My Sales Strategy-What do you think?

Question

My tenant is moving out mid June.  I'm going to walk the property tomorrow but I know I will be doing a major rehab.  Right now, my WAG (wild *ss guess) is $75K.  The home sits on a 4.8 acre tract and has another 4.9 acre tract next to it.  My options as I see it are:

1. I can sell the whole thing-Path of least resistance, and possibly least profit.  This would be the quickest option to sell off everything.

Est. Sales Price=$675K

2. I can sell home and land separately-Given that all but one home sold/for sale is 5 acres and under, maybe the market prefers less than 10 acres.  Also, I don't see how I can get full value by selling a 9.7 acre home vs. selling a 4.8 acre home and a 4.9 acre lot.

Est. Total Sales Price=$700K

3. I can sell home only and have land free and clear-I could retire the lien on the entire property with just the sale of the home and I would have the 4.8 acre tract free and clear.  I could put it up for sale and be firm on the sales price or I could use the land as equity in a JV to build a custom home.

Est. Sales Price=$675K, Plus land equity of $150K and profit from JV.

My note balance is $350K. I plan to take the profit and buy and hold rentals (SF,MF, or Commercial).

I've uploaded my sales comp analysis for your review if you wish:

http://www.biggerpockets.com/files/user/Tod/file/sales-comps

Thanks

Rich Weese · Answer

Perfect.

Tod R. · Answer

I am definitely interested in an opportunity to work with you.  Unfortunately I think I'm going to be at Texas Tech for my son's orientation/registering that day.  I need to confirm this, but if not I will PM you and see if we can meet.

I'll keep you updated.

Rich Weese · Answer

Now I really like this suggestion I gave you previously. Sell the house on 4.8 acres and keep the other acreage free and clear. Try to maximize the number of lots that you can get and allow the more expensive properties in the area to help raise the values of what you are building. I've been pretty successful with my subdivision in South Texas building 1700 ft.² homes and I might even consider doing something with you on yours if you are interested.

I'll actually be in Dallas/Garland on June 21 from about 10 to 10. This is my semi-annual visit the properties in Dallas, Rio Grande Valley, Florida, and Arizona. A whirlwind five days! I fly in and out of Dallas-Fort Worth international Airport. I'm meeting with my management people upon arrival but might be able to take time to have dinner with you providing I can get back to the airport for my flight to McAllen. Let me know. Rich

Tod R. · Answer

Thanks Rich.  You are right(as usual)!  That could be option #4.  Smaller lots.  Minimum lot size can be 1 acre.  I originally had twelve acres that I planned to subdivide.  I sold 2.6 in 2009.  It's all LT gains and I should have thought about the 1031 exchange.

I too really enjoyed the Summit and am looking forward to the next one.  Next time you come to DFW, I would love to get together for breakfast,lunch,dinner,etc.  We could even get a impromptu meetup with the DFW gang!

Rich Weese · Answer

Hi my friend,

you mentioned that all of the comparables are 5 acres and under. Is there any possibility that you might be able to split the 4.9 acres? I do quite a bit with land and spec building, so I look at this from rose-colored glasses. I would sell the house on the 4.8 acres and keep the other lot free and clear. I would check into the possibility of splitting either now or in the future.

I don't know what your situation is with regards to capital gains and tax consequences but that is also something you should consider. You might be able to do it 1031 and sell both parcels jointly and exchange all equity into some of these buy-and-hold rentals that is your final goal.

I think of the fun we had at the Denver Summit and think of you and the others often. I hope you are doing great. Rich