Rental Property with Acreage. Do you use the same rules of thumb?

Question

Hi All, 
     I was just wondering if anyone has invested in Rental Residential RE with some extra acreage (8 acres in my case).  Do you use the same fundamentals when analyzing a deal or how do you personally account for the large extra land value?

Thanks,
Mark

Jon Klaus · Answer

I typically run my rental ratios considering the home on 1 acre.  Then I come up with a wholesale value for the additional acreage and add that to my offer price.

Account Closed · Answer

i think it would almost be a hassle...try to find a tenant willing to mow that yard!!  is it zoned so that you can add more units to the property?

Bill Gulley · Answer

Hi, additional land like that can be a liability or an asset. In valuing additional land, any additional amount that is beyond the customary amount for your comps is usually viewed as a plus, but at about 50% of what another lot would be...as a rule of thumb, but you know I don't care for rules of thumb.

It's a judgment call. Will it be usuabole for the tenant or will it be a headache if it has to be mowed. Location has a lot to do with that.

If road frontage footage is say 20 bucks a foot, after you go back from the road for the land amount required, you would usually drop that by 50%, if it goes back even further, you might drop that another 10 or 20%, as with a deep narrow lot. If the house sits in the center of 8 acreas square, it would probably carry the value a little better in keeping with the 50% for the excess land.

If 5 to 10 acres is customary in that area and the comps support the additional land, then go with the comps.

That's my quick opinion.

Steve Babiak · Answer

Mark,

i see in your status that you wrote:

Is the parcel under discussion one you picked up already at that sheriff sale?

Champak Shah · Answer

Hey --Nice going at young age. You want to be a Developer --think outside the box.

Depends on Configuration of the land parcel and other rental homes in the area.

No one will buy this that quick --so If he is a motivated Seller -- do an Option for 90 days -
and do some due deligence --

Specially check for dividing land --you can build more rental homes --or  apartments or 
even a  mobile home park --I have heard from other member here --there are some cheap
homes ( in $50K ) and good rental demand in Rochester -NY --

Depending on price -- have two seperate closings --A) for a house with o.75 or 0.5 acre 
--as per other houses in neighbor hood to get good  comps and rental income -- B) for other land --sepaarte closing with owner financed for three years  -- or make JV --with no down -
then you can do the due deligence and if its 
feasibe --get engineer to prepare site plans --
get approved from county and  then sell to developer  at profit-- usually 20% value of homes  per lot  -- need to think as  developer--

First tie up the proeprty with an Option Contract --

check for flood plains and zonning ordinances --

Mark Updegraff · Answer

Thanks everyone for the responses.

@Steve - indeed!  The parcel was obtained at the Sheriff Sale and as usual, I'm posting what I did after the fact.  I got a RE attorney from PA to clarify the verbiage and sent you an email but besides that I did not consult anyone.  Hopefully my purchase was a smart one ;-)

Rental Property with Acreage. Do you use the same rules of thumb?

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