All Forum Posts by: Jake Engle

Thanks for your input as well @Dave Foster…. I like your idea trying to be creative. I would need to get through the full subdivision process splitting off the 3 lots. I would develop the lots any further than that point and would look to just list and sell. If I went through the subdivision process prior to purchasing, I don’t think seller would have any interest in that.

So as far as tax strategies go, I am pretty much just going to have to suck it up and pay gains on the sales of the properties? 

I just feel overall being able to recoup 400k out of the property and still have a property bringing in 6-7,000 per month and a value of 600,000 even after removing the lots is a win win. The tax part is where I’m struggling

Thank you @Evan Polaski….. sorry for missing purchase price, but looking to purchase at 600k. I have other rentals and definitely intend to hold the original farm with the 6.5 remaining acres. 

The property is being purchased as an investment property, so was thinking the sales of the lots would be able to be used in an exchange. If not, am I trapped paying capital gains of every dollar that comes in from the sale of the lots? 

Thanks for your input! 

Thanks for taking the time to review this unique situation:

I am currently considering moving forward on the following deal as I feel like it is a slam dunk, but could really use some affirmation before making the leap. I will break down the deal as clear as possible, but realize there may still be some missing info.

Property: 12.5 acre farm on the outskirts of town. The farm consists of an 1860 farmhouse that is a duplex and has been updated with new windows and is in very good condition. Each side of the farmhouse has 2 bedrooms and market rent is 1200-1300 per unit. 

Aside from the farmhouse, there is a 3 bedroom mobile home on a basement foundation that is currently rented and market rent on that home is 1400-1500. Both the mobile home and the farmhouse are connected to a recently installed sand mound septic system. Public utilities are not available at this property. 

There are numerous outbuildings on the property with rental potential. A large bank barn (needs new roof, which I know can be pricey), a three car commercial grade garage, and two other garages. The three car garage is currently rented and the bank barn has a lot of potential to be rented as well.

The current total rent that the property is brining in per month is about $5,000 monthly, with the potential to get in the ballpark of $7,000. The yearly property taxes are $8,000. All of the electric and heat is the responsibility of the tenants. 

The next aspect of the deal is what I am most interested in. This property includes a lot of prime road frontage that has some great views and would be highly desired. Through my research of local zoning, I would be able to subdivide three 2 acre lots off of the total 12.5 acres. Once the subdivision was completed, the lots would be worth a total of $400,000 conservatively, with good possibility of $500,000. I am a real estate broker in the area, so very comfortable on values. After the lots were sold, I would be left with a 6 acre farm bringing in $7,000 per month and have gotten back $500,000 from the sale of the lots. The property would still have a value of $500,000 after the lots were split off. I realize I am leaving out subdivision costs and other factors, but you get the idea. 

With everything above in mind, I am trying to figure out what structure would make the most sense. I believe the owner is going to be open to carrying back a second mortgage if I want to go that route. If I went that route, I would likely pay the balloon payment after the first lot were to sell, which would cover the $120,000 second mortgage. 

Some questions I have:

-Should I be up front with the lender that I want to subdivide and sell lots off? How would that usually play with the lender?

-When I sold the lots, what would the best strategy be with the proceeds to avoid capital gains? 1031 exchange the sales of the lots into a multi family? Pay capital gains and pay off the 2nd mortgage? 

-After splitting lots off, should I sell the farm that has maximized the rents and been cleaned up? The value of the farm would still be $500-550,000 after splitting off the three lots. 

This property has been sitting on the market for a long time, mainly due to the owner being a 93 year old real estate broker that hasn't marketed the property well. I really feel there is a huge opportunity and the deal is a home run, but was hoping I could get some opinions whether this is as much of a slam dunk as I think that it is. 

Any and all input that you care to provide would be greatly appreciated. I apologize for this being rather lengthy and still leaving out other variables, but it is generally pretty accurate. 

@Dustin Allen  I definitely wouldn't try to tackle it without a lot of assistance from consulting/engineer company. I would more be looking for strategies in flipping the land to  builder/developers and analyzing from that standpoint. 

I am looking to get involved in sub dividing larger parcels of land into building lots. I have been educating myself with local ordinances in regards to zoning and subdivision, but know I need to be very careful and fully aware of the ins and outs of subdivision before totally diving in. I know there are many horror stories about people/groups getting in over their head with a project. 

I am very much against taking high cost classes from "gurus", but in this case, is there some training out there that cuts out the BS and would be very beneficial to invest in? I am looking to get all approvals on the subdivision, and flip the project to a home builder once all approvals are in place. Is this a sound strategy in your opinions? 

I appreciate any feedback any of you subdivision veterans may be able to provide. I am located in Pennsylvania......

Some good talk on this thread about the potential flooding issues within Atlantic City. Can anybody that has experience in the area tell me the most prone places for flooding? I have been researching beach block homes around boardwalk hall and am curious the extent of flooding that area has had in the past?

I am looking to purchase a property and would be using hard money to make the purchase. The hard money lender will only lend into my LLC for the purchase, and I can't purchase in my personal name. After my 6 months of seasoning, when I go to refinance, what would my options be to do a cash out refi? Since the property will be in my LLC name, any financing would need be done with a commercial loan, which is not near as friendly as a conventional loan. Any ways around this or will I be stuck with commercial financing as being my only option? It would have a significant effect when determining my cash flow for the property after refi. Thanks for any guidance that you can provide.

That is part of my thought process. One half of the Duplex is fully renovated. Old home but new windows, floors, kitchen, bathrooms. I wouldn't necessarily say that it's comparable to new construction, but as close as possible for the age of home. I know that the property will show much nicer now compared to tenants being in there. Obviously being a BRRRR, the appraisal is going to carry a ton of weight.

The other aspect to weigh is how much weight an appraiser will put on the property being rented at $1,500 per side. I know they won't typically put much weight on the income approach appraisal for a duplex, but $3,000 in rent could get a higher value if they take that into consideration. 

Thanks for your input. I understand that I am not able to order an appraisal to be used on my own. If the appraisal is good for 120 days, wouldn't it make sense to complete application and have lender order the appraisal while property is vacant and fully rehabbed? I am an agent and it is the lender that I have a close relationship with. 

If they were able to order the appraisal now and use it when I refinance come the 6 month seasoning mark, would property appraise better vacant verses tenants in the property?

I apologize if it seems that I am going in circles. I just want to maximize my appraisal and am looking for every avenue to do so.

Thanks Russell, I understand that. I could make the application now, hold off on locking into the rate, and they could order the appraisal. Settlement just needs to occur after the 6 month of seasoning mark.