Land purchase for residential home development

[Eric Zetterholm]

Investment Info:

Single-family residence other investment in Asheville.

Purchase price: $422,500
Cash invested: $106,000

Land that has been subdivided into 5 lots with city water, roads, and septic system design already completed. Property is located in a jurisdiction that doesn't regulate short-term rentals, so we will building investor-friendly units. We anticipate a 25% net after paying owners compensation.

What made you interested in investing in this type of deal?

Our experience is in new home construction and we can pull building permits on day 1 of our ownership.

How did you find this deal and how did you negotiate it?

This deal was brought to our attention by a civil engineer who has worked on projects with us off and on for 15 years.

How did you finance this deal?

We financed the project with 25% down (earned from a project we're closing out in January, so no out-of-pocket cash was necessary) and 75% bank financing at 4.75%. The bank will also provide construction loans for each build, which will not require any additional cash infusion on our part.

How did you add value to the deal?

Construction of new residences for short-term rentals.

What was the outcome?

TBD

Lessons learned? Challenges?

We intend to build the same floor plan on each lot; the challenge will be to vary the front elevation of the homes so that they don't look cookie cutter.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes, I am a real estate agent and I can highly recommend myself to others. LOL

On a more serious note, we have worked with Bank OZK out of their Forest City, NC branch for 5 years. Our relationship with them has been excellent. They are easy to work with, very professional and timely. Currently, we're working with Eddie Lunsford. If you'd like an introduction, please reach out to me and I'll be glad to share his contact info.

[Danielle Jackson]

Congrats! What a great investment opportunity. Just reiterates the importance of relationships....especially for sourcing deals. 

[Karen Filipponi]

Eric - thanks for sharing!  This is something my husband and I are considering in Virginia.  Your details on how you did this and tips on the process and financing were really helpful. Thanks again and much luck on moving them.  Karen

[Amira Manley]

I have a question:  you mentioned that you intended to build for short term rental in jurisdiction that doesn't regulate short-term rentals. What’s your plan about that? 

[Todd Goedeke]

@Eric Zetterholm What makes a purchase of a lot in Asheville a good purchase at an average of $84k per lot? Did you pre sell to investors each home before purchase of each lot? If not, why not?

[Eric Zetterholm]

Hi Amira: as builders, we have developed a niche of building rental properties that appeal to investors for short-term rentals. The City of Asheville currently regulates STR's to make it very difficult for investors to buy properties within the City and do STR's. So, we look for property that is close to downtown, but outside of the City limits. We like it when we have city services (water & sewer), but this project only has city water. We keep some units for our own portfolio, but not all. Hope that answers your question.

Hi Todd: First, we worked closely with our plan designer to value engineer the homes that we build.  As such, the economics of our builds are we sell at $290-300/sf and our all-in cost on this project (including land at $84k/lot) is approximately $185/sf.

Second, the developer of these lots subdivided the land into only 5 lots; we believe there's a possibility of increasing the number of lots either by creating smaller lots, or by building 2 units on each existing lot with minimal additional cost (slightly larger septic systems and an additional water tap per lot). If we're able to do that, it has the effect of reducing our land cost per unit and increases our profitability.  

Third, the risk is that we don't get our anticipated sales price and we keep more units in our own portfolio -- wouldn't be the end of the world given what STR's are commanding in Asheville right now.

[Eric Zetterholm]

Hi Karen -- glad I could help! Feel free to reach out if/when you have any other questions.

[Jordan Lockaby]

Love this project!! What part of town? I’m curious how you built a relationship with the builder / developer. This is the critical relationship in this type of project. Had you know those individuals previously?