Complicated Deal how to structure!

[Kim Handelman]

Hi All,
This deal could be very lucrative but I don't know how to make it happen. It's 70 acres with a private lake in the middle. There are 5 homes clustered on the left side of the lake (these 5 houses can't be subdivided - they're grandfathered in and must stay as one lot). The right side of the lake can be subdivided into 5 parcels (minimum 4 acre lots estimated by engineer that knows the property well). Currently raw land with no perk tests done. Will need to be well and septic.

I would like to partner with a developer. We'd subdivide and he'd take the lots and I'd take the houses on one lot for buy and hold.

Here are the specifics:

$900,000 - Purchase Price
DEVELOPER:
$550k - Developer pays for the land on right side of lake to break into 5 lots
$175k each - Average sale price of subdivided building lots
$550k - Sale price for new 2,500 sq ft house in this neighborhood
-----------------------
ME - BUY AND HOLD:
$350k - I'd pay for lot w/ 5 houses as is
$330k - Estimated Rehab on all 5 houses (to be done 1 house at a time over 2 year period)
$4,600 mo - Current Rental Income 100% rented w/long term tenants (under market value - houses are falling apart)
$8,400 mo - ARV Conservative rent
$10,500 mo - ARV Conservative short term summer rent + academic rentals (high demand in this area)

QUESTIONS:
1. Do the numbers look as good as I think they look?
2. How would I structure the deal given it would take 6 months to subdivide the lots?
3. How could I finance the rehab and do it 1 house at a time?
4. Anything I'm missing?

[Scott Hollister]

Hello @Kim Handelman,

Love the post because its unique and has some land. We just completed a 64 acre subdivision in CT last year, with one house on the lot, septic and well, etc. 

Numbers wise it cost us 11k or so for survey, maps, perc tests, etc. Took 7 months or so, a couple of wetland meetings. This will be more based on 5 lots (2-3 holes per lot to determine perc rate). So count on fees with town, excavator cost, and soil scientist for one whole day would be my best guess. 

My biggest concern is the huge cash outlay for the total project with no approvals in place. I love the rental idea, that will help with the burn during subdivision. The other big one is wetlands, Im assuming with the pond that there will be wet areas and possibly streams. Wetlands is the only committee that can wreck your project and from what I understand if you fight it and win, you just get another chance to go in front of the committee. 

Financing wise will also be tough, will have to go commercial based on the non-conforming use. Might be able to go Fannie/freddie if you have 4 houses on one lot, which will be the best financing. But total loan amount might exceed limit for County? Otherwise they would have to debt service, which you may get away with but it sounds tight on purchase, rehab, and rent above. 

Financing wise you can take it down with developer, I used hard money and private to finance at first. Then sold the house to my wife, and kept the acreage in our name for now before we build. It would make sense to rehab all the houses at once, financing is typically 12-18 months, so the freedom to do one at a time isn't there. 

I think a partnership with an experienced developer would make the most sense, someone with really deep pockets:) 

Or you could structure a syndication/crowd funding on the total project, but hold time would be tough to estimate. Especially since you will be out 18 months for the new construction homes, so market will be hard to predict in CT. 

Construction costs seem spot on at $150 a sq ft (Not including land or site cost) When you have scale that is the rate I've been hearing for developers of residential. 185-200 seems the norm (not luxury).

We are at $100 a sq ft for our new construction with me as the GC, very very cheap and will most likely increase as surprises pop up. 

Would love to jump on a call, love creative real estate!