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.