First commercial deal: Corner lot of two highways with old buildings? How do I know it's a good deal

9 Replies

Let me lay this out for you. Small town in the Midwest as two highways (2 lane medium traffic flow) that intersect at the corner of its town. One corner has a car wash, one has a well est. church and the other has an abandoned house.  Sitting on the last corner is a large grouping of lots. Along the more major highway we have 4 lots (2 are just a gravel lot. They were a gas station at one time.) 2- have a old house and garage that have to be torn down.  Now along the back of these lots runs one more lot that has a building (one story 30x60) in need of major repair but it can be saved.  Along the back of that lot is 4 more lots!  3 have one house with a possible rent rate of $650/ month, the other lot has a house that rents for $300/ month but it looks very poor (but it is lived in).  So if you are still following this make a section of land with two sides on major highways and one side on a regular side road of small town USA. About 225' x 300' lot size as one.  

Now the real question is: If it has been for sale and empty for 5 or more years how do you put a price on it? Is it valued at the price of the livable homes? Is it valued at the price of the livable homes minus the cost of demo of the other buildings?  Any help is very much welcomed!   Thanks 

It sounds to me like you need to be a developer to take on that project. The fact that its been for sale for 5 years is a big red flag. I don't hear anything in your description that makes this sound appealing, just a lot of potential costs and headaches.  Unless you plan on developing a gas station or retail plaza, assuming that area needs them, I'd find a better place to invest my money.

Sorry to be negative.

You have to analyze I fit really is a bad location OR if the timing of selling it wasn't right??

In development timing is everything. The goal is to own the land for as short as possible to get the return back because until then you are just paying taxes and fees and not getting a return on your money. You can lease out the land or allow cars on it etc. and things like that but I am talking about the big exit money when you sell.

Medium allworldrealtyJoel Owens, All World Realty | [email protected] | 678‑779‑2798 | http://www.AWcommercial.com | Podcast Guest on Show #47

You both are so right. I have been sitting on this for months now. The owners (Estate) are almost begging me to make them an offer. Another red flag right!  The price is going to get silly cheap in the next few weeks. I do see a larger development at some point going in there (and I want to be the one who profits off of it) but I'm unsure how long that might be. A strip mall and a gas station have been interested in it the last few years but the only land for sell was the half by the two highways or half the size I told you about. I just happen to be able to close the deal on more land by knowing a long history back story with the Estate. I asked and they said yes you can buy it all. Please bring an offer!  So how do I get large franchises to look at this land / location? Any thoughts on that last part? 

Mark when I talk to the real estate acquisitions and development managers for the area for those companies the NUMBER ONE question they will have is are you the owner, the listing broker, or do you have the property under contract and CONTROL??

If you are not one of those things they do not want to speak with you. The reason is without control you cannot give them a price. Every tom, dick, and harry can be pitching this land to them with various prices. The companies would waste their time. It would be guaranteed if you represented you did have control and you didn't that they would not return your call again.

Some will also want to know if the land is zoned already and  entitled or they will not pursue it. Others will buy from scratch and put the steps in to get it going from the beginning to end. As one developer put it if they buy it and have to clear the land, get entitlements and zoning etc. then they take more risk and the price is lower. if you have already gotten things to a certain stage then you can get  a higher price.

More time, more money.

Less time in, less money.

What you have to decide is how much time you put into an investment before you say the extra time isn't worth the gain and you want to move onto the next one and close this one out.

  

Medium allworldrealtyJoel Owens, All World Realty | [email protected] | 678‑779‑2798 | http://www.AWcommercial.com | Podcast Guest on Show #47

All great points.  This is so out of my box that I'm just stallng to long I think.  Everything is there and ready (zoning....). I would have to do some demo and go. I just wonder is there anyway to help figure out if it is a desirable location or not for larger businesses. I'm doing lots of leg work today with the town zoning and planning commisions office to learn more about past inquires of the land.  Why did their deals fall through, what type of businesses were they? Questions like that. I'll keep you posted. Every step of the way I learn more and more. 

There's nothing wrong about being a contrarian investor. The challenge, as I see it here, is that this is probably a "one-and-done" deal for most all but the most visionary buyers.

How does this opportunity rate using the DUST model: (desirability+utility+scarcity+transferability) ?

I' ve never heard of the DUST method. I'll be studying over the next few days. 

This purchase is still on going.  The listing agent (also my agent for most of my flips and buys) and I plan to talk soon. It seems that some things have changed from the Estate side of things and it needs closed. Well I'll see what "needs closed" really means in a few days!