How to Analyzie a Piece of Developed Land

16 Replies

I think the seller is asking too much for his lot (off market deal). It is one of the last lots in a neighborhood development finished in 2013. He bought the lot in 2014 for $44k and now wants $120k.

House values in the neighborhood have increased 33 - 46% since 2013. Is it fair that is lot value is worth 33 - 46% more than he paid in 2014. =$58k - 6$4K

A similar lot in a developed neighborhood is pending for $122k, but homes in that neighborhood are worth $550k, while this neighborhood is max $350k. So is it fair to value his lot at 58% less than the fancy-pants neighborhood. =$77k

The county assessed value is $47k. My gut offer was around $70k. We aren't far into negotiations, I'm just doing my research.

Also, this lot is zoned duplex, which makes it more valuable to me, but really limits the comps. How much value (if at all) should I place on it being a duplex lot? How do I find the true value of this lot and am able to show the seller of such?

If I was looking at it to build a spec house  70k all in is about right for a 350k exit  120 way too high.

100k if your very efficient builder.. or a owner / builder and gets great pricing..

4X is kind of a rule those price points.

were it flip flops is the   2 million dollar lot and the 8k build and sell for 4 million like I am sure there is stuff in seattle like that and bay area and other high priced areas.

but at the 350 exit I like the 1/4 or less for lot price to make a 15% gross profit margin after all costs.

@Julie Marquez Hey Julie, as you know number 1 rule is to never overpay lol. 

This lot price seems way high for what the market demands [350k for a finished product]. Now, the idea of a duplex might be interesting but you should also check what the rents are going for based on the unit mix the duplex would be. 

In any case, you should stick to your gut feeling at around that 70k offer price, so this deal shouldn't be a do or die deal as there is always another deal around the corner!

Hope this helps. Goodluck. Thanks! - Ola  

@Jay Hinrichs I was hoping you would chime in, I like the 4x rule. We will be the owner/builder of a basic spec house, but still want to get the right price. We are in Skagit County, 60 miles north of Seattle. It has always been advertised as a duplex lot, not sure why, as it is an anomaly in this little neighborhood. I will definitely confirm with the city about that.

@Ola Dantis Definitely don't want to over pay, and his ask for $120 was a huge red flag. Rents for a new 3/2 duplex would go for $1690 a side.

well then if its zoned for that and utls are there then carry forward..

its pretty tough in our markets though with build cost to make sense of building a duplex.. vis a vi rent.

but I don't know your rental rates.. building costs are 100 a foot  so probably 300k or so to build it to rental grade plus lot.. so maybe your all in for 400k

lets say rents are 1500 a side  that's not bad.. I would do that deal if I lived there and wanted a brand new unit to put into service..

@jayhinrichs with a 400k building cost 20% down will tie up 80k.  Is there a way to fund this without having to take so much money out of pocket?  Thanks in advance!

@Jay Hinrichs That's exactly the plan, but we can do this as owner builder and do owner occupied financing and live there for a year. I calculated about $400k total with $1650 in rents per side. There are no multifamily properties on the market and one new build 2/2 duplex just sold for $695k (getting $1950 per side)!!! I see a huge marketing for building and selling small multi-families!

My husband and I both work for a commercial GC, so we are not afraid of construction....

@William Coet That's how I see it moving forward for us. We plan on using a local portfolio lender that does a lot loan for 30% down for two years, and then bundles forward into a construction loan wanting 20% down. And we have to front a lot of the construction costs before the banks pays out. New construction isn't for everyone. Maybe read The Book on Investing with Low and No Money Down by Brandon Turner (or just start searching that topic on these forums) for more ways to get creative with the financing.

I also would consider that oftentimes the last lot or two in a new subdivision is the least desirable, for any number of reasons.

Harry Gamble, Attorney

@Harry Gamble I think it's desirable because it's a duplex lot, but the 9 sides parcel that sits back from the road is a very, very odd lot.

@Jay Hinrichs So with all that being said, what's a reasonable price for the lot? He wants $120, I want to pay $80 (based on the best comps I could find). You probably think $100 is just right?

Join the Largest Real Estate Investing Community

Basic membership is free, forever.