Building Duplex on Vacant Land

6 Replies

I'm new to this forum and to investment properties.  We are interested in a type of hybrid investment property . . . meaning that we want to purchase vacant land to build a duplex for rental property for the next 10-15 years.  Then we'd like to move into the larger unit later in life while still renting out the smaller unit.

We are located in Hawaii and the property we are interested in is oceanfront.  We really like the location (for our own purposes), but at the same time this is an investment, so we don't want to get too caught up in our desires. 

Our concern is that there are very few oceanfront properties in this particular area and we don't want to pass it up.  However, we also feel that the asking price is too high, but since there really aren't any comps I'm not sure how to determine what is reasonable and articulate it to the seller. 

We are working with a relator who has some ideas, but wanted to see if anyone else had some advice on how to make a decision on something like this?  and how to negotiate with a seller who seems to have picked a number out of the air to list his property?

Hi Lorinda. I'm also here on Oahu. It's not surprising the oceanfront land has a high asking price. It's definitely more difficult when you don't have solid comps in your pocket to show the seller. I find that sometimes the best way to get that dialog started is just to ask them how they came up with that number. That way you may get a good idea of how to counter them.

I know that when I consider most properties to flip, I really need solid comps. If I don't have good comps then I'll either walk or I'll make sure I have some serious equity, more than I would normally need. The last thing I want is to be biting my fingernails during a project.

But that's for a flip - not what you're looking to do. So the real question for you is: what type of 'deal' are you looking for? A percentage of equity? A monthly cash flow? What's your buying criteria?

Also, as a former coastal geographer and published scientific author, make sure you understand the behavior of the shoreline in front of your property. I've looked at many shoreline erosion maps for various islands here and there are definitely some areas where I would NOT want to own oceanfront property.

Medium oahu home buyers logo2Michael Borger, Oahu Home Buyers | (808) 377‑4379 | http://www.oahuhomebuyers.com

@Lorinda Riley  First off, welcome to BP!  The situation you describe is a common one in high demand coastal areas. When there are no comps to speak of, it makes it more difficult. You may need to hire an appraiser to give you at a minimum an opinion of value if not a full blown appraisal. 

Also, how knowledgeable are you on development? Are you sure that the zoning, and topography will allow you to do what you want to do? @Michael Borger brings up some interesting points that you will need to consider too. You want to know exactly what it's going to cost you to build, because without knowing that, it's hard for you to figure out what price on the land would make sense. 

When there's a limited number of parcels that are available in an area, most sellers know it, and price their property at what they want, knowing that if they wait long enough, they'll get their price, unless of course they are motivated for some reason, then you may get a better deal. 

Good luck. 

Medium house plansKaren Margrave, Parlay Investments | [email protected] | http://www.parlayinvestments.com | CA Contractor # 680782

Thanks for the insight.

@Michael Borger we are looking for mainly cash flow,hough we recognize it will take about 1.5 - 2 years before we will see a profit in this case due to building costs and timeline. I was very worried about the oceanfront location, but luckily we are on solid ground. 
Our criteria for this deal is a little different because this is a property we'd be interested in moving to.  Essentially, for this purpose we want (safe) oceanfront or very very close to beach property that will support a duplex on the Windward side, but not so far as to make commuting an issue.  Total maximum project cost between $550 - 600K.

However, if this doesn't go through we'd be interested in other deals that would probably have very different criteria as they'd be more "pure" investments. 

@Karen Margrave we are by no means experts in development, but we have done our due diligence.  Zoning, topography, construction costs, and extra insurance costs have all been considered.  Frankly, there are other investments that would be more profitable, but as I said, we hope to move to a property very similar to this one in the future.  We aren't that far off with the land asking price, but far enough that I am concerned that it is the weak spot. Will look into talking to an appraiser.

     

Aloha Lorinda! Welcome to BP.

Very interesting thread!

The B Plan. (Just in case)

1. If needed, create your initial wealth by flipping. On Oahu we typically make $70,000 to $150,000 per flip.

2. Get the cash flow. Invest for max cash-on-cash return. That's definitely NOT in Hawaii. 

3. Get your ocean front (or ocean view) dream house or condo as a distressed property, or buy from a distressed seller. You may accomplish this during #1 above.

Very do-able, and will leave you with a lot more money in the bank to enjoy your Hawaii dream lifestyle.

That's just an unemotional perspective from a local Hawaii investor, who is already doing same. I mention this only because its hard to invest well when you are fixed on a particular property, and the seller is holding out for the higher prices. (which he'll very likely get because inventory on this island is so low.)

Returning to your A Plan for a moment, have you considered the Big Island? I'm beginning development there now, on both Kona and Hilo sides. Views are just as magnificent, and prices are much better. 

All the best with achieving your A Plan, Lorinda!

~Michael

Medium tblc logoMichael Mazzella, Turtle Bay Land Company, Inc | [email protected] | (808) 465‑8311 | http://www.HonoluluMentor.com

@Michael - Plan B may end up being the way to go.  Still hoping this works out, but if not our next opportunity will definitely be less emotional.  Hawaii Island is great, but almost all our family and connections are on Oahu, so I don't see a move to Big Island anytime in the near future.  Took me 16 years to get back to Oahu from the mainland.  I can't imagine re-rooting again.  

Mahalo again for sharing your thoughts!

@Lorinda Riley  It sounds to me like you are trying to find a smarter way of acquiring your dream home for retirement.  In which case you are allowed to be somewhat attached and emotional, just don't let it get in the way of making good decisions.  If you couldn't purchase a a completed property (distressed or not) like this for your budget and you're getting a better deal and the ability to generate some income to offset your costs, that's valid criteria as well.

Keep doing your due diligence, and I really liked @Michael Borger 's suggestion of asking how they came up with the asking price.

Medium team zen logo vMicki M., 33 Zen Lane | [email protected] | http://www.33zenlane.com | CO Agent # 100037721, NM Agent # 19441

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