Buying a Vacant Lot in An Upscale Neighborhood

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Buying a Vacant Lot in An Upscale Neighborhood

Thomas Fawole
Wholesaler · Brooklyn, NY · Member since 2016 · 17 posts · 4 votes

Hi BP members. I would appreciate your opinions on this matter. I’m not familiar with vacant lots. I’ve read a lot about analyzing properties but not much about analyzing vacant lots. I came across a vacant lot in an upscale neighborhood in one of the big cities a couple of days ago. The houses in that neighborhood are in the $600,000 to $900,000 range. I'm willing to offer to buy it for $180,000. I called the broker who has asked me to send in a proof of funds. I believe I could wholesale it to a builder or partner up with a builder if the offer is accepted. If we spend $350,000 putting up the building, and we sell it for at least $700,000, the $170,000profit will be reasonable. I just want to be sure that buying this fairly expensive vacant lot would not amount to a speculative deal. Thank you

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Scott Todd
Investor · Tampa, FL · Member since 2012 · 4 posts · 4 votes
9y

@Thomas Fawole As a full-time land investor, I see these "deals" all the time. The issue I see is that you are essentially paying retail for the lot and not leaving yourself with a margin of safety. Vacant land at this price point is negative cash-flowing, taxes and POA fees (if any) along can quickly turn this good deal into a loser. Having a development plan is great, I would get the property under contract and ask for a due diligence period to try to pre-market it to the builders. Good Luck.

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  • Buddy Holmes
    Investor · North Charleston, SC · Member since 2017 · 277 posts · 91 votes
    9y

    Not sure of experience level, but to me this sounds like a VERY risky investment. I live in an upscale gated golf community with several still vacant lots. The development is about 25 years old. Recently a builder built 3 spec homes in the community. They have been on the market at least 3 months since they were finished. This is Charleston, SC where Boeing, Volvo, Damlier Benz (Mercedes)... Business is booming. You must know the local market very well. Our HOA decided to save the golf club by requiring all new owners to join. Result is over $500 /month added cost to buying a home of $400-700K. Result slow sales and large discount in home values.

    Be sure to know your market before jumping in!

    Cheers.

    1Reply
  • Karen MargraveBusiness Member
    Moderator
    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
    9y

    @Thomas Fawole There's not enough information to give you a definitive answer, and you really need advice from someone that KNOWS that neighborhood and market. Here are a few questions as a builder I'd want answered:

    • Is there a reason why the lot wasn't developed when all the others around it were?
    • What is the size of the lot? 
    • Is the lot developable? (utilities available, large enough to allow for any required setbacks, no soils issues, etc.) 
    • Is the lot a level lot? 
    • How old are the houses adjoining the lot, and what condition are they in? (You can upload photos or address if you'd like) 

    In regard to actually developing it, you say if you spend $350,000 for the building and sold for $700k you could make X amount. Without knowing exactly what the costs to get the lot to the building stage, and then the amount to do the actual construction, plus all the costs for fees and permits, etc. you're guessing. Guessing without any experience to back it up is a dangerous thing to do. The devil really is in the details when it comes to development, and without experience, I'd suggest staying on the thought process of flipping the lot. 

    Maybe some others might weigh in too. @Jay Hinrichs 

    2Reply
  • Thomas Fawole
    OP
    Wholesaler · Brooklyn, NY · Member since 2016 · 17 posts · 4 votes
    9y

    Thank you, Alvin. I will be sure to get some more information about this particular upscale community and the HOA, too. I appreciate your kind input.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    Thomas you need to add in your soft cost and sales cost.. commissions alone eat up a lot of that 170k when your talking a 800k exit.  with commish and holding cost 170k becomes less than 100k.

    its OK nothing to right home about and I bet hard to wholesale to a builder.

    @Buddy Holmes  if your not in the ARB ( New St. is)  permits 45 Days total cost 5k  plus cost of architect plans.. its builder dream there.. Lots are tight tough and you really have to have the team on the ground which I have.

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  • Russ Scheider
    Flipper/Rehabber · Mount Pleasant, SC · Member since 2013 · 547 posts · 235 votes
    9y

    @Jay Hinrichs, I am guessing that @Buddy Holmes is in Coosaw Creek Country Club neighborhood.  Beautiful community.  I did a couple of remodeling jobs in there when that was my full-time gig.  Passed up on a couple of bank owned rehab/flips in Coosaw Creek because of the mandatory club membership expense.  I couldn't make the numbers work and DOM was UGLY.  Beautiful neighborhood, but unfortunate circumstances for a flipper.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Russ Scheider  golf course communities can go through this..

    La Quinta CC in So CAL had their club house demolished in an earthquake.. well it was still standing but it needed to come down..  25 million to replace.. 400 members. you can do the math.

    when economies have issues as well CC can be a really dicey thing.

    I lived at Silverado CC In the Napa Valley for a decade ( owners of Halls Chop house there in Charleston used to be the GM there).. but the course was not owned by us members so we were never subject to any capital improvement fees.. but then again we did not have a lot of say.. and the course was semi private with resort guests.. ( which I liked I met all sorts of cool people from all over the world that came and stayed there etc etc)

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  • Thomas Fawole
    OP
    Wholesaler · Brooklyn, NY · Member since 2016 · 17 posts · 4 votes
    9y

    @Karen Margrave Thank you for your insightful contribution. It is developable according to the broker but I still have to verify. It's 5800 sq.ft. It is currently level and is being used as a parking lot. All the homes in the community have been sold. They are relatively new. I believe they were completed between 2010 and 2013. I would prefer flipping the lot unless i'm able to partner with an experienced builder. I will try to get pictures of some of them as soon as I can. 

    1Reply
  • Russ Scheider
    Flipper/Rehabber · Mount Pleasant, SC · Member since 2013 · 547 posts · 235 votes
    9y

    @Jay Hinrichs we were in Snee Farm Country Club until May of last year.  I don't golf and I don't drink, so the Country Club didn't offer me much, LOL!   Moved back to Old Mt. Pleasant.  Silverado sounds cool!  We are hitting the road for 2 months this summer (one of our original goals when we started flipping and wholesaling).  We will not make it to Oregon on this trip, but we are going to spend some time in San Diego and then do NM, Utah, Colorado, Montana, etc.  Hope to see you soon.  Let us know when you are back in CHS.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Russ Scheider  well funny you should mention it I just booked a hotel room in Charleston about 15 minutes ago I will only be there quickly one night april 27.  arrive from INDY that day at 12 leave the next day at 4pm for Orlando.

    well if your going all the way to San Deigo  just head north up the CA coast into Oregon its spectacular drive.. then head east to Spokane area and cross into Montana there then work your way back south a bit through Yellowstone and the Grand Tetons  which are about as cool a place as you can go in the US.

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  • Thomas Fawole
    OP
    Wholesaler · Brooklyn, NY · Member since 2016 · 17 posts · 4 votes
    9y

    @Jay Hinrichs If it's going to be hard to wholesale, I think I will just let it go. It's better to be safe than sorry. Thank you so much for weighing in on this topic.

    1Reply
  • Scott Todd
    Investor · Tampa, FL · Member since 2012 · 4 posts · 4 votes
    9y

    @Thomas Fawole As a full-time land investor, I see these "deals" all the time. The issue I see is that you are essentially paying retail for the lot and not leaving yourself with a margin of safety. Vacant land at this price point is negative cash-flowing, taxes and POA fees (if any) along can quickly turn this good deal into a loser. Having a development plan is great, I would get the property under contract and ask for a due diligence period to try to pre-market it to the builders. Good Luck.

    3Reply
  • Karen MargraveBusiness Member
    Moderator
    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
    9y

    @Jay Hinrichs when you're building in Charleston, are you doing it as an owner/builder and just sub out all the work and you manage, etc., or do you have a GC scheduling everything and overseeing work? How do you manage so many new builds at one time? So impressive ... let alone having the money to do them! 

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    bank loans and internal capital...   I have a GC... who works for a fee and gets a spiff on profit.. so works great for all

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    1Reply
  • Thomas Fawole
    OP
    Wholesaler · Brooklyn, NY · Member since 2016 · 17 posts · 4 votes
    9y

    @Scott Todd I agree with you. At the current retail price, there is no room for errors. Thank you so much.

    0Reply
  • Chang Pan
    Investor · Richmond, VA · Member since 2017 · 32 posts · 12 votes
    9y
    Make sure you know why the lot was not developed at the first place. I recently found a vacant lot in a community sold with another existing house as a bundle. The lot was half in the 100 y flood plain making it almost impossible to develop.
    1Reply
  • Thomas Fawole
    OP
    Wholesaler · Brooklyn, NY · Member since 2016 · 17 posts · 4 votes
    9y

    @Chang Pan Will do. Thank you.

    0Reply
  • Sarah Lorenz
    Specialist · Ann Arbor, MI · Member since 2016 · 356 posts · 191 votes
    9y

    Keep in mind that most builders will not be interested in partnering. If they are good, they can just let a customer hire them and pay them to do the work without the risk of building an investment project. They don't have to put their own money in. And if they do have money to invest, why do they need you? If they don't have money or projects of their own, or if they are low-cost because they aren't used to doing high-end work, you'll need to be careful. 

    1Reply
  • Karen MargraveBusiness Member
    Moderator
    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
    9y

    @Sarah Lorenz that's not necessarily true. There's a big difference between doing contract jobs and partnering on a project as far as financial incentives. Not all GC's do contract jobs (I don't). It could be that by partnering with someone the GC or the other investor can do  more, or higher end jobs that they might not be in a position to do otherwise. 

    1Reply
  • Sarah Lorenz
    Specialist · Ann Arbor, MI · Member since 2016 · 356 posts · 191 votes
    9y

    @Karen Margrave Interesting. We're in a fairly high-end area, though not to the degree of Orange County, and it's my experience that the custom builders can make as much or more by working with a client, with no risk, as opposed to splitting profit with an investor. I'd like to know more about your partnerships or the ones you've seen other GCs set up with investors. I've looked at some of your projects on BP--really great work. 

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    @Thomas Fawole, if "houses in that neighborhood are in the $600,000 to $900,000 range", why would a similar sized vacant lot there sell for just $180k? Seems too good to be true.

    But if it IS true - you should snap it up! Surely, to build a NEW same-quality home there shouldn't cost $400k+? Anyway, THAT'S the homework you need to carefully do first. My 2c...

    1Reply
  • Thomas Fawole
    OP
    Wholesaler · Brooklyn, NY · Member since 2016 · 17 posts · 4 votes
    9y

    @Sarah Lorenz @Karen Margrave Thank you for your perspectives on the builder's possible role in this deal.

    @Brent Coombs I hope we won't spend up to $400k to build a new home there. As things are now, in fact, it seems the vacant lot is over-priced at $180k. Thank you.

    0Reply
  • Josh Cuthbertson
    Professional · Redding, CA · Member since 2017 · 123 posts · 81 votes
    9y

    Did you say it was currently a paved parking lot? My first thought was, I wonder what they covered up. I'm looking into vacant lot deals here in Redding. LOTS of items to go over when going that route, for sure.

    Would it be possible to google earth the lot? Or is that too much to ask?

    1Reply
  • Thomas Fawole
    OP
    Wholesaler · Brooklyn, NY · Member since 2016 · 17 posts · 4 votes
    9y

    @Josh Cuthbertson I never thought about that. Thank you for bringing up this point. I will look into it. I hope there's nothing earth-shattering there.

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