What can I do with cheap lots?

Question

Hello from Alabama. I have been spending a lot of time on Realtor.com and there are plenty of cheap lots in Montgomery, AL in the $1000-3000 range. Some of them are not in the nicest neighborhoods but they look ready to build. Would it be worth to buy a few all cash and try to build low income housing on them? Please share your opinions and experiences!

Jay Hinrichs · Answer

look at homes in the immediate area.. if its in the hood like your describing you can buy existing homes cheaper than you can build them for even with the lot for free.. keep in mind build cost today.. unless your going to do ALL the labor yourself are basically 100 a foot sometimes a little less but not often. so in many hoody locations you can buy existing for 50 a foot 60 a foot.. so why risk building.Also in those areas theft and vandalism can make new builds a complete non starter. thats why the lots are sitting there. Now if you drag a MH in and place it cheap that might work.

Lindsey Hughey · Answer

I purchased some lots in the city around 2020. Think about maintenance of the lot. It will needs to be twice a week in the spring and will taper off in the summer. If you don’t keep it up other people will notice and you will notice more trash on the property. If you do purchase it have a pretty good zero turn mower and knock it out when you do your yard. A GC could probably build for $120 -140 sq/ft if you handle the general contractor in you could shave that down to $110-120 sq/ft. If you can paint and install cabinets, trim and other light finish work you could probably do it for a $100 sq/ft. Don’t underestimate the the desire for new. You just have to make the numbers work.

Ryan Normand · Answer

The answer depends on the area. Run the numbers and compare cost to build vs. cost to buy and rehab. If your market is similar to AZ, I wouldn't use anything less than $150/sf for build cost. That's assuming a GC does it and uses low end, builder-grade finishes for everything. Also pay attention to things like grading and utilities. These can blow up your budget before you even hammer the first nail.Personally, I like the idea and have been looking into doing something similar here in AZ. That said, I'm at an advantage because I can do a lot of the work myself... and even then most of the cheap lots I come across don't work when I run the numbers. You have to be very picky. Most of them are cheap for a reason. A few of them are diamonds in the rough.

Luke Ache · Answer

@Jay Hinrichs @Ryan Normand Thanks for your responses, both are very thoughtful. As I did more research, I realized that there are plenty of distressed homes being sold in some of those zip codes in Montgomery, AL for $10-15 K, so you are right, it seems like building may not make any sense. Everything points to those zip codes being "undesirable" areas even though, I would not call them "hoods" like you may see in bigger cities, more like low-income, majority African American areas, some of those lots have been on the MLS for over 5 years, so very low demand. One thing about Alabama is that, there are huge variations from city to city- Montgomery is not a desirable city, Birmingham is going through some gentrification where you have homes in the 20-30K and 200-300K ranges in the same zip code. Here in Huntsville, you have a very robust market with healthy appreciation, low inventory and still plenty of affordable homes, lots of people moving here from other states as Huntsville was rated the best city to live in 2022 by the US News and World Report. I think investing in Huntsville may be the best bet but I am seeing some unique opportunities I would like to explore in Birmingham and also in Tuscaloosa, home of the University of Alabama.

John Teachout · Answer

There's lots of city lots that are cheap because they're unbuildable. Many had houses on them at one time but you would no longer be able to get a permit for new construction due to their size or current zoning. Because of that, there's plenty of lots out there that have literally no value. Only value in some cases would be if you owned an adjoining property.

Ricardo Hidalgo · Answer

Location Location Location. I'd be worry on resale value, good tenants and consistent rent rolls. Stability is my key factor when choosing an investment!

Rachel H. · Answer

@Luke Ache It would depend on the lot and what it's zoned for. For starters, it's probably best to pinpoint a few neighborhoods you want to invest in and go from there. Once you find something you want to buy, check with the zoning department to see what you can and cannot do with it. Hope that helps!

Nathan Jackson · Answer

Huntsville is a great area to invest. There are deals to be had there. I never said you couldn't cash flow a property there. I was simply agreeing with the notion that there are cash flow and appreciation markets and they tend not to overlap. However, given the right strategy I believe you can take advantage of both at the same time.

Nathan Jackson · Answer

Well said Luke. I have some deals in Alabama. I would be happy to send you what I have and anything I find in the future. P.S.- my #'s are strong :) @Luke Ache

Dustin Woodley · Answer

What areas are the lots in? As others have said depending on the area if you want to build or rehab. But sometime if you can build a multi family it could make sense. Feel free to pm me and we can run the numbers for you!