Neighboring Properties are going to be up for sale. What should I do?

I received a phone call out of the blue yesterday from a commercial real estate agent for the two neighboring properties next to me. He was asking if I would be interested in selling my property along with the two others so that the three properties together would be more compelling to a developer. My neighborhood is zoned R3 (multifamily) but the three properties are single family homes.

My house is much (MUCH) nicer than the other two properties and even though my family and I are a little cramped where we live I had never thought of selling until I got the call from the realtor. He emailed me and told me that if the other two properties sold, that my property value would be "severely" reduced. While I don't believe it would be severely reduced, I'm sure the value would be affected.

I bought the house for $550k five years ago (I'm in L.A.) and upgraded a lot of things so I am pretty sure that it would comp out at around $475k in todays market.

I'm looking at stuff around the neighborhood and it seems that the supply is a little tight. I would love to move to a bigger place and with today's interest rates and prices, the mortgage would not cost much more than what I'm paying today.

Does anyone have any advise for me? I'm not in a hurry to sell and I have a little bit of equity in the house. But I would sure love for my daughters to have their own rooms and have more than one bathroom.

Pat L.

Real Estate Investor · New York

336 posts
1 award

Feb 23, 03:44 AM

Make the move....
trust me when your daughters become teenagers they will need their own space. Esp when they have friends stay over.
I installed a 2nd bathroom in the older daughters (expanded) walk-in closet just to avoid the shared bathroom drama.

With today's mtg rates & the opportunity of packaging your home in the sale of the less appealing/adjoining properties I wouldn't think twice.

Dyna J.

· Chicago, Illinois

102 posts
2 awards

Feb 23, 05:48 AM

What are they offering for the house? Where would you stay after you sold this house (assuming a quick close)? Are you prepared to rent for a short time? Are your financial ducks in a row so you can purchase another (obviously better) home? I'm assuming you already have the answers to all of these but they weren't in your post so I had to ask.

I agree with Pat, if you can come out of this clean then I would move. Kids grow up sooner than you think and if the place is already cramped....

Lynn M.

SFR Investor · Annapolis, Maryland

589 posts
3 awards

Feb 23, 07:07 AM

Marvin, if it looks like you will shortly have lots of construction and multifamily homes right next door, when he says your value may be "severely reduced," he may be right. It's been my experience that most people looking to purchase single family homes do not want them located right next door to multifamily complexes. Even the single family homes I buy for investment property are nowhere near multifamily as I don't want the cheaper competition right next door, and people who will pay for single family rentals usually want the space and neighborhood, not have all the traffic, noise, etc., from multifamily. I would at least see what his price range is as I don't know commercial real estate, but maybe the lots together are worth much more than they are separately as single family homes. If you don't like the numbers, at least you'll then know it's not a viable option for you.

Karen Margrave

Developer · Orange County, California

Moderator Pro

1,931 posts
7 awards

Feb 23, 08:21 AM

@Marvin P. Tell him it depends on what the offer is! Though in reality there probably will never be a better time for you to sell, unless there houses on the other side of yours that you could be packaged together for a larger lot to sell down the road, and then the property owners would need to be agreeable and all of you work together to list them and sell as a package.

Otherwise, once the two lots are bought and start development, yours become a nonconforming lot, and being a single lot will have a more limited potential or appreciation in the future.

You need to understand that though you may love you house, the house has no value to a developer, and actually is a cost, as it has to be demolished and removed. The value is in the land, and it has to be within a reasonable range in order to make it worth it for the developer to buy and develop.

Also, if you are going to buy another place, you might consider doing a 1031 exchange.

You might consider putting a profile pic on BP, members like it when they can put a post with a face.

Karen Margrave, Parlay Investments, 1st American Construction
E-Mail: rivertown22@aol.com
Website: http://www.parlayinvestments.com
PARLAY: definition: to increase or otherwise transform into something of much greater value

Marvin P.

Real Estate Investor · Los Angeles, California

12 posts
1 award

Feb 23, 10:05 AM

@Dyna J. No one is offering to purchase the land yet. It's just that the realtor is testing the waters in wanting to list all three together.

I'm not in love with the idea of renting especially since rents would be more expensive than my potential mortgage payments. Plus the thought of a much bigger house has me a excited (a little bit).

@Lynn M. That's exactly my thinking. I don't want to be the last man standing out here. The commercial realtor did say that he thinks that the value for all three properties would range from $1.5m to $1.8m. I don't know if those numbers make sense or not but if they're realistic, then I have minimized my loses. Thanks to a large down payment we made and the equity we have, we would have a healthy down payment.

@Karen Margrave: Yes. I know that even though this is my house and I like it, that I need to think about this as a business decision. Of course it greatly affects my family. But I am strongly leaning towards selling. I'll look for a decent picture of myself to throw on BP. :-)

Karen Margrave

Developer · Orange County, California

Moderator Pro

1,931 posts
7 awards

Feb 23, 11:28 AM

I looked that up for you on MLS and it appears that the highest and best use of the property is a condos. I just did a quick search for you, not actual comps, as I don't have enough info on your house and lot for that.

Personally I wouldn't want a house surrounded by 3 story buildings! If I get more info on your lot, I may be able to determine if it would support units on its own, or if it would need to be adjoined to others to make any development worthwhile.

I'll be waiting for your private message with email. As for pic... I know the feeling, I held out as long as I could, then finally snapped one with my phone!

Steve Babiak

Real Estate Investor · Audubon, Pennsylvania

7,062 posts
11 awards

Feb 23, 11:34 AM

Originally posted by @Karen Margrave:
...
Also, if you are going to buy another place, you might consider doing a 1031 exchange.
...

Karen Margrave - I don't see the sale of one's residence in this manner as qualifying for a 1031 exchange. But even if it did, it makes no sense to even look at a 1031, since the OP indicated that the house would not sell for more than the basis (what was originally paid plus improvements) - so there's no capital gain to try to defer. No need for ]section 121 exclusion either, due to likelihood of selling for less than basis.

Paul Falbo

· Phoenix, Arizona

68 posts
2 awards

Feb 23, 01:05 PM

I have a little trouble with the agent's hypothetical, and scare tactic, that your value would be severely reduced. I like your instinct to not "believe" his statement.

I'd seek the opinion of an independent commercial broker, and an independent residential broker, that don't have any potential vested interests in the game. I'd also phone the California Department of Real Estate to see if the agent's tactics fall within the real estate statutes and ethics of the profession.

My experience has been that larger tracts, obtained by "packaging," invariably have a "hold out" that thinks their tract is necessary for a developer to move forward. This can be true; but, I've seen the value both rise and diminish, depending on the scale of the proposed project.

If you decide to sell, keep in mind that the inquiring agent will undoubtedly expect you to pay the commissions, thus affecting your overall cash to find a larger abode.

As an added note: My daughters survived a small house; and, the wife and I are quite comfortable now and don't need to "downsize."