House on water. How do you run the numbers?

Question

Hello,
I think I might have finally found my first flip :) Here is the MLS link
http://stwmls.mlxchange.com/Pub/EmailView.asp?r=144848592&s=RIS&t=RIS

Asking Price: $84,900
Assess: $118,300.00
Zillow Assess: $123,500

Average sale price for similar homes is $125,00
I have not been inside the house but it looks as though from the pictures it will need around $20k to $30k of improvements.
What do you guys think?

Bill Gulley · Answer

Hi, as to the commercial zoning, that means that a commercial business is allowed depending on its designation by the zoning authority. Properties have designations or different levels to allow different types of activities and uses, like residential, commercial, industrial, manufacturing, etc. Commercial 1 (C-1) might allow commercil retail, C-2 might allow resturants, C-3 might allow office, C-4 could be office/wharehouse, etc. Notice that as the numbers go up, for example, the level of business concentration increases. Residential properties are zoned in a like manner, R-1 is for single family, R-2 duplexs, R-3 could include a tri plex to a 6 plex and so on. You can always utilize the property for a lesser use, having a single family home in an area zoned R-3 for example. This type of zoning allows for something like a small retail shop to go up to heavy industrial, like a steel mill or welding shop. Generally, the heavier the concentration for activities the less desirable it is for any lesser use, but it can be used for any lesser use. So, you could have anything from a residence to a welding shop in an area zoned for heavy industrial. If you're looking for a place for a welding shop, you'll be paying a higher price to find a property zoned for that activity, but if you need a residential lot, that area is probably less valuable, because it is out of place for the intended use and less desirable. The highest and best use of the property would be for a welding shop. Now as to your subject lots, according to zoning, the highest and best use for the property is for a commercial use, but it can be used for the lesser use, residential. So to value the property you are looking at, you need to know the highest and best use of the property. If, in that area there are no commercial buildings and it is spotted with residential properties, then the real highest and best use may be residential at this time regardless of zoning. You can use it for a home which is the lowest impact of all zoning classifications and later on you might want to convert the usuage to commercial. This is a very good position to be in. Many professionals use converted homes for an office, might keep that in mind. And it does add value, but the amount can not always be measured in the market place, it's a gut feeling many times based on experience. But, to value the lots, you need to comp the properties with the comparables zoned in a like manner, or less and then adjust for the zoning advantage.. I didn't go to that site to look at the listing (I'd have to type all that in, lol) but in the title you said on the water, so I assume this is on a lake or ICW area. That's another spin, the intrinsic value added for water frontage access or water views. It is best to compare such properties with similar water frontage or views compared to properties without such amenities. You'll need to look at properties that have the water view and similar properties without it to value the water view itself. This is a judgment call, how beautiful is that view? I have a cabin at the lake that has that million dollar view and it's water front as well and I always say I'll take the million for it. but not likely, what someone is willing to pay for similar views and location is difficult to prove in the market since each property is so unique. For the valuation of such properties you really need to get a local Realtor with experience in selling such properties or have it appraised by a professional! Sorry, that's not the answer you wanted I'm sure. I have seen properties located on water fronts at our lake that are in shambles for say 80K and the lot would be over a hundred grand, if the house weren't there! If the property you have located is anything like these examples, I'd suggest you get local help! Do not rely on zillow or tax assessments for these types of properties, they are unique.....in fact, if it's water front in the ICW areas at that price, I might buy it from you! Good luck, Bill

Marc Freislinger · Answer

I don't know much about zoning, so someone else might be able to help you better. My guess would be though that if it's zoned commercial, you'll have to go through some hassle to move a family in as a residence. As for the comps, it doesn't cost anything to have a buyers agent. I've always used a Realtor for my buying and selling. The trick is to interview Realtors, and find someone that knows what your looking for, and is able and willing to work with investors. I generally use Google maps as my first run-through on comps, though it only shows active, and some of them are old.

Eddie Ziv · Answer

OK, so this is maybe unfair to assume and I'm waiting for the rebuttal. The original poster is a property manager which I assume in the area of this house. Do we really think he needs our advise? What if he is trying to promote his own listings...??? Just a thought...

Eddie Ziv · Answer

I'm curious. According to Cyberhomes.com, the house is 2/1 with 777 sq/ft. This is really tiny and may effect your flipping ability. The site also claims that the house was sold in February of this year for $26,380. Are you aware of that? Looks like someone is trying to flip you... BTW, assess value is meaningless in many markets. I'm not familiar with this particular one, but I would accept half of what the county consider as "market value" where my properties are in Birmingham, AL.

Andrew Urban · Answer

Thnank you Eddie. Thanks guys for all the insight :)

Bill Gulley · Answer

LOL, yes, might check the elevation of the property. How far up will it be in 20 years along the ICW? I'm not too worried about small inland waterways or lakes, probably end up with more land. Valus can change for a good profit in 3 to 5 years. Funny :)

Eddie Ziv · Answer

Yes, but you are reducing your margins to a dangerous level and as most realtors would tell you, you can sell almost anything for almost any price. The question is how long would it take you to do so and if you use loan to purchase and rehab, you are really playing with fire.

Eric M. · Answer

Andrew, I would: Find a Realtor who can answer many questions and give access to MLS. Forget the Assessed Value. Take the listing photos with a big grain of salt. You cannot assess rehab costs from photos.

Eric M. · Answer

Unless you believe in global warming! Speculation on land that is soon to be UNDER the water is not such a good bet! :-)

Andrew Urban · Answer

Hey guys thanks for the reply's :) Don't worry, I'm not selling anything :) I have "property manager" as the title because I own rental properties and that was one of the choices. I guess I'm more of an investor :) Anyways. This thread is kind of about two properties now. The first property is on the water and it does appear to have been bought on 2/17/10 for $26K. I have not spoken with the Realtor about the property, but I will tomorrow. The second property with seems to have Comm. zoning with a res. house. This was just another property with different numbers. I was more looking for how to determine if it's a good deal or not, and what to look for. All of your info is great and when I find out more about the numbers I will be sure to post them here. It does look as thought the first one which was recently sold is someone trying to flip and flip. Is this a bad thing if I can make more money?