How would you handle this deal

Question

90,000k Duplex 2/1 & 1/1 in need of major renovations on a 9500 sq ft. lot. Purchase includes two similar lots. Owner is willing to finance. I have not discussed terms yet. Nor have I inspected the property.

Its in a college town & will rent for ~ 1100 with full occupancy.

ARV shows at around 150000k

What I would like to do is Remodel the first, get it rented out, then build two 3/2-3/2 duplexes on the other two lots using construction loans. I have absolutely no experience in developing. Any ideas?

Rusty Thompson · Answer

Good question, Its one deed. The address on the deed is

1745 TO 1747 SW EDGEING DR

Google maps shows it as 3 separate lots

Dick M. · Answer

Are they separately deeded lots or a house built on 3 lots? Things change, what was a buildable lot when that house was built may not be now, and not grandfathered if you have to split them!

Rusty Thompson · Answer

Leonard L.
I've considered that. Depending on the terms, the property would cash flow, as long as the repairs are not to astronomical. Then hold the lots until things improve. I'm already sitting on one that I have similar plans for. It would be like buying a property with two free lots.

Leonard L. · Answer

Rusty:

I just want to caution you that building out new product may be more complex than you think.  As a developer, I can tell you that construction financing is very, very difficult right now, and that even in good times you would have to sign a personal guaranty (which in today's times, means the bank will hire a proctologist to make sure it understands your personal assets and that they are all pledged).   There are impact fees which drive up costs, etc.

My strategy in today's market would be only buy the existing duplex if you can generate positive cashflow meeting your return requirements.  I am buying in a market where values have come down so far that new construction makes no sense.  So I pencil very little additional value for the lots, which I hold until new home values increase and construction financing loosens.  Then I plan to sell the lots into a strong land market to someone who specializes in new construction.   Use that money to reduce your basis in duplex or to put into more property.

Requires patience, but if you can pick up lots on the cheap in this depressed land market, with rentals that generate cash flow, it will be a great long term play.

Leonard

Rusty Thompson · Answer

what do lots go for in this area? 
- There aren't any of comps in the area, but the lowest priced lot on the MLS is 39k. It's about the same size, but in a very nice subdivision. Which this is not. I would guess each lot is worth 25k-30k.
 
what will be the cost of the rehab?
- Good question, I think I'm going to go look at it tonight. I haven't seen it yet. This is one of the time I wish I was full time. Working around work def. makes this more difficult.

what type of property would you like to develop?
- I would like to build 3/2-3/2, two story duplexes w/ single car garages. Which comp for 200K.

I've really been procrastinating on this, because I've been distracted on other things & I don't really have a plan for it up front. But the more I think about it, the more I like the idea.

Jim M. · Answer

questions :
  what do lots go for in this area?
what will be the cost of the rehab?
what type of property would you like to develop?

Rusty Thompson · Answer

Update. 
Out of state investor & back taxes