Which option is better for profit?

[Mike Watson]

Kind of a long post.  Sorry.  Just put a property under contract and wanted to get some feedback on which option is best. 

The purchase price of the property is $260,000. The property has a house on 1.08 acres and is currently zoned R2-6.5. The highest and best use is for duplex lots on 6,500 square foot lots.

The property is currently large enough to submit a request to the County (NO zone change is required) for the home and 5 additional duplex lots. We have an assignment clause in the contract and will be happy to assign it to someone for $30,000.

The first phase will be for us to submit for the subdivision with engineering etc. We feel confident that we can get through the process in 3-4 months. The County has already seen a very rough sketch of our project (attached) and been very positive about it.

At the time of getting the property entitled and changed to a home and 5 duplex lots, we feel that the home will be worth a NET $170,000 easily. We pulled all comps in the area with the following criteria:

Sold Price $140k-$240k

Solds 90 days back

Built in 1900-1970

Total Square Feet 1,500-2,200

Acres .01-.4

15 solds came up

Prices on these show $199,500 as the LOWEST sold, on up to $231,500 as the highest sold. WAY above the $170k we were hoping to yield.

I got curious and changed the solds to 1910 year built to 1950, even though our effective age is 1999 (which is on the county and nowhere near accurate) and the 4 solds using the above criteria from 1910-1950 are still $199,500-$216,800. Way above the $170k we hope to yield.

Phase 1- In phase one, we won't require much up front capital. $280,000.

Property Acquisition Price- ($260,000)

High Estimate for Engineering, County Fees etc., ($20,000)

Net Home Sales Proceeds- $170,000

Conservative Value of Papered Duplex Lots $50,000 x 5 lots $250,000

Papered Profits BEFORE Capital Costs $140,000

Phase 2- In phase 2 capital requirements will change with the extra $180,000 in development costs. If we sell the home for a net $170k as planned and fully develop the lots as planned, the numbers will change as follows:

Property Acquisition Price- ($260,000)

High Estimate for Engineering, County Fees etc., ($20,000)

Net Home Sales Proceeds- $170,000

Lot Development Costs $30,000 per lot x 6 lots (house lot included) ($180,000)

Value of Fully Improved Duplex Lots-$120,000 x 5- $600,000

Fully Improved Lot Profits BEFORE Capital Costs $310,000

Along with my own research on the MLS and experience with Duplex lots and projects, I have spoken with several developers and high-end agents regarding the duplex lot values.

The fact is, there are NO duplex lots for sale anywhere in ALL of Salt Lake OR Utah County. Everyone I have spoken to felt $120,000 was a very realistic price for a duplex lot and about half of them felt it was TOO conservative. They just don't exist. Additionally, there are almost NO duplexes for sale anywhere, especially anything built in the last 10 years.

Phase 3-

Property Acquisition Price- ($260,000)

High Estimate for Engineering, County Fees etc., ($20,000)

Net Home Sales Proceeds- $170,000

Lot Development Costs $30,000 per lot x 6 lots (house lot included) ($180,000)

5 duplexes built at $110/square foot, class C new construction x 2,100

square feet per duplex, 3 bedroom/ 2bath. 10,500 x $100- ($1,050,000) 5 Duplex Sales at $380,000 NET each- ($1,900,000)

Built Out Profit- $560,000            

Which phase would you do?  Which is the best option?  Thanks in advance.