Mc Donald, TN · Member since 2017 · 2 posts · 0 votes
Hey Everyone,
I have a deal I am analyzing and it's proving a challenge to me. Here's the scoop:
The seller asked the city to have the property rezoned because they were hopeful it would raise the sale price because of potential businesses purchasing the land. It is nearby a growing town, but a little outside the development still. There is a 1,900 Sqft. house on the property that is in great condition for a flip, but its hard to decide whether the deal should be analyzed as a residential flip or commercial property opportunity. I am looking at this deal from an investor and wholesaler perspective, and don't know which way to go with this one.
The sellers also have their eyes in the sky in regards to pricing because they believe that the commercial aspect is enough to raise the price, even though the land is outside the development currently.
Does anyone have any advice, tips, or knowledge on the subject?
Sandwich, MA · Member since 2018 · 103 posts · 57 votes
8y
@Account Closed is the property zoned as a commercial property or did they just ask to have it changed? How is the house being used currently? Was the seller living in it as a primary residence and decided to rezone it prior to putting it on the market?
If the property has no prior income to go off as a commercial property how would you know what the value is? Seems like the deal should be looked as a residential property because when it comes down to it, that is what it is.
The seller can believe all they want, they can believe there is a gold mine under the house and price it accordingly but they will only get offers for what people are willing to spend. Run it as a rental property and make the numbers work and if you like how the deal looks then offer the amount you feel will work. If they say no, then NEXT!
Mc Donald, TN · Member since 2017 · 2 posts · 0 votes
8y
@Alexander Wardell the property is currently zoned as commercial property, but it has never been used commercially and is currently vacant because the seller moved out after her husband passed away.
So it has no prior income as a commercial property and therefore has no numbers to work off of as you mentioned.
Thanks for the response! It has been very helpful!
Commercial Real Estate Agent · Denver, CO · Member since 2018 · 109 posts · 81 votes
8y
Josh,
Take the conservative approach to valuation. It is zoned for a use other than its historical use. In neither case is there data to support your purchase. Options:
1. Identify similar properties nearby that produce income as a resident and as a commercial property. use those numbers to do your I=RV calculation, but discount the income to arrive at a conservative number. Forget what the owner is asking. It's a good thing she is not asking $10 million, because she's not going to get that price either.
2. Identify gaps in supply in that neighborhood and look at the property as a potential development site. If you do not have any experience in development and understand the approval processes, architecture, engineering and construction costs, forget this alternative.
Besides a flipper or a wholesaler, who else could be potential purchasers? I might spend some time looking at an deals they have done to identify how they value this type of property.