Decision to Develop a property that has extra land

[Bryan Germann]

Hello,

I have a property in SC that I bought and lived in several years ago, it was a B neighborhood close to a flourishing downtown area and has a very large lot. The house that is on it is a 3/2 and netting a CAP of 7.4% which I am pretty happy with but its also set to one side of the lot leaving about .68 acre of untouched land. When I bought the property for $115k back in 2014 I knew the neighborhood would change over time and lord has it. 2 houses around me were torn down and new builds on the same sqft and style have been built at the tune $290k each, recently sold so the data is solid. This has caused my home value to more than double in less than 5 years and I have actually gotten offers but I know why. The extra lot space that I have sits on a abandoned rail corridor that is in the process of being converted to a bike/walking trail and connected to a network of almost 40 miles of trails which is bringing people to the city from all over. I know this is why developers are buying up houses in this neighborhood and putting up brand new ones.

Ok so onto my question, should I section the lot and build some units on it  and if so what kind make the most sense here?  OR should I build 2 more single family homes and cash out on all 3?  Like I said I have about .68 acre to work with and the lot is zoned RM-1 (in my local municipality this is multifamily).  The strategy I had for this property was always a buy and hold so I am thinking of building either a couple of town homes , a multifamily structure or 2 single family homes on the to be developed trail (with that being a selling point) but eventually cashing out of the entire property going forward.  I see a path here to turn my $115k investment which is now worth about $225k to turn into much more.  

I have never done anything like this so I need a little bit of advice here to make sure I get going on the right track and possibly find a partner to do the development with here on BP.  So discussion started, any advice?

I see this as my ticket to getting some real cash to start a legitimate real estate business going forward with capital to rent to own and flips.  I dont know if I am being overly optimistic here so I need a dose of reality.

[Account Closed]

1. A lot split will most likely mean you'll have to refinance your existing residence

2. Not sure why you would need an appraisal unless you were looking to sell it. You can find sales comps by looking at SOLD rental comparables in your area. Rental comps are a little harder to get solid numbers for but you can look at sites like craigslist, padmapper and zillow to see what units are being offered for around you.

3.  A prospectus and proforma are always good to have to pitch to both investors and banks alike. With the amount of equity you're saying you have in your home I'm betting you could do a 4 unit deal without outside investment.

4. You should put together proformas for each scenario and look at your ROI, Cash on Cash, and IRR to make your decision.