Purchased 7 acres of land for $20k...now what?!

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Purchased 7 acres of land for $20k...now what?!

Kristopher Russell
Member since 2018 · 21 posts · 4 votes

Keeping it simple:

I purchased 7 acres of land within 1 mile of a private university. Zoned for residential (single and multifamily, attached and detached). Only 1 house on the land which is too far gone to be renovated so it will be demolished soon. Minimum lot size required to build is 6000 sqft. 

I have a few strategies in mind: B(uild)RRR, sell the entire lot (least desirable), subdivide-entitle-sell, subdivide-build-sell, build a few multiplexes and rent, or even a combination of a few! The surrounding towns and cities have huge land development plans in the next few years also!

This is my VERY FIRST DEAL! Since my only risk in the short term is property taxes, I'm giving myself time to figure what's the most profitable strategy to use (preferably one that allows me to hold on to some of the land and create cash flow). 

I'm very interested in hearing what the experienced and new investors in the BP community would do with this deal.

Thanks!

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Geordy Rostad
Real Estate Broker · Kirkland, WA · Member since 2018 · 549 posts · 411 votes
7y

@Kristopher Russell

This sounds like it could be a winner. Land development can take years and have a lot of upfront costs such as roads, sewer, engineering, permits, hearings, etc. I have more ideas for you.

1) Find out what you've got: Draw out your new potentially plat map on CAD, take it to the city/county planning department and ask them "is this feasible? Do you see any problems here?

2) Bring in some immediate income: Get a permit to build a new house on a corner of the property that will still fit within the lines of a new subdivision. Depending on the market, maybe manufactured homes are appropriate for this due to cost and speed. If you can get one new house onto the property, at least you'll start to bring in some income while you're doing all the dev work. This is the real problem with vacant land investing.

3) Sell the dream: Do all the preliminary studies and work to get ready for the subdivision and then go market direct to local builders and land developers. You should be able to get a price like $X per lot "in the rough". Often, a builder/developer will make an offer to you like this. "If I can get 10 lots out of it, I'll pay you $100k, if I can get 15 lots, I'll pay you $150k" or whatever.

Don't get greedy. If someone came and offered you $80k for this piece today, don't blow them off. That might really be the best move. You'd quadruple your money and you can move on to the next deal. It's all about velocity. Especially when you are starting out.

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  • Geordy Rostad
    Real Estate Broker · Kirkland, WA · Member since 2018 · 549 posts · 411 votes
    7y

    @Kristopher Russell

    This sounds like it could be a winner. Land development can take years and have a lot of upfront costs such as roads, sewer, engineering, permits, hearings, etc. I have more ideas for you.

    1) Find out what you've got: Draw out your new potentially plat map on CAD, take it to the city/county planning department and ask them "is this feasible? Do you see any problems here?

    2) Bring in some immediate income: Get a permit to build a new house on a corner of the property that will still fit within the lines of a new subdivision. Depending on the market, maybe manufactured homes are appropriate for this due to cost and speed. If you can get one new house onto the property, at least you'll start to bring in some income while you're doing all the dev work. This is the real problem with vacant land investing.

    3) Sell the dream: Do all the preliminary studies and work to get ready for the subdivision and then go market direct to local builders and land developers. You should be able to get a price like $X per lot "in the rough". Often, a builder/developer will make an offer to you like this. "If I can get 10 lots out of it, I'll pay you $100k, if I can get 15 lots, I'll pay you $150k" or whatever.

    Don't get greedy. If someone came and offered you $80k for this piece today, don't blow them off. That might really be the best move. You'd quadruple your money and you can move on to the next deal. It's all about velocity. Especially when you are starting out.

    3Reply
  • Clint ShelleyPro Member
    Surveyor · Dothan, AL · Member since 2014 · 425 posts · 391 votes
    7y

    If you have desirable land and you want to stay involved, I would research commercial and residential developers and have some meetings with them. You would be best at partnering, but you're in a good position since you have paid for land. Look to see what other successful developers have completed. Be careful since you're a newbie with land you'll get alot of wannabees wanting to partner.

    Clint

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  • Kristopher Russell
    OP
    Member since 2018 · 21 posts · 4 votes
    7y

    @Geordy Rostad 

    Wow! Wonderful insight! Thank you so much!

    1. I've already have 6 different versions of plat maps drawn up to give me an idea of how many plots I can fit on the land. I went with the minimum 6000 sqft and quarter-acre plots as well in case there was opportunity to build larger homes or have more space between the houses. In this area, smaller homes on larger lots go for a lot more when comparing similar sized homes on smaller lots. My follow up: take my plans to the county planning office for feedback.

    2. I've been in contact with one contractor so far about building on a corner of the land. There is already an area large enough for two or three homes that does not require any grading or tree removal and it's closer to the subdivision around the corner (with enough space for a yard even with the 40 foot set back requirement from the road). I did not consider manufactured homes! In the area there are quite a few given the locality. I will look into this further as generating income quickly is my main goal! 

    3. I hear you loud and clear! I'll look for resources to help guide me on all elements required to develop a subdivision and get to work. I'll also see about contacting the local and statewide builder's associations. I'm sure I can get great feedback there. 

    I needed that reality check. I could do a lot with such a high ROI.

    Geordy, you've made my week! Thanks again for the valuable insights!

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  • Kristopher Russell
    OP
    Member since 2018 · 21 posts · 4 votes
    7y

    Thank you @Clint Shelley!! I wasn't sure what type of leverage I would have if I partnered with a developer going into this, but it seems like paid off land gives me a fighting chance! I'll reach out to developers and see what opportunities there are. 

    I really appreciate your time!

    0Reply
  • Scott P.
    Rental Property Investor · Indiana...mostly · Member since 2019 · 468 posts · 245 votes
    7y

    I'd like to clarify what you're asking.  You're wondering what would be the most profitable use of the land and also allow you to create cash flow now and also allow you to keep some portion of the land, even it's 1 lot?

    I've done similar things but the initial question I think you're asking is one that was decided already each time for me by the other people involved in the development. My part of the work came along after the decision of of WHAT to build for the particular market was already made.

    I'll be interested to hear how other people provide information to determine what may be termed the "highest and best" use of the 7 acres.  Once that decision is made, I would know the steps to take in my area to make that Use a reality and I'm happy to share that info.

    0Reply
  • Clint ShelleyPro Member
    Surveyor · Dothan, AL · Member since 2014 · 425 posts · 391 votes
    7y

    @Kristopher Russell  check with the local planning and zoning to see what is allowed or may be changed to. This is the first thing I look at when considering a piece of raw land. Good luck and let us know how it works out.

    Clint

    1Reply
  • Kristopher Russell
    OP
    Member since 2018 · 21 posts · 4 votes
    7y

    Thanks @Clint Shelley! I have the zoning and special permitting information but I'm waiting to hear back from a contact at the county to advise on what the changes could be coming down the pipeline. I'll keep you posted if anything fruitful comes up!

    0Reply
  • Kristopher Russell
    OP
    Member since 2018 · 21 posts · 4 votes
    7y

    Hi @Scott P.,

    Yes, I'd prefer to keep some of the land, even if it's just a few lots to build and create cash flow. 

    Right now, there is no one else involved in the development. I will reach out for partnership opportunities once I educate myself more as this is my very first deal. I'm really looking to building and seeing how that turns out but I have to keep cost in mind to ensure I'm not at a negative cash flow. I'm not local to the area either so understanding the market is first priority for me.

    I appreciate the feedback! I'll follow up I do more information gathering. 

    Thanks!

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    something seems off on this one..  unless you inherited the dirt or something.

    any property that would have the ability to be broke into 6k sq ft lots were it made sense to build new housing would sell or far more than 20k.. more like 200k to a few million.

    not all land even if you got it for free is feasible to develop.

    try backing into it.

    what are new homes going for within a mile or two of you or in the same side of town let say.

    how much does it cost per foot to build those.  back that number out.

    that leaves you with residual dollars to pay for the land and develop it.

    developing 6k sq lots with city sewer water and storm drains will run you 30k to 45k per lot. 

    Make sure lot and once done the lots should be worth 50 to 80k each minimum

    so back into some numbers first as a sort of feasibility study.

    like in many parts of the mid west and other areas were houses are still selling for 50 to 60 bucks a foot for older used homes. no way you can make sense to build anything new when existing is much cheaper.

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  • Kristopher Russell
    OP
    Member since 2018 · 21 posts · 4 votes
    7y

    Hi @Jay Hinrichs,

    The land was going to tax sale due to delinquency. I came in a week before the auction and offered the owner a deal to pay the back taxes, line their pockets, and I get the deed to the land in return. They agreed.

    Homes in the area recently sold in the range of $120-180k. Some as high as $300k the very next town over. The land is right on the border between both towns. 

    I was quoted by one contractor for a build price of roughly $115/sqft for rental ready quality. That was my only quote so far so I'm still in the market for more. 

    $30-45K/lot for sewer and water?!?! That number is scary high! I was not expecting that to be so expensive!

    The median sale price for the area ranges from $104-112/sqft. for the two towns within 2 miles of the property. 

    I'll do more homework on the numbers, especially considering the potential high cost for utilities set up which was not in my original calculations. 

    Your feedback is extremely valuable! Thank you! 

    And thank you @BP for having a platform for newbies like me to learn from the Pros!

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Kristopher Russell:

    Hi @Jay Hinrichs,

    The land was going to tax sale due to delinquency. I came in a week before the auction and offered the owner a deal to pay the back taxes, line their pockets, and I get the deed to the land in return. They agreed.

    Homes in the area recently sold in the range of $120-180k. Some as high as $300k the very next town over. The land is right on the border between both towns. 

    I was quoted by one contractor for a build price of roughly $115/sqft for rental ready quality. That was my only quote so far so I'm still in the market for more. 

    $30-45K/lot for sewer and water?!?! That number is scary high! I was not expecting that to be so expensive!

    The median sale price for the area ranges from $104-112/sqft. for the two towns within 2 miles of the property. 

    I'll do more homework on the numbers, especially considering the potential high cost for utilities set up which was not in my original calculations. 

    Your feedback is extremely valuable! Thank you! 

    And thank you @BP for having a platform for newbies like me to learn from the Pros!

    OK that makes sense if homes are selling for 100 to 120 a ft and it cost you to construct them 115 a foot which is about what I would expect .. you land has ZERO value.. and will be negative by the time you try to improve it with utls.  I mean pipe is pipe.. asphalt is asphalt etc etc.. some areas you may get that number down to 20 to 25k per lot but not a lot less. plus on top of that you have engineering permiting survey etc.  then you have hook up cost to the city for your sewer water.. you have to pay to bring power in.  

    its Highest and best use may just be a single building site.. flip it make 20 to 30k and be done with it..

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  • Kristopher Russell
    OP
    Member since 2018 · 21 posts · 4 votes
    7y

    @Jay Hinrichs I appreciate the insight! I'll definitely consider a deal that allows me to walk away with a nice return and my sanity.

    Thank you for your time!

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Kristopher Russell:

    @Jay Hinrichs I appreciate the insight! I'll definitely consider a deal that allows me to walk away with a nice return and my sanity.

    Thank you for your time!

     its pretty easy to back of the napkin pencil out to see if this project is at all feasible..  residential might not be the play here.

    maybe storage is the play. ? or something like that ..  

    first thing you do when U buy dirt is go into the city or county planning department get the zoning then get a copy of the zoning code and study it.. find out whats approved out right what takes use permits etc.. it would be rare to the extreme that property that could be developed for housing would fall through the crack at a tax sale. 

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  • Kristopher Russell
    OP
    Member since 2018 · 21 posts · 4 votes
    7y

    @Jay Hinrichs I NEED to go to the county planning department and see what info I can get that's not available online. I've downloaded all the zoning documents online and from what I gathered, it's zoned for residential (single and multi-family, both attached and detached) out right among other things (recreational facilities, etc.). Special permits for churches, libraries, etc. 

    I have a contact down at the county office. I'm giving her a call Monday and find out exactly who a legit point of contact is. If there is opportunity outside of residential that I am missing I need to know and explore those options. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Kristopher Russell:

    @Jay Hinrichs I NEED to go to the county planning department and see what info I can get that's not available online. I've downloaded all the zoning documents online and from what I gathered, it's zoned for residential (single and multi-family, both attached and detached) out right among other things (recreational facilities, etc.). Special permits for churches, libraries, etc. 

    I have a contact down at the county office. I'm giving her a call Monday and find out exactly who a legit point of contact is. If there is opportunity outside of residential that I am missing I need to know and explore those options. 

     ya based on your response above I don't see how residential pencils ergo the property was sold for a song..   good luck with it. 

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