Do We Cash Out our Land, or Build and Hold in Chattanooga, TN?

[John Tilstra]

I'd like some advice on whether we should cash out on a great land deal we bought several years ago, or hold onto the property to build cash flow properties on them.

Several years ago, we purchased 5 lots of undeveloped land in Chattanooga, TN for $500.  The property had been willed to a university, but because the properties had been held in a trust at the time of the individual's death, the university had difficulty obtaining a clean title to sell the land.  So, we paid $500 for a quit claim deed and then worked with a local real estate attorney to quiet the deeds, which cost about $4500.

So, now we own 5 lots in Chattanooga, 3 are grouped together in St. Elmo, TN, and 2 are on Missionary Ridge.  All are wooded and undeveloped.  Over the past several years, and now that the properties have clean titles, we have received several offers for the lots in St. Elmo of about $20,000.  Annual property taxes are minimal, so it only costs us about $100-$150/year to hold onto the properties.

St. Elmo, TN is becoming a trendy little bedroom community to Chattanooga, and we could likely sell the properties for $20,000-30,000.   Not a bad profit on our $5000 investment.  However, as my wife and I move closer to financial independence, I'm wondering if it might not be better to develop the land ourselves, and build new construction that would be rental income producing.  

So here's the question: cash out, or build and hold?

I know there will be about as many opinions as respondents to this post, but I'd be particularly interested in the thoughts of folks who have built new construction and then rented it out.  

We have about $100k to sink into construction, and could likely finance the rest.  If we built, we would have to adhere to St. Elmo's historic zoning code, but beyond that, what would be best: one large single family?  3 tiny homes?  a duplex?  a single family with separate basement or above garage unit?

When doing financial calculations for build-and-hold, how much can you discount the usual calculations for CAPEX and maintenance?

For folks who have pursued this route, what encouragement, advice, or cautionary tales do you have?  

Given the tightening market and growing popularity of Chattanooga, what is the value of holding and developing this land ourselves vice selling it to somebody else to do the development?