Land purchase & sale

[Bonnie Low]

Investment Info:

Other other investment.

Purchase price: $17,000
Cash invested: $17,000
Sale price: $22,000

Land purchase. We bought 2 river view lots in gated community for new builds, but ended up selling before building. The lots were side-by-side and could be combined for building on, or built on separately.

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

Our market was really heating up and investment properties were getting harder to find unless you could close with 100% cash. Instead, we purchased two side-by-side lots in a desirable area with the intent of building a SFR on each. We would sell both completed homes and add the profits to our pool of investment funds to put us in a better position to buy with all cash in the future.

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

MLS. Our plan was initially to only buy one lot, which we did for $10,000. The same person owned the lot next to it and after another 4 months on the market, she approached our Realtor to see if we wanted to purchase the adjoining lot as well. We negotiated that one down to $7000 so we ended up with both lots for $17,000.

How did you finance this deal?

Cash from prior flip.

How did you add value to the deal?

We didn't! We sold less than a year later for $22,000.

What was the outcome?

Our plan was to build on both lots. After having the plans drawn up by an architect and submitting them to the HOA for review, we discovered the CC&R's on this particular street required tile roofs, which added a significant expense to each new build - approximately $30,000 for the structurally reinforced roof needed to support tiles. This expense ate up too much of the profit estimated for each build so we decided to sell the lots instead.

Lessons learned? Challenges?

We had reviewed the CC&R's before having the architect draft the drawings, but we hadn't priced out a tile roof. We were familiar with the cost of comp roofing, which is how we ran our original numbers, but were caught off guard by the expense of tile. Fortunately, we had multiple exit strategies. We could have held the properties to wait for prices to continue to appreciate (which they have), but the HOA fees are $1000/year/lot so the returns didn't justify it.

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

Jennifer Montgomery, Relevant Real Estate