Just went under contract on an REO, any thoughts?

[Clarke Cirel]

Hi,

I just went under contract on an REO (3/1 SFR on 7.5 acres). It needs a little bit of work but nothing major. It's livable now but not the nicest house on the block. I'm buying it for $30k (currently appraising at around $70k) under a VA loan with less than $1k down.. so I'll have about $500-1000 acquisition costs and around $150-200/mo mortgage with area rents at around $750-950/mo (yes, I know about the 12mo VA restrictions). Great opportunity for value adds here too (like an extra bath)! I want to go over my thought process on this investment and see if anyone has anything to add (or maybe to learn).

The property is located near Birmingham, Alabama in Forestdale (35214), N of Forestdale Blvd and near the new intersection of I-22/I-65. I expect economic growth and property appreciation in the area as a result of I-22 and I already see new growth, specifically two new Family Dollar stores on Hwy 78 and road expansion at the Arkadelphia Rd/I-59 intersection. After checking with the local County Registrars office, I see that the population is growing too. I did find data that shows the majority of residents in the area own their home, so that makes me a little nervous about keeping it as a rental. Also, the first property manager I contacted said they don't manage in that area. It's within a few miles of, and in the same zip code as, some rougher neighborhoods but the property itself is in a decent neighborhood (newer cars, nice yards, maintained homes, etc.). Speaking to the quality of the neighborhood, the air condition unit is uncaged and untouched sitting right on the front corner of the house in plain view, not stolen or damaged.

So my thoughts are this:

Land: All of the other properties in the area are on (.5)-ish acre lots and most homes are 3/2 or bigger. So I want to subdivide into smaller lots and keep the existing house on a (.5)acre lot. That should result in 7-10 additional lots. I've considered keeping the other lots and waiting for them to appreciate -or selling them undeveloped -or possibly putting other houses on them to rent out or sell (possibly with RTO or something). The thought here is that over time I can cheaply buy houses that need to be moved and relocate them to the individual lots. May be more trouble than its worth to buy houses and get them moved there but I'm looking into it. Also may look into partnering with a builder.

The house: I can rent this thing as it is for about $650/mo (cash flowing every month) -or make some minor improvements (ab $5-7k) and rent for closer to $900 -or make the minor repairs and update the home to flip it (not exactly sure about those numbers).  

Either way: my acquisition costs and mortgage are so low and rents are at a level where I don't see where I can lose on this deal. Plus, I could probably sell the house after I divide it and get all my money back, getting the rest of the land for free. Tons of options.. but I want to maximize my return this deal!

Any thoughts?