how do you evaluate two homes on one lot

10 Replies

I have a deal where the owner of two SFH's wants to sell but both homes are on the same lot. Is one considered a guest home and how do you appraise the value of each?

You would have to take a look at what the particular zoning situation is.  We have similar situations here where there is a house on the front of the lot and a smaller one in the back.  They are usually each considered half of a duplex and each can sell independantly as such. 

To appraise the value you really have to find similar properties which may be difficult.  The house valuation is probably simply finding similar sized houses/duplex's but not sure how the lot size would be handled.  The appraiser my just take the lot size and divide it by two regardless of the individual house size.

It would surprise me if you could sell these separately without legally subdividing the lot.  But if you're thinking of going in as a landlord, or as a landlord/homeowner, it might be quite appealing. I don't know a hoot about how it would be appraised, but if I was trying to determine the price I'd offer, I'd use total square footage of the two properties and compare it with other recent sales on a price/sf basis. 

You may be able to create more value by selling them separately without dividing the lot.  Set up a condo regime.  There are attorneys that specialize in this and in some places no city approval is required.

There are a couple of those around me.

Two homes on one lot is less insurance and taxes than two similar homes on two lots. 

Generally water/sewer is combined,  so that generally makes it a landlord paid utility and chtge rent to offset. 

Selling could be harder,  because your end buyer needs to want inlaws quarters or income property. 

For me for  long-term buy and holds,  I  see it as a positive, except that (in my area)  it generally means one or both of the houses was built by a homeowner(or converted garage)  living in the other one.   

Thanks guys, that a lot of good info. This gives me a few different ways to look at structuring my deal as well.

Well done...

Hi @Donald Banks  

Some really great answers here already. I own one property like that where there are 2 houses on 1 lot. The first thing to do is call the building dept to confirm both are legal. And when I bought mine I ran my numbers as a buy and hold, because as @Michael Herr said it will be much harder to sell compared to a SFH. Your end buyer will more likely than not be another investor.

If you are looking it as a buy and hold, it will generally be a better deal than an average SFH in the area and if you are looking it as a flip, it will generally be a less attractive deal than an average SFH.

@Sharad M.  makes a good point. You need to first make sure that the properties are conforming so you do not run into any complications when it is re-assessed by the assessor after the sale.

Assuming no problems here. Now the consideration is how the property functions. If there is a larger primary residence and then a smaller guest home, then from an appraisal standpoint, they will need to find similar homes such as basement apartments, garage apartments and mother-in-law units.

If the two improvements are similar in size and construction, then you are looking more at an investment property and the duplex comparison will come into play. If you can split the lot, you could most likely make a good profit here.

It's certainly a buy and hold investment. Both houses are 2br., 1ba. One is a little bigger than the other. The lot is located in an unincorporated subdivision, and there are a number of these in this area.

I may consider splitting the lot going forward. However right now after acquisition, I'm leaning toward a 2-3 year lease option to a family looking for a related living opportunity. I'd prefer one lease for the whole lot.

I know some individuals who would be interested in such an arrangement. I also have 25% seller financing already lined up. 

Looks like you found the ideal solution. A lot split in an unincorporated subdivision might give you a little bit of a problem, but if you are doing a lease option then the problem is not really a problem at all. 

Thanks, but this may be a moot point as the seller is no longer being realistic in his asking price. 

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