HELP! Land deal analysis

[Alexa Shewey]

Hi all, I would love some help on how to run the numbers on an opportunity we have right now and the best way to finance it. We have a property we want to make an offer on that has a 3/2 1676 sqft house on 2.2 acres. The seller wants 600,000 and is willing to seller finance, he owns is outright with his two brothers. We would need to put in at least 100,000 for rehab on the house. Then we would get the entitlements on the land and hopefully have 11 paper lots and a remodeled house to sell after 2 years and pay no capital gains up to 500,000 as we would live in the house during the 2 years. I think it will cost 150,000 to have the engineering done for the entitlements.

1. How do I figure out a value for the paper lots?

2. How do I calculate the deal? I don’t know yet how to analyze land deals. I also get a bit confused on how to calculate the house flip into everything.

3. How should we structure the deal from a financing perspective?

We have the option to have a partner on the mortgage which would be a 300,000 mortgage in our name and our partner would pay the 300,000 cash down payment. Then we would split the development costs and both be in 50/50. Or we can finance it seller financing and have the 600,000 in our name and have our partner in around 300,000 to be conservative for the development costs, rehab of house, and closing costs and split it 66/34.

4. If my husband and I file jointly and makes less than the 0% threshold we would not have to pay any capital gains tax correct?

So thankful for any and all help!

[Chris Seveney]

Quote from @Alexa Shewey:

Hi all, I would love some help on how to run the numbers on an opportunity we have right now and the best way to finance it. We have a property we want to make an offer on that has a 3/2 1676 sqft house on 2.2 acres. The seller wants 600,000 and is willing to seller finance, he owns is outright with his two brothers. We would need to put in at least 100,000 for rehab on the house. Then we would get the entitlements on the land and hopefully have 11 paper lots and a remodeled house to sell after 2 years and pay no capital gains up to 500,000 as we would live in the house during the 2 years. I think it will cost 150,000 to have the engineering done for the entitlements.

1. How do I figure out a value for the paper lots?

2. How do I calculate the deal? I don’t know yet how to analyze land deals. I also get a bit confused on how to calculate the house flip into everything.

3. How should we structure the deal from a financing perspective?

We have the option to have a partner on the mortgage which would be a 300,000 mortgage in our name and our partner would pay the 300,000 cash down payment. Then we would split the development costs and both be in 50/50. Or we can finance it seller financing and have the 600,000 in our name and have our partner in around 300,000 to be conservative for the development costs, rehab of house, and closing costs and split it 66/34.

4. If my husband and I file jointly and makes less than the 0% threshold we would not have to pay any capital gains tax correct?

So thankful for any and all help!

 are you sure you can turn 2.2 acres into that many lots?

[Alexa Shewey]

It’s gone through preap already and the conceptual plan had 13 lots but two won’t work without BLAs. So 11 is a pretty safe number. 

[De Rasche]

I also am concerned about that 11 lot statement.  Would have zoning tell me in writing the steps and affirmation that can happen. 3 to 4 houses per acre with road and setbacks is ok for 1600 sq footers or less in our area.  Hope you have city sewer that allows it too.

Make sure as sell lots loan is not impacted.