Complicated Land & Rehab Deal ... Any advice appreciated

[Chris M.]

So I purchased an older home with good bones in a hot area of Nashville. The house is a great rental opportunity, however, the real prize here is the side lot since land in this area is scarce and demand is high.

The trick here is that the lot is an "L" shape and I will need to petition the city to subdivide and replatt.  To further complicate this, there is a right of way adjacent to the "foot" of the L.  The city owns this small strip of land and my plan is to petition them to give up the ROW (common practice here) and that will give me an additional 15 ft of frontage and increase the building envelope.

I am going to attach a drone shot showing the aerial view.

My goal is to maximize returns and not to sell myself short.  

Notes:

• I owe 85k on the home.  
• Home SF is 1100
• Home built in 1950
• 3 bed/1bath w/ Large garage in rear
• The home + lot as it sits was appraised at 250K
• lots in this area that are duplex-eligible are going for 250K
• New construction and rehabs sales going for 220/SF 
• lots that are not duplex eligible / SFR are going for over 100K
• it will take 50-70K to make this a really nice rehab
• rentals here, this size go for 2000/mo 
• AirBnB rentals will bring 3500/mo 

My question is which plan should I go with?

1. Sell the whole thing without putting in any more money and move on to other deals?
2. proceed with survey/petition/subdivide ...
3. ... and if the subdivide goes well, do I sell off the land and pay the house off?
4. ... do I keep both and build one or two units on the land? I could then have one, two, or three rentals potentially ...

I am estimating build costs for this land to be 125/sf

Would like to hear the other members take on this.