I have 2 vacant lots. Sell or Build?

[Walter Hoffmann]

I have Two .25 Acre lots in East Central Florida. Lots are adjacent.. Total .50 Acre.

My original intent was to build my personal home on this land, but I decided to build in a different community.

I no longer need the lots, but wondering what I should do with them. 

All of my capital is tied up in 401K ( I could pull 100K without penalty)

OR 

I could get a HELOC on my current home for 100 K.

My question is:

1. Should I wait and sell the lots later for profit? Will need to pay taxes of $550 yr until sold. 

2. Build and collect rent? Would Need to use 401 or HELOC for down payment approx 20% of $200,000 (40K) + Mortage the remainder of the balance.

3. Use $100K HELOC + $100K 401K and pay cash for the new home for rental.

4. Sell the lots today and break even on all expenses and taxes over the past few years.

Thanks!

[James C.]

Walter,

This all depends on the community your land is in. For example, if it's Palm Bay vs. Viera. Palm Bay would have a much lower price point than Viera. 

Basically, you would need to run all the numbers to see what they come out like. Generally, new SFR don't cash flow particularly well, unless you are somehow able to save substantial costs on the building. You could cheat on the numbers and say the land is a "Sunk Cost" with a value of zero to make the numbers go, but I wouldn't, since somewhere along the line you put cash up for the land.

Also, if it's in a restricted subdivision, make sure you know your covenants. Some communities don't allow rentals below a certain number of months, or the minimum size of the house makes building it for rental purposes financially imprudent. 

Finally, if it's far enough out from the job locations, or reasonable commute, (Think Mims/Titusville vs. Melbourne) then the returns might not be there.

One way to test the market is to find a builder that is willing to build on your lot, have them give you a price to build a "Spec" house that fits the parameters. You can then list it as a building package, (your land + builder's house + your profit) and see what kind of bites you get. You then basically put it under contract and assign it all to the builder and take it from there. It's not overly complicated, but you need to have a good builder who understands the process. You could always partner with a builder as well.

The other option, as you mentioned is to sell the land. If you want to make some more money, then owner finance it with a reasonable down payment and terms. That would require an attorney to draft the documents, but you should be using one of them anyway for the transfer.

Hope that helps.

Good Luck!

Jim