Update: The Subdivision

Well, as it turns out, the owner of Lot 301, the lot that would save this project from the axe, has had a family emergency and had to leave town.

 

I have left the "deal" with the Broker, Kevin, to try and put something together with this guy on his own... Otherwise, this deal's dead.

 

It's OK, we already have another one waiting in the wings...More to follow after I sign off on the escrow documents cancelling this transaction and requesting my refund of earnest money.

 

One thing I should mention...Soon, I will be launching a "fund" that will invest in real estate for high rates of returns.

 

As that develops and comes to fruition, I will create a section on my main site: www.realestateforbusydentists.com where you can sign up and request free information.

 

I have papers in my in-box now from my attorney on the formation of this entity now, so it shouldn't be much longer! Have a Happy New Year!

 

Stay tuned! ~Jerry

 

JERRY A. JONES

Salem, Oregon

P: 503-218-0557

F: 503-218-0557

 

Subdivision Update: December 13, 2006

Visited today via phone with the land-use planner Kevin, the broker, had set up.

 

The conversation was fairly short.

 

He outlined 2 very critical issues that, without acquisition of an adjoing lot (301 I believe), would keep this from being a conforming subdivision, requiring exceptions from the City of Medford.

 

His experience was pretty much that they do not budge on the two type of exceptions I would need - One was asking for use of a 35' right-of-way, when the requirements are 45'. The other exception was the cul de sac. The city is not interested (nor are really any municipalities) in having those - they prefer a 90 degreen leg of some sort, instead. This along would/could cut into the number of lots, rendering this a worthless project - one that would require a developer to PAY to finish the project, vs. GETTING PAID.

 

Based on these, Kevin is going to approach the owner of the bare lot, #301, to see if he is interested in selling now or in the future. This would make it a very clean, much easier to get past the planning commission.

 

More to follow!

 

JERRY A. JONES

Salem, Oregon

P: 503-218-0557

F: 503-218-0557

 

Subdivision - Cont.

Today I spoke with the Enviro Guy that will be doing our initial records search online for potential problems on the three lots. His name is Tommy Malot w. Malot Enviro & Const. Sharp fella. He brought up undergound storage tanks for the homes and that there may be some on the property. He'll check into this and in the meantime, he's sending me his scope of services agreement to review.

He also mentioned a Phase I for the property (Phase I is the second step after an online regulatory agency search based on property address) would run about $2900. Frankly, a bargain. I've heard of them being as high as $5k.

This could be really important - you see, one storage tank could literally KILL this deal. So, for sure, DO NOT EVER buy a property without this part of your DD being covered.

Sister Site and New Project News Mid-Week

I just wanted to make you aware of a "sister" site of this one.

 

It covers all the information and education that is available at this time from Jerry Jones Direct, my real estate education company.

 

Here's the address: http://www.RealEstateForBusyDentists.com

 

There is a lot of updating going on right now on the site, so if you get a "busy" signal, just try back!

 

OK, more to post early in the week as the DD period closes in and things heat up.

 

Plus, check back mid-week as I will be posting a project I am working on now, with some of my LOS Member/Subscribers. For more information on my LOS Program, just go to the above site and click on Jerry's Resources.

 

FW: Residential stats

This is how quickly a broker should work for you. Below is what I just got back from Kevin on my absorption question. All I did was just email him my BLOG post!

 

This looks good. So Far. As soon as we get info on 2006, I'll feel good. Then, just need to find out what's on the books for 2007 coming online and we're set with this aspect of DD.

 

JERRY A. JONES

Salem, Oregon

P: 503-218-0557

F: 503-218-0557

 

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From: kevin@medfordexit.com [mailto:kevin@medfordexit.com]
Sent: Friday, December 08, 2006 3:41 PM
To: Jerry Jones
Subject: Residential stats

Just preliminary, and I'm waiting on call-backs from City of Central Point, but this should give you an idea of how crazy absorption is in this area...

 

Below are Medford's stats, I know just from living in CP and working the market that all lots that come available get gobbled up when priced right.  There is one subdivision with 10-12 lots sitting right now, but they are very pricy ($135,000 +), and CC&R's require 2200 sqft homes or larger, and those are not selling very well right now, thus builders don't seem too willing to sweep them up.  Interesting though, the developer wanted to get his "phase 1" lots off the books, so dropped the last 8 lots to $99,000 and blew them out in a week.  Jake is planning to list his at $125,000 and is feeling pretty confident.

 

Medford:  '04 - SFR Lots created = 479: SFR building permits issued = 590

              '05 - SFR Lots created = 497: SFR building permits issued = 569

              '06 - SFR Lots created = ***: SFR building permits issued = 363

              ***Kid I spoke with said that in order to compile these stats, it would be some 2 hours worth of work at $31/hr.  You've got me as to why pushing a couple of buttons is this difficult, but he seemed to think so.

 

You'll notice that builders slowed down in building spec homes, now they wait for buyers to purchase before building the home.  Good plan in this market.  Jake is pretty optomistic on selling his lots because last week a completed 6-lot subdivision in Central Point went pending at $113,000/lot the day it hit our MLS.  Yes, we'll be promoting this to builders.

Kevin Anderson
Broker
Cell: 541.621.7758
Office: 541.770.5200
Fax: 541.770.5201
e-mail: kevin@medfordexit.com

One last Member of the DD Team

Is of course, Kevin, my broker. Kevin will be getting information to me in the next few days on the number of lots available and lots coming on line in the next few years in the city. He'll then couple that with the number of lots that are swallowed up by builders each year and let me know if the market will be hot or cold, that is, depending on the absorption rates (this is how fast the available inventory on the market is bought on an annual basis).

Example: If there are an average of 200 lots that are used up annually and have been for the last few years with an average of 3 months on the market, and there are only 100 scheduled to come on line in the next year, this would be a prime opportunity for me.

However, if there are going to be 500 lots coming on line in the next year, I might want to re-think this project all together and get out. THAT is why you want to do this DD research!

Merriman Road Update - The Subdivision

Yesterday I got the ball rolling by getting the Due Diligence team set up and in place. The DD team for this project is all local. They know the area, the city officials, the property and the players. In fact, using out of area folks for the DD is something I'd caution against.

Kevin, my broker, provided me with everyone I needed to get this part of the process done.

I asked for and got: a Civil Engineer, Land Use Consultant (sometimes attorneys), Land Surveyor and an Environmental Engineering Co.

To get started with them, I just called them, talked for a few minutes, gave them the address and tax lot #s of the properties and let them know I had two weeks to get what I needed from them.

Essentially, the big goal here is to verify, as much as possible, the number of lots we can get on the property, to make sure we can do it according to local zoning laws, and make sure we are not buying a toxic waste dump (hence the Enviro guys).

[As an aside, I would tell you, without fail, ALWAYS get a Phase I or prelim records search of state and local online files before buying ANY property.]

So, in the next week, each of these professionalls will get back to me and let me know, from their viewpoint, what the pros and cons of this subdivision are.

If it looks good and our preliminary ideas for this project hold true, then we are a GO!

What does this subdivision look like anyway?

Here are the lot lines. The lot #s are labelled. 300, the front lot, is the one for $217k. That's the "very expensive key to the vault."

Hopefully, you can look at this and think outside the box on what is around you!

How to Create a Subdivision - Continued

OK, just finished the negotiations with the two different property owners.

Here's how the pricing of the lots has come out:

Lot 300 - This is the spendy one. Thought we'd be paying $220,000 for it. Got the sellers down to 217, saving myself $3k. Terms, too. As part of the offer, I have to approve of the financing.

Lots 200 and 400 - This negotiation took a little longer. Finally, today, I was able to negotiate a drop in price to be $99k on each lot ($1k savings on each) with bi-annual interest only payments.

Total Purchase Price: $217 + 99 + 99 = $415,000. So that changes, ever-so-slightly, the numbers I posted previously.

I start the major due diligence tomorrow and we'll see how it goes. Lot 300 will be fun...We'll get to tear down a house - Ty Pennington, eat your heart out!

How to Create a Subdivision - Continued

Well, didn't take long and I read below where I was buying 2 lots instead of in actuallity I am buying 3 lots. Here's the numbers I've come up with, prelim of course. Sometime later today I will post a photo from Google Earth so you can get an idea on what it looks like from above...

I am purchasing 2 lots and a lot with a home on it, for a total of 3 lots and just over 2 acres. The total purchase price I have negotiated using my Broker, Kevin Anderson @ EXIT Realty in Medford, Oregon (he’ll be at the February Event – register soon or risk having to stay off-premise at a different property!) is as follows:

Lot 200 – This lot HAS a house on it, but the owner of the lot wants to keep it as a rental. So, we are buying a PORTION of his lot! That’s right. For $100,000 (terms, of course), we’ll get about 1.02 acres of the 1.23 acre lot. That’s a price of about $2.25 per sq foot. EXCELLENT pricing for residential dirt. Here are the terms (I’ve included the whole set of offers for all 3 properties as exhibits for your reference): 7500 down pymt. Refundable for 60 days. Interest of 7.5%, bi-annual interest payments only, balloon in 24 months. I have the same terms on Lot 400, too.

Lot 400 – For this lot, same price, same terms. It also has a house on it. We will get .83 acres. Less dirt, same price. It all averages out on this deal. What we are doing on Lot 200 and 400 are lot line adjustments. Our surveyor and civil engineer will be taking care of all the little details here. We take them the concept, write a check and they do the work. (Don’t get me wrong, we DO a little work – like make sure this will work for real and can happen!)

Lot 300, aka 2951 Merriman Rd – This is the sticky one that I am not 100% thrilled with, but OK with. It’s a house (although not much of one) with about .31 acres. The house will get demo’d and is only being purchased to get access to these other two lots. Purchase price here is the part I hate: $217,000.00 I have negotiated terms on it, too. You can follow along on all the pages I included as EXHIBITS.

Here’s how the math is working out:

Purchase Price: $417,000.00
2 Acres (2.16 or 94,089.6 sq ft) = $4.43/sq ft

Cost of Funds: 3 points and 12 % (commonly called “3 and 12”)
$12,510 loan fee (hard money loan)
$429,510.00 ($417k+12510) x 12% = $51,541.20 cost of funds for 1 year.

Sub-Total: $417,000.00 + 51,541.20 = $468,541.20

Lot Development: $25,000 per lot (estimate – high)
We will get actual numbers from the engineers and surveyor
Cost of funds on Lot development: $30,000.00 max.

Cost of Sales (Commission): 5% to 6% or about $5,000 to $6,000 per lot.

Reserve Account (for SWGW – shit will go wrong): 5% of total project or approx $40,000.00.

# of Lots: 10 or 11 (11 is really pushing it. I would consider it a huge bonus)

Potential Revenue: 10 lots @ $100,000 per lot (fast sell – could go higher to say $105k or
$110k) = $1,000,000.00 to $1,100,000.00

Total Cost: $848,541.20.

Potential NET Revenue: $151,458.80 (Conservative) [Another thought: how MANY Pts would you have to see to earn that?!]

We could do as well as adding $150,000 to that bottom line, depending on how things go, but the $151,458.80 is most likely where we will land.

This is a far cry from what I thought last month at this time, the net would look like. I was thinking $400,000 or so. Yikes.

Now, that said, right now, we are planning on doing Single Family Home lots. What I haven’t checked into yet is the idea of Multi-Family Housing. All around this area are several pockets of Multi-Family zoned parcels. I could even go to the city and say, “Hey, we’d like to build townhomes here, and instead of 10 homes, we’d like to add 30 affordable homes.”

I just emailed this above paragraph to Kevin. We’ll see what happens. I BELIEVE most guys building apartments and such or townhomes (condos) would be pretty excited to pay $7 or $8 a sq ft for property that is zoned and ready to go! We shall see. Good example of multiple exit strategies.

Along with this new project, I am working hard on this really cool spreadsheet tool I hope to have complete by the time Boot Camp rolls around. It’s the “Commercial Property & Raw Land Profit Finder Analysis Tool.” It’s a work in progress, but when I’m done, wow, what a killer tool to quickly analyze a deal! I think it’s even something I could license!

So, once I get the signed counters back from each of the sellers (there’s two sellers on this), I’ll begin the process of due diligence, which is mainly stuff I will have the surveyor and civil engineer take care of, plus, for sure, I will get an Environmental Report... Interestingly, lots 200 and 400 are same seller, a plumber (gee, if a plumber can make money in real estate…seriously, ANYONE CAN!) and the other lot, believe it or not, is owned by 3 real estate agents…no comments folks, no comments.