Got another one for y'all. Negotiating with a seller (absentee owner) who has a 100-year-old 3-bed, 2-bath, 1600 sq ft, 2-story house on a half-acre. This is 2 to 3 times the size of other lots on the block. The other houses in the area are 2/1's and 3/1 or 3/2 comps within 1/2 mile are selling for no more than $100k. The house is really rough. Been vacant for almost 2 years and needs serious work (I'm estimating $60k). My best guess is that it would be better to demo the existing house, split the 1/2 acre lot in half and build 2 new 3/2 ranches. New construction in the area is going for $125k-$135k. Seller has had the house on the market recently listed as low as $30k. My initial offer was for $10k and he's countered with $25k. I'm having my doubts about this working but figured I'd run it by everyone and get more input from another angle.
I personally wouldn't look into actual construction unless you are a contractor. You add your percentage on top and why would a person buy your brand new house if they could pay less and have it built for themselves?
As for the purchase price. Find out how many legal lot splits you could get out of the property if it was vacant. Figure out what is the price per lot vacant. Find out what you could sell the house for if it was removed - "house only, you haul." Remove all legal costs for the split and removal, including an fill for the foundation, and remove your profit from the total. That is your purchase price.
@Jim Viens First off it sounds like you're thinking on the right track. But, why do you have your doubts? It's very hard for us to give you any answers without knowing more about the situation.
- Is the house listed on any type of historical data base that would stop it from being demolished?
- What is the zoning?
- Minimum lot size allowed?
- Are there utilities available ?
- Sewer or septic?
- What is the cost per square foot to build new construction in the area?
- What is the economy of the area?
- Is there a large supply of houses on the market?
- What is the rental market like? Plentiful or tight?
- Are market rents high or low?
- What is your experience?
These are some of the questions you will need answers to.
@Simon Campbell & @Karen Margrave - Thank you for the info. Those are exactly the things I needed to know. I am fairly new and would likely be wholesaling this to an investor/builder but didn't know what I didn't know regarding how to properly estimate what the value would be to my buyer. I just don't want to put the property under contract with bad assumptions/numbers. I'll do some more research on what may be involved in a lot split. I seriously doubt the minimum lot size thing would be an issue as the existing half-acre is actually spread across 6 different lots on the plat map. The house is not on any historical registries. Economy in the area is stable and there is moderate buy/sell activity in the area. I'll check with a couple of builders and see what the building costs, etc would be and what they'd be willing to pay for lots in the area. Thanks again for the input. I now have a little more to go on in doing my research.
Don't waste your time with building costs - really. You won't make any money going that route. Sell the house on one lot (2 plat lots) to a rehabber or sell just the house and have it moved. Then sell the other two lots to whomever wants them. Take your cash and leave the building details to someone else.
@Karen Margrave - right. That's why I was concerned about the costs is so that I would be able to get it under contract and offer it at a price point that a builder would want it at.
When it comes to costs to a building, what you need to be focused on is the value of the lot as vacant less demolition costs. That would be the market value of the lot as is. Then subtract your profit and any other out of pocket costs and there is your offer to the property owner.
@Jim Viens I have done deals like this before as a builder and an investor. You are just starting out so you dont want to manage a big project like this. Get it under contract you can get out of, and go talk to the builders. Most are not buying around here until spring. I have a lot we are waiting to develop currently.
btw @Jim Viens I can help you better evaluate this if you want, just let me know. I am both a contractor and investor and done alot of wholesales so I may be able to walk you thru this over the phone. No strings attached just offering to help.
Thanks, @Jeremy Tillotson , I may take you up on that. I've actually got two leads like this now (where are these things coming from??). Both similar situations...100+ year-old houses where purchase + rehab costs will barely equal the ARV.
drop the purchase price let me know if I can help
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