Raw Land for a first deal

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Raw Land for a first deal

Kim Pham
Flipper/Rehabber · San Jose/Santa Rosa · Member since 2015 · 8 posts · 5 votes

Hi BP Community!

Would love to get your guidance as I think this might be my very first deal. 

-FSBO priced at $80K (free and clear)

-Owner is an elderly man who purchased the lot for $60K nearly 20 years ago through a foreclosure sale. He lives out of the area and is motivated to get rid of it.

-Property is 1/2 acre raw land. 

-Property profile report shows the property use is residential/vacant

-Located on block with single family homes valued $500k-$700K with same lot size. 

This might be my first deal and I'm so nervous. I told him I'd get back to him on Tues/Weds. Does this sound like an okay deal guys? Raw land? I am completely clueless on what I need to do next. Do I find a lawyer to help me fill out a purchase agreement? I'm sorry for sounding like such a newbie but any guidance would be very much appreciated. :)

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Karen MargraveBusiness Member
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Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
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@Kim Pham You can probably go onto the website for the City, and look at an interactive map that shows zoning, etc  Depending on where in San Jose the lot is, it could be worth far more than you are thinking, as a 1/2 lot can be split, depending on the minimum lot size allowed in the neighborhood. 

As to the value ratio @Christina R. those are for some areas of California, not all, and things like that are definitely local, so you need to find out for your area. In some areas of California we have to pay ridiculously high prices for land, other areas of the country are sometimes lower. 

When a builder is looking at land, we are looking at zoning, location, topography (is the land flat or is it going to require a lot of excavation, retaining walls, etc.) where are utilities in relation to the lot, are there any utilities that will need to be relocated, put underground, etc. What is the minimum lot size, etc. Type of soil (that's more a concern when you are in coastal areas or have sloping lot, etc.) 

If you want to send me the address of the lot in a private message, I'd be happy to look it up on google earth an give you a quick opinion of the land, the neighborhood, etc. You don't want to put too much online until you get it tied down.  Once you have that done, there's some builders here on BP that are in your area that may be interested. 

Sounds like a great opportunity though. 

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  • David Krulac
    Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
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    @Logan Hicks

    Glad you think that way, means less competition.

    I've bought raw land and scattered lots, and have done pretty well at it.  But its probably not a good first buy.  There are many factors like zoning, environmental, and regulatory issues that don't have the same effect on existing houses.

    I've had to do endangered species studies several times, never found any.

    I've had to do historic and archeological studies, never found any.

    I've had to do phase I and phase II environmental studies.

    I've had to do flood plain studies.

    I've had to do wetlands studies.

    I've had to do hydro-geological studies for nitrates.

    I've had to do perk and probe testing for septic systems.

    I've had to do perk tests for storm water control studies.

    I've had to construct man made wetlands.

    I was denied a variance and ended up with a 20 foot wide building envelope.

    Another property was a dilapidated house, that if torn down would have an 11 foot wide building envelope.  I gutted the interior, left the exterior alone (grandfathered) and sold to a rehabber.

    OTOH, sold several projects where the sale price was seven figures more than the purchase price.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Logan Hicks  those are some nice points but you can say that about poorly chosen so called cash flow homes as well.  Think about 30k pigs in a major metro area and you live out of area.

    I bought a 4 acre tract ( actually within 3 airmiles of this lot in question) in 1995  it was un buildable at the time ( could not get it to perc) so its just sat there... I paid 27k for it and taxs are 300 a year...

    But It was right behind a Home depot and right on the city limit line.. Well it took a few decades and the land was annexed into the city.. zoned mixed use resi.. And the Indians bought the property on the other side of the street  200 plus acres for 200 plus million. And built the largest Indian gaming Casino in N CA. which employees about 3,000 folks..

    Not sure what my lands worth but I put it on the market for 3 million and have had a few calls... So land in the path of progress is by FAR the best investment you can make with small dollars and one that is Passive.

    I have also bought and sold Timber land for 20 plus years.. Talk about Cash cows and big money.. they don't call them Timber Barrons for nothing... Remember the trees just keep getting bigger each year thereby growing in value... the largest financiers and owners of timber land in the US are the Harvard Endowmnent and John Hankcock insurance.. Timber in the northwest if you do nothing will increase in value 10 to 14% each and every year you hold it.. I just sold one of my last Timber Farms  700 aces... to Stimsom lumber for a multi 7 figure exit on a 500k purchase in 2002.  And if got to hunt on it ... and roam around on it.. ride our quads and tell every one I owned 700 acres of timber ground  LOL.

    But your correct about a lot of land in the US.. its worthless and poor investments you just need to know which is which..  Just like you have to know what kind of rental properties to buy lest you lose all your money .

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
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    Originally posted by @Karen Margrave:

    @Kim Pham  

    As to the value ratio @Christina R. those are for some areas of California, not all, and things like that are definitely local, so you need to find out for your area. In some areas of California we have to pay ridiculously high prices for land, other areas of the country are sometimes lower. 

    I wouldn't use land to value ratios without knowing the very detailed specifics of the neighborhood/area.  I can buy vacant lots with sewer and utilities all over CA for $10K with exits over $150K.  It's not the ratio that matters, but whether it's feasible to build for resale in those areas.  I have a family member selling a 4 acre raw lot in escrow for $400K here in Santa Barbara.  The builder is aiming for a $1.1M exit.  It's very, very market specific.

    The OP says the seller bought this property at auction, which may mean tax sale auction.  Many infill lots sold at tax sale in CA are not buildable or are in munis where it's prohibitive to get permits or variances. It's quite likely that this lot isn't buildable or if it is, the cost may make $80K too high. Just because the seller wants to sell does not make it worth buying....sometimes lots are not worth buying at any price.

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  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
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    Originally posted by :..Jay
    So land in the path of progress is by FAR the best investment you can make with small dollars and one that is Passive.

    I'm glad to see you write this, because I'm working with that concept right now and some people think I"m crazy ;-). 

    I have several assemblages going in the cheapest neighborhood, next to the future Beltline in Atlanta. 1 of them is across the street from a 31 acre tract, that is in the planning stages for development, between owner and developer. But there hasn't been an official announcement what it's going to be. 

    So, maybe that is more speculating than investing, but I'm getting rental income on the houses and am picking up the vacant lots adjacent. 1 assemblage has 4 properties so far and another has 6.

    We'll see ;-)

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Account Closed  the subject property was on Bid 4 Assets in the Sonoma county tax sale this year but got pulled.. so owner paid back tax most likely

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  • Karen MargraveBusiness Member
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    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
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    @Kim Pham and @Jay Hinrichs another thing we haven't discussed,  is that if the property requires a septic, and therefore; perk or wet weather testing, with California's drought you can pretty much be sure there hasn't been any testing completed in the past several years, and would need to do,  Hopefully we will get some water this year, like they're saying.  I'm not sure exactly how many months they need test pits in ground for wet weather testing if it's required, from January through April or ?  

    Most of the time those types of properties are great if you know the area, how people live, what areas are most in demand, or if you're an experienced builder. For a newbie, it's not the type of deal to cut your teeth on, but you definitely can use it as a learning tool. Good luck! 

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  • Shamus Bell
    Future Investor · Philadelphia, PA · Member since 2015 · 26 posts · 1 vote
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    First deal 11.2 acres of wooded lot. Houses other lots and land package are going for 150k or more. 

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
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    Originally posted by @Jay Hinrichs:

    @Kim Pham  thanks for sending me the APN  number this lot although very well located in Bennett valley and surrounded by 500 to 800k homes.. is from looking at the plat map left over slip of land... its only 60 feet wide and its 300 feet long.  So most likely it will never meet set backs and the only value is to the homes on either side.  although they probably know its unbuildable so why buy it just use it.

    the person who owns it I would bet dollars to donuts bought it at a tax sale.. and now is trying to sell it... it was on the Sonoma county tax sale being held by bid for assets but it was removed.. ( taxs probably paid).

    Not sure how you found this as your in San Jose and this is 90 miles north in Santa Rosa.

    The only play I could see here is contacting the neighbors on either side.. see what if anything they would pay for it... deduct a reasonable profit for yourself then make offer to current owner accordingly.

    There are millions of these type of properties through out the US and hundreds of thousands if not a million or more of them in CA alone.

    My first deal was a 7 acre raw land lot bought at tax sale. I didn't analyze the build ability too hard.  Nor did I go see it before I bought it.  The only thing I knew was that it wasn't land locked. It could have been a ravine.  It wasn't, but it was very hilly.  I sold it to the neighboring owner that was living in a house they had bought 10 years prior.  They too could have just kept using the land but they wanted to control it.

    If it were me I'd be looking to see if I could profit on a resale to a bordering property, regardless of zoning.  

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
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    Originally posted by @Jay Hinrichs:

    @Account Closed  the subject property was on Bid 4 Assets in the Sonoma county tax sale this year but got pulled.. so owner paid back tax most likely

    I should have read the whole thread.  I suspected it was a tax sale purchase from back in the day.  So the owner says they know nothing about the property after owning for 20 years, but they stop paying taxes for 5+ years so the property goes all the way to power to sell? Puhleese. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Account Closed  Yup that's about the size of it... google Panorama drive Santa Rosa you will see one long narrow lot between two homes.. that's the one !!

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
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    @Jay Hinrichs  What are the taxes?  How much has the owner paid since he bought it to keep it out of tax sales? I'd want to know his all in since 1997 as a possible negotiating tool.

    Gotta say the "lot with problem" assessor notation is a new one for me.  Wonder if the problem is legal description/lot line issues.  Or like superfund toxic pollution issues? 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Account Closed  it looks to me to be a surveying error as in the subdivision did not tie and they had to create a new lot... which the developer probably kept then let go to tax's since its not buildable...  ( as stated above my dad owned hundreds of these odds and ends in N CA.)  AS we know you can create lots and create APN numbers does not mean they are buildable though.. although with todays new rules that really does not happen..or should not happen

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
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    We don't know how the OP learned about this lot or came in contact with the seller.  There were probably some clues there as the the seller's motivation and value of the property.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Account Closed  Santa Clara county tax sale just came up on Bid 4 Assets there is an 80 acre parcel that looks interesting.. there is an old deed granting some sort of access although it could be impossible to build said access I Have seen that many times.

    but opening bid I think is only 15k  that would be a good one for Kim to learn on...

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  • Logan Hicks
    Business Owner/Investor · Millersville, MD · Member since 2015 · 191 posts · 71 votes
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    @Jay Hinrichs Lol timberland is far from "regular flat space"  I myself am actualyl buying timber land, and for the exact reason you specified, except I also am builing my own mills and harvesting the wood myself to sell it in bulk direct to major construction, engineering, and brick and mortars.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Logan Hicks  Hardwood mills ?   We are predominantly soft wood here in the northwest.

    Doug Fir Cedar Hemlock  Piss fir and Spruce.  when you go inland its Pine.. but the Pine beetle has devastated millions upon millions of acres of timber land.. for those timber owners they got wiped out by a bug.

    so far so good in the Doug fir regions nothing kills them but a chain saw.

    The Mills in the northwest have pretty much consolidated.. where there were over 1000 independents in the 70 and 80s in Oregon the number of companies is probably less than 50 now...

    We custom milled our Hardwood floors and our cedar decking from Oak and Cedar on our tree farm..... can't replace those or match them pretty cool

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  • Corey Melkonian
    Real Estate Agent · Watertown, MA · Member since 2015 · 366 posts · 77 votes
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    I'd just make sure it's considered a buildable lot. I'm a real estate agent going through an acre lot that was sub divided in four and sold off in the 50's. Three were developed and one was not. Now the zoning changed and the town won't let the owner build.

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  • Logan Hicks
    Business Owner/Investor · Millersville, MD · Member since 2015 · 191 posts · 71 votes
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    @Jay Hinrichs

    Correct good sir. I am focusing on growing my own forests. I own a vermiculture business so I am able to accelerate my growth and size yield substantially per tree by about 15 and 40% in size and yield. 

    I am focusing on cherry, maple, oak, doug fir, and redwood (which wasnt easy)

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  • Corey Melkonian
    Real Estate Agent · Watertown, MA · Member since 2015 · 366 posts · 77 votes
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    Maybe you can find a mentor in the area to joint venture with. Good luck.

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  • David Krulac
    Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
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    @Logan Hicks

    Done some timbering myself but never farmed trees. Primarily oak, ash and poplar.

    Try some Black Walnut and other high dollar species in the mix.

    I've never seen a redwood on the East Coast.

    Good Luck

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