SFH Tear-Down to Commercial Corner Gold

[Matt Smith]

Investment Info:

Single-family residence wholesale investment in Houston.

This was a SFH (tear down) listed as "potential rehab" in a hot market Houston neighborhood. It was put under contract and assigned to the best possible buyer...the corner lot auto repair shop that this property adjoined. The price was negotiated as "lot value" only, and low enough to be a deal when prices were rising quickly. The Buyer Auto Shop added an additional 6,000+ sf to his already 12,000+ sf commercial corner lot at a busy intersection.

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

This deal had high DOM (days on market). I felt that a good price could be negotiated based on lot value, and would be a great addition to the corner lot next door...if they would be interested. My strategy was to assign this deal to the neighbor.

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

This is a neighborhood deal with a realtor sign in the front yard. Most investors, I'm guessing, couldn't get the numbers to work for a rehab, and passed on it. I knew it would add tremendous value to the adjoining neighbor lot, who happened to be my neighborhood mechanic. The question was posed, and the owner of the Auto Shop was very interested. He happened to be a cash buyer who was in the market for a real estate deal. The deal was negotiated from Cash offer, quick close.

How did you finance this deal?

This was an assignment to a small business cash buyer.

How did you add value to the deal?

The Auto Shop was not aware that the property was for sale, even though it was right next door. When I informed the owner that next door was for sale, he was interested. He knew the perceived value this additional 6,000+ sf lot would add to his commercial corner lot. Whereas other investors couldn't justify rehabbing, and developers focused on bigger deals, it was a perfect match for this auto shop Owner to expand on what he already had.

What was the outcome?

The Auto Shop Owner (Buyer) tore down the SFH and now has one large 18,000+ sf commercial corner lot in a desirable neighborhood in Houston.

Lessons learned? Challenges?

Agents may list a SFH with best intentions to maximize the profits for their clients, but may not realize the real cost of the improvements. The numbers likely scared the rehab investors away. Realizing this, and focusing on the Lot Value Only, we were able to find a cash buyer, THEN get under contract and close the deal. Lesson learned? Always Ask. Consider checking with the neighboring owners first. Their daily routine makes it easy to overlook what might be avail., even if next door.

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

There was a listing agent involved who was very helpful in negotiations.