Feedback on Recent Land Purchase

[Jacqueline Carrington]

I recently bought a 0.175 acre lot in the Eastwood neighborhood of Kalamazoo, MI. I bought owner financing with very little down payment and cheap monthly payment.

The land is already in an established area with houses on both sides of the lot. I wanted to get feedback on the best way to utilize the land.

I want to build a house with hard money and either flip for resell or refinance and hold as a rental since it is about 10 minutes to Western Michigan University.

I would love feedback from locals (as I live in Southern California) on which route may be best based on the area, home values and rental prices. 

[Greg Scott]

The Eastwood neighborhood in K-Zoo is an old neighborhood, assuming we are looking at the place.  The houses are 70 to 100 years old and they seem to be fairly small, ranging from about 750-1200 square feet.  It would not surprise me if many of these houses are rental houses.

The challenge you will have is that houses in this neighborhood sell for about $60 per square foot and the cost of new construction is significantly higher.  I've seen estimates in Michigan from $85 to almost $100 per square foot.   Many of those estimates ignore the cost of the land or unique permitting requirements.   Just to break even it looks like you would have to sell the property at twice the price of the properties surrounding you.

So what are possible exit strategies?   

• Well, you probably aren't going to sell this house to a landlord.  The rent for a new house won't be 2x the rent of the old one next door so the older houses are better deals for a landlord. 
• You probably aren't going to be able to sell this to a student either as they will be strapped for cash.
• You may be able to find someone to buy a new house in that neighborhood and make a profit, but then you take on a lot of risk.   I would check with local realtors and have a firm quote from a GC on build costs.
• Alternatively, you could build and hold.  Rents in that area are $600-900 per month.  You could do the math and see if that would cover your mortgage costs.  
• You could sell the land.
• Hopefully you are seeing the challenges here now, so I will suggest one last option -- give the land back to the previous owner so you can stop making payments.

Good luck