal players. Someone needs to get in touch with the "founding fathers" and try to see which way the wind would blow on a change of zoning. Also, even if the town would be amenable to a zoning change, they may dig their heels in on density.
if you want greater density do they have an "affordable" housing density bonus?
If you agree to set aside a number of units as afordable, they'll let you build more units.