It seems like there’s value here but I can’t figure it

[Glen Holmen]

Hi. I’ve flipped 10 homes but now looking for rentals. Family member offers me this deal. Seems like there’s value but I can’t figure it out. Can you help?

South Valley Albuquerque NM 

3/2 2000sqft on 1.15 acres of gorgeous river bottom land with irrigation rights and 100 yr old trees. 
Real estate contract for 5 yrs with a lease to own. 
$1000 to begin. 
$2200 a month payment. Expected rent $2200 but hard to know as there are NO comps on this area or price range. 
Payment covers all utilities and sets aside (45%) $1000 a month for a lease to purchase. I can purchase any time but if I wait 5 yrs I have 60k down on the locked in price of $325,000. If I don’t purchase I forfeit  

Pros- 

Unparalleled beauty of a location. 12 minutes from new Netflix production studio. Surrounding homes go for 400-500k. Nothing like this for rent in the whole town. Irrigation rights are almost impossible to obtain. Could also split property and build casita  

Cons- 
I’d be a first time landlord for a luxury property. The home layout is just ok. Galley kitchen and small rooms upstairs. Just to break even I’d be near the highest rent in town. While the neighborhood is nice, it sits next to the “bad part of town.” I’ve never split and built a casita and raising the capital for that is a challenge. 

It seems like there’s value here but I can’t seem to plug it into the calculators. Is this just an A property that doesn’t cash flow?
Would I just be going sideways and buying myself a job? Or am I missing something? 
Or is this a rare value that I should jump on?

HELP?????

[Robert Carmody]

 Some of the question I'd have, and you may already know the answers, would be:

1) Is the property in the city of ABQ or just Bernalillo County? You'll find both in the South Valley. Zoning codes are slightly different, along with some of the building codes (if you are adding another dwelling or dividing the lot). Property taxes are about 30% less if the property is only in the county and not within city limits. 

2) Does it have public sewer service and city/municipal water, or septic tank and/or private well? If it is within the city, it should have public services for both. If it is within the county, it may have septic and well, or sewer service with private well, or it may also be connected to public services. If it is on its own septic system, and you are wanting to divide the property or build a 2nd dwelling on the one property, you'll want to know what type of septic tank is there currently. If it is a conventional system, Bernalillo County requires that the property is at least 3/4 acre or larger. And, the size of the system will be determined by the # of bedrooms and how many people you intend to have living there, so it is possible that a larger tank would need to be installed if you were building a casita or guest house, as one property. And, dividing the lot into 2 can be al little tricky if you have 1.15 acres and need the lot where the existing house is located to be a minimum of 3/4 acre. Also, Bernalillo County will require that there is a certain amount of distance between a private well and septic system, and distance from neighboring wells too. The county Environmental Dept can help figure out what you are working with there, and what challenges might present themselves , but wells and septic systems are expensive to dig/drill/install/replace, so know what you are getting into there. 

3) People often think that because their property is in the south valley or outside of ABQ, or on acreage, that they can do whatever they want with it, but there are usually still CC&Rs that will dictate the type of property, size it needs to be, whether or not a guest house or 2nd dwelling can be added, height restrictions, and so on. The CC&Rs are filed with the county and public record, so you may want to review them carefully. If the property is located on a private road, there should be a private road agreement filed, or private access easement, and again, you'd want to keep that in mind if dividing the lot from 1 into 2. 

4) When it comes to water or irrigation rights, are they ditch or acequia rights from MRGCD? Or, are they surface rights? groundwater rights? are they currently in use? priority year? Water and irrigation rights are complex, and often confusing, and they all carry some value but it will vary greatly. Also, I'm not sure if dividing the property would mean that both properties would then have rights, or only one, or how that would work. 

5) If you were to divide the land and build, how does that affect your real estate contract or owner financing arrangement? Does the seller have interest or ownership in the portion of the property that is divided off from the portion with the existing house? You'll need the county approval with new surveys, plat map, etc. If you build a house on its own lot, there will be impact fees, utility connection fees, permitting fees, etc. If you build a guest house on the one property, you'll just have the permit fees, but might be restricted on the size that is allowed. I think, and not certain on this, that in ABQ, for example, a guest house or casita can't be larger than 600 square feet under the newer zoning codes, where they are allowed. 

Those are some of the question or consideration that jump out at me, but it seems like there could be an opportunity there. Prices have been climbing in the South Valley at a faster pace than the overall market, after years of lagging behind. It sounds like the "deal" is probably in the price that they are selling the property to you for, and also the terms of the lease/purchase with large % being credited back to you. If you do move forward with it, keep an eye on interest rates over the next few years. While you are able to lock in the price today, and get a generous credit towards the purchase each month, I doubt that interest rates will be at 3% forever and so at some point, you may want to complete the purchase and secure your own financing if rates are increasing above whatever amount you are comfortable with. 

Good luck. Let me know if you have other questions.