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Rental Property, Speculative Land, etc

jhausch | Posted in Business on November 23, 2003 05:07am

Hello All.  Seeking some business opinions. 

Found a piece of property on the fringes of a swanky suburb.  5 acres, 3 buildable, small house already there.  Probably could be had for 300k

Sewer is not there yet, but will be in 5 years or less.  Less than 2 miles away, 1 acre lots sell for 250k. 

Thinking about buying it as a “second home” (20% down, arm), renting it out, then flipping it in 2-3 years.

Burden in the interim will be (obviously) interest and taxes (unless I get a renter from heck)

At first glance, any thoughts, tips, questions?

Reply

Replies

  1. RogerDumas | Nov 23, 2003 05:18pm | #1

    Is there a reason why the sellers aren't dividing it into the 3 lots and selling it that way?  Are you sure it can be divided?

    1 acre lots around here are going for $250+ and someone recently bought a 2 acre lot with an old house for $400k and turned around a sold it as 2 lots at $260k each ithin 3 months.  $120k return in 3 months isn't bad...

    "Regime change starts at home"

    1. brownbagg | Nov 23, 2003 06:00pm | #2

      1 acre @ $250k wow here 1 acre $7k

      The best employee you can have but you wouldn't want him as a neighbor " He the shifty type"

  2. VaTom | Nov 23, 2003 06:37pm | #3

    Less than 2 miles away, 1 acre lots sell for 250k. 

    2 miles can be eternity as far as "location,location,location" goes.  My neighbor is listed for $1.3m (18ac + 3500' house).  A mile up the road, 4 acres + house (if you hurry) went begging at $45k (house was free).  Major difference in neighborhoods.

    Sounds interesting from what you say.  Primary consideration should be your ability to absorb the carrying costs.  And for a longer period than you initially expect. 

    I met with a couple this week interested in unimproved country property.  They came to pick me up, as a recommended road builder, to estimate for another site.  Never got there as they found an available 21 acres here much more attractive.  During the after-qualifying lengthy conversation I discovered they had little idea what could go wrong with country property purchase. 

    There are books outlining what you HAVE to watch out for to avoid catastrophe.  Not suggesting that you're unaware, but your post doesn't indicate familiarity.  Unimproved, or minimally improved, land is normally the highest risk real estate investment.  Also potentially the highest return.  I turned 125% in a year on my last excursion with the only forced appreciation being a 300' gravel driveway.

    Good luck. 

    PAHS Designer/Builder- Bury it!

    1. mkbug | Nov 23, 2003 09:33pm | #7

      Tom,

      You mentioned some books that outline what you should consider when buying undeveloped land. Do you have some names? I'd be interested.

      MartinHeads I win, tails you lose.

      1. VaTom | Nov 23, 2003 11:14pm | #9

        You mentioned some books that outline what you should consider when buying undeveloped land. Do you have some names?

        Ancient history for me I'm afraid.  If memory serves, one was "Finding and Buying Your Place in the Country".  I spent some time on a homestead list, one of whose Missouri members wrote what should have been a very good country property search book.  "Homestead" would have been in the title.  Amazon had it.  Author was well-grounded, and a Realtor.  I think he called his place Heartwood.

        I've given all my books on the subject new homes many years ago.  I'm sure a web search will yield a good crop.  Even "One Acre & Security" by Bradford Angier (still on my shelf) has a fair description.  Toxic waste is something the older books generally didn't mention.  Not a small issue today.

        Local rules and regulations are the most important.  For instance, in Virginia, there is no such thing as land-locked land regarding access.  May not be affordable, but it's there, somewhere.  Utilities are another matter.  I saved one poor buyer a bad experience after her Realtor told her that electric and phone lines wouldn't be any problem.  There is land here where only a change of ownership of adjoining property(properties) will result in the required easements being available.  Honest mistake, I'm pretty sure, but a big problem if it happens to you. 

        I've been deceived by zoning officials so often I ask for the printed rules.  That way they're likely follow them, for you at least.  No great voice of experience here, but I haven't yet been burned.

        Happy hunting. PAHS Designer/Builder- Bury it!

  3. User avater
    bobl | Nov 23, 2003 07:05pm | #4

    when we bought our house, we were told we would have sewer in 5 years, took 25 years.

    bobl          Volo, non valeo

  4. Mooney | Nov 23, 2003 08:28pm | #5

    Rental property has to pay for it self . Simple as that. Real rental properties make money. That is first and foremost .

    If you get gravy on top of bisquits later then hurray for you. But until then you are married to a rental property. Lets deal with the first formost.

    I have as much as doubled my money doing the same thing , but the property stood on its own from day one .

    Tim Mooney

    1. Ruby | Nov 23, 2003 09:25pm | #6

      Just looked at some property, farm land, abutting the city limits line, in an area of tremendous residential and commercial expansion in the last few years but not zoned yet.

      Septic and utilities already up to the property line, water tower and fire house 1/2 mile down street. that means no wells to drill, good pressure on the water lines and better insurance rates on fire house proximity. 

      Upwind from city (clear air advantage with our SW hauling winds) 206 ac, for $3000.-/ac.

      Just coming on the market, won't last long. I was looking for someone else that only wanted 5-10 acres and heard about it, so checked but the seller, a retiring old farmer, want's to sell all now.

      1. Mooney | Nov 23, 2003 09:35pm | #8

        Right . Thats my point. 618,000 and where`s the payment comming back? I could stand 618,00 if it could make payments , taxes , and insurance from day one on a 100 percent note for a five year  balloon with a credit line of one million for developement. Oh yea Buddy ! LOL.

        On a serious note its important to have deep enough pockets to develope your own property to show others its actually going in. So the purchase is only the first step.

        Tim Mooney

    2. User avater
      jhausch | Nov 24, 2003 02:19pm | #13

      I know from your other posts that you have rentals.  Help me define a sufficient "pay for itself"

      Mortgage + Taxes + ? = stand on it's own.

      I imagine the "?" can swing wildly based on type of property (multi-unit, side by side, single family home, etc).  For this one, it is a home all by it's lonesome.

      1. Mooney | Nov 26, 2003 07:21am | #17

        "Help me define a sufficient "pay for itself"

        Stand on its own .

        I guess one of the last things Ive learned in real estate is that  by  definition one property is never exactly the same when it comes to ," standing on its own , " because its never the same set of reasons for a brother property.

        If a property has extra land to be sold later by yours truly , then the house sitting on the land can get by with out making profit each month . If a house has no other value than whats evident at the time , then it has to pay for payment , taxes , insurance, and a management fee. On a" new property", minimum for me is 100.00 per month  because there is barely any up keep. On a house that was 30 yrs old , I demand 200.00 per month over expenses above stated. On an old property 60 yrs past where the building is out dated really, it has to bring in 2 to 3 percent of the cost  per month .  After that is a moblile home which moves to 5 percent of value per month. Not listed in order are large complexes , that compete by the way of volume . They have different ways of leveling the market such as a pay laundry mat , or total goverment backing being part of a program.

        Another part of standing on its own is the money put down to buy. If I put money down on every thing I bought it would seriously limit me. My therory is that the property should be strong enough here also. My rule is this;

        No investor or banker should have more than 70 cents on the dollar invested,  loan to value.  So...... , If I offer 70,000 on a property that will appraise for 100,000 then the new  property mortgage should stand on its own at 70,000 with no down payment. 

        By my giudelines of different types of properties , they fall in to rental category for me or I walk on . Even on a home purchased to resell, it has to first be "rental certified by me" , in case it doesnt sell.  In my rental market , thats standing on its own .

        One of the first things I learned is not to formulate your business after someone else or listen to heavily to friendly advice. Thats a h@ll of a statement here , but its true. Once you study your business picking through it with a fine tooth comb , no one knows your business like you do. Your circumstances WILL NOT  be the same as the next person , just like the houses .  One of my favorites is  Millin. One  only had bought 5 houses at the time of her printing. People have wrote books that have been successful enough to sell you or me a book. Ill pay for a book anytime on one of my subjects because its a cheap way to educate the mind. [and this site is free!] Truth of the matter though its kind of like a TV soap. Its some one elses life, not ours. My books I can think of with out visiting my shelves that I think might benifit you.  

        How to buy and magage rental properties by  Irene and Mike Milin #1 rating by me

        Your states real estate test book  #2  You will need to know real estate law.

        Real estate riches [rich dad poor dad ]  Dolf DE Roos, PHD .  Id shave my butt and walk backwards if I had a name like that.   A book that digs business out of real estate.

        Secrets of a millionare landlord, The complete real estate hand book , Real estate money machine , Wealth with out risk , Nothing down , How to retire a with a million dollars in real estate , on and on. One thing to be sure though is that these people lived in different places and times. Big differences , just like the people on board here at Breaktime.

        Tim Mooney

        Edited 11/25/2003 11:57:06 PM ET by Tim Mooney

        Edited 11/26/2003 12:21:59 AM ET by Tim Mooney

        1. Mooney | Nov 26, 2003 08:03pm | #18

          Jim ,

          I reread my post to you and I made only mention of nothing down in purchasing . Having money to put down certainly works better , and the amount is the choice of every investor. As Dan T mentioned about himself , I also have bought a lot of repos, or properties not fit to show the public . I have bought land and built new homes , but usually a good deal was made on the property. [below market price] The niche behind it all after the purchase is being able to restore a property at my cost . I always count my labor because it will sell , but I may choose to invest it with out the tax burden of paying myself. This is tax deferment really , because if I sell it catches up to me. Just that niche alone and being able to get by with out getting a check on a property has inabled me many times to be in a property with little down. Often times the money I put down is in the materials to refurbish the property into top returns. I have also bought and sold investing back into the keepers.

          Thats just a brief run down for me , which Dan T is similar but still he still does it differently and it works for him. Keith is another that has shared in these threads before that still does it differently but it seems the basic rules always apply .

          If you put out money on a property it must come back to you with little risk.

          If you look back at "spec homes threads" , you will see a lot of negative posts. There are a lot of reasons , but number one in my mind is that the builder-investors were craftsman oriented.  There is more to the business end to be paying attention . Its true that a craftsman builds a good looking product , but he must get it done for the going price per sq ft that bankers like to loan.

          Tim Mooney

          1. DanT | Nov 27, 2003 01:57am | #19

            Tim,

            That is such a good point.  I am not a craftsman per say.  I am truly a jack of all trades and far from a perfectionist.  But that really has helped me in real estate.  My units are above average in condition and far above average in terms of maintenance in their price range.  And that is due to my overall skills at getting them there and keeping them there. 

            I have a good friend that builds his own homes and is an electrician professionally.   He is a great detail man and the homes he builds are fabulous.   His work quality and ideas for decorating are so far beyond my comprehension.  But he has lost money on every rehab and rental he has ever tried (5 to date) because he continues to renovate beyond good financial sense.  And he says openly he wishes he had my skill for knowing when to quit.  I of course would like to have his skill for just one house for me!  DanT

          2. Mooney | Nov 27, 2003 03:24am | #20

            You should know I cant turn this subject down when given an opportunity. I always appreciate your imput as I value you and Keith both.  I started telling people what they meant to me after my round against the ropes. Im not turning weird on you .LOL. 

            Yup, the way I have these boys here at Breaktime figgured is they are proud of what they do and what they have in their arsenal in tools . Ive been raised in the trades since I was a kid and my whole family out to uncles and granfather were builders and trade people. Ive been here a long time and Ive seen little difference in the type of people. Self gradification is strong in tradesmen . A  proud bunch thats to be dead on sure. A lot of them dont care so much about money if they can just do what they love and be happy. I cant argue , if thats it.

            The bad point is that it doesnt mix well in our business which is capital returns. I said it better in "The spec house from hell ".

            Tim Mooney

  5. DanT | Nov 24, 2003 01:28am | #10

    Jim,

    Read Tims first response.  Now read it again.  That is the best advice you will get in response rental real estate.  Great business.  Not really tricky.  But the basics always apply and the fact that the property must pay for itself is number one.  DanT

    1. bobtim | Nov 24, 2003 03:29am | #11

      A wise man once told me :  You only make money on real estate at the time of purchase, never when you sell.   

      Buy right

      1. DanT | Nov 24, 2003 04:45am | #12

        I concur with your friend.  Anything you pay over the minimum amount the seller would accept you can never get back.  But for this situation the rule of real estate paying for itself is important as Jim is discussing holding property for a periof of time.  DanT

        1. User avater
          jhausch | Nov 24, 2003 02:21pm | #14

          Thanks to all for the advice and input.  I will go searching for books this morning.

          1. jimblodgett | Nov 24, 2003 05:52pm | #15

            "Nothing Down For the 90s" by Robert Allen (he probably has a newer version by now) is an excellent look at what it takes to make money with rentals.

            Mortgage + taxes is only a start on a property paying for itself.  What about the money you put down on the property?  What about the interest you could have made investing that money somewhere else? (the fact that you tied up your capital in that investment means you have less to invest when other opportunities comes along)  What about the time you're gonna spend running the business of landlording and putting back into the building in maintanance and upkeep? 

            Rentals can be great investments, as well as a source of monthly income.  But they can also be what Robert Allen calls "alligators" taking a big bite out of your wallet every month.   

          2. DanT | Nov 25, 2003 01:59pm | #16

            Jim,

            I buy when a property will make payment, taxes and insurance each month plus a $100 minimum per unit.  That is if the property is in good shape and all I have to do is rent it.  I usually buy rehabs myself but have on occasion bought one ready to go.  My personal favorite book is Managing Rental Properties for Maximum Profit by Greg Perry.  We tend to use a number of the strategies in his book.  The book suggested by Jim B. is also good and is a great first read for the novice.  DanT

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