Feedback on Recent Land Purchase

8 Replies

I recently bought a 0.175 acre lot in the Eastwood neighborhood of Kalamazoo, MI. I bought owner financing with very little down payment and cheap monthly payment.

The land is already in an established area with houses on both sides of the lot. I wanted to get feedback on the best way to utilize the land.

I want to build a house with hard money and either flip for resell or refinance and hold as a rental since it is about 10 minutes to Western Michigan University.

I would love feedback from locals (as I live in Southern California) on which route may be best based on the area, home values and rental prices. 

The Eastwood neighborhood in K-Zoo is an old neighborhood, assuming we are looking at the place.  The houses are 70 to 100 years old and they seem to be fairly small, ranging from about 750-1200 square feet.  It would not surprise me if many of these houses are rental houses.

The challenge you will have is that houses in this neighborhood sell for about $60 per square foot and the cost of new construction is significantly higher.  I've seen estimates in Michigan from $85 to almost $100 per square foot.   Many of those estimates ignore the cost of the land or unique permitting requirements.   Just to break even it looks like you would have to sell the property at twice the price of the properties surrounding you.

So what are possible exit strategies?   

  • Well, you probably aren't going to sell this house to a landlord.  The rent for a new house won't be 2x the rent of the old one next door so the older houses are better deals for a landlord. 
  • You probably aren't going to be able to sell this to a student either as they will be strapped for cash.
  • You may be able to find someone to buy a new house in that neighborhood and make a profit, but then you take on a lot of risk.   I would check with local realtors and have a firm quote from a GC on build costs.
  • Alternatively, you could build and hold.  Rents in that area are $600-900 per month.  You could do the math and see if that would cover your mortgage costs.  
  • You could sell the land.
  • Hopefully you are seeing the challenges here now, so I will suggest one last option -- give the land back to the previous owner so you can stop making payments.

Good luck

My niche is student rentals near WMU and Ive found that the Eastwood area is a bit far away to take advantage of that market.  

Most students want to be close enough to walk/bike so the only way you'd be able to lure them away is to have really cheap rent, which wouldnt support the cost to build new.

If you do build on the lot, then I think you'd have better luck marketing to the medical workforce.  There are a ton of hospital employees out that way looking for affordable, yet very nice, housing.

Good luck!

First of all what kind of land.  It may be in an established area but if it was vacant maybe it was not buildable except with a special permit. Have you checked if the land is buildable and there is an approved plan to build? That would be the minimum threshold for buying this kind of land. Second, as someone said, you should have checked on rental prices and comps before buying since optimistically with construction costs of 100 per sq ft, a 2k sq ft multifamily is easily going to be in the 200-250k construction costs including permits, fees etc

At that level, you would need to collect 2k in rent a month just  break even on the construction + costs. Is that doable? You should have found out before buying..... Otherwise, just because it was very little downpayment and cheap monthly does not make it a good deal.

If you are able to build and market to the medical workforce like @Nate Chucta mentioned above I think you could make it work. I dont know that youll cash flow a whole lot but you could rent out each room and likely break even at least. Just a thought.

Do you have "boots on the ground" in K-Zoo? It might be best to market the land  locally to investors/residents who may see a best use for it. Someone may find that using the land for a community garden or children's park is of great benefit to the neighborhood. IT might be possible that one of the homeowners adjacent to the land might be interested in extending their property lines. You never know.

Great feedback and ideas everyone. Yes it was a spur of the moment buy with me doing a lot of the research afterwards. However I do want to find a way to make it work. 

I'll reply to individual posts once I'm back on a PC.

Originally posted by @Christopher Neeson :

Contact 

Haily Siebenaler

Property Manager

Jakobson Management Company, LLC

3414 Lovers Lane

Kalmazoo, MI 49001

Office: (269)978-8877

www.JMCMICHIGAN.com

This gal is on her toes and might be able to give the best I'd ideas for it.

We currently have her doing full renovations on two of our current commercial multifamilies.

 Thank you so much Christopher. I am going to contact ASAP!!