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First things first, since this is BFC: This is a speculative venture. I acknowledge that real estate transactions are not for everybody, and that I could lose my shirt and be left without so much as a sock to poop in. My wife and I are considering the purchase of a 15.5 acre plot of land that is the rump end of an existing high-end housing development. It's in a desirable location, and has potential for serious appreciation the next time the local real-estate market heads north. Developed plots of similar size went for millions pre-recession, however the adjacent properties to this one are weird. On the east side of the road, a 6,000 sqft, 4br, 4ba home on several acres recently sold for $1m+. On the west side of the road, there is a small trailer park and some corn fields. The property is a rectangle approximately 730' x 920' situated next to an "estate" type development in rural Maryland. It is entirely wooded (mostly 2nd generation softwood growth) and is situated on a 2-lane state road with no access issues. There is ready phone and electric access. The frontage is at least 1,000 feet on the state road, with additional frontage on the public road serving the adjacent development. The property is zoned for 2 acres / house minimum. There is no water or sewer, and the plot has not perc'd, (though the adjacent development had no issues). Wells in the area average around 400 feet deep and produce good water. Though I have not yet done a thorough title search, the seller indicates that there are no encumbrances or covenants that would prevent eventual subdivision into 3 or 4 lots. The asking price per acre is low, and preliminary conversations with the seller hint that there is room to maneuver. My initial research has shown that Citibank, et.al. won't touch a loan application for undeveloped land, since the counter-party risk is too high. Farmer's banks, credit unions, and certain federal programs, seem to be more amenable, but everything I've read has mentioned higher down payments and interest than a traditional mortgage (20-50% down!). What I guess I'm asking is for goons who've been here before to tell me the obvious stuff that's missing and whether we're in front of an oncoming train or the deal of the century, or (more likely) somewhere in between. We aren't emotionally invested in the property, but we see some potential here and figure it's worth checking out and sharing what we learn in the process. Hired_Sellout fucked around with this message at 01:49 on Feb 10, 2015 |
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Feb 10, 2015 01:46
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| # ? Apr 28, 2024 00:37 |
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It sounds like you've never done a development like this before. It is higher speculative with the large number of unknowns they will have never come across before. I know people that have made huge amounts on these developments and some who have done this on a smaller scale. Your big risk is that you will be stuck with a worthless piece of land that you are paying a mortgage on. The next biggest risk is that the cost to develop this may exceed any income. You should seek some professional advice on this but my gut feeling is that you would be overextended if you are stretched by the 20-50% deposit on the land. While I live and work in New Zealand you will probably encounter similar problems. To subdivide you will need a surveyor and an urban planner. Typically a subdivision on this scale would need a particular look to the proposed houses, you would need to pay for roading (traffic/civil engineer would be needed) and services to the site. Note that access to roads is great until you try to get approval of the traffic design. The services include sewage, water and electricity. In New Zealand these services are gifted to the local Council on completion. There may be specific rules relating to these. The size of the land suggests you could fit a large number of houses and there will be rules relating to land area, spacing between buildings (to prevent fire spread) and site coverage. You will likely need an architect to develop some generic house plans unless you can just sell the land subdivided. Dividing such a large area into only four plots seems low to me but I am accustomed to high density developments on the fringe of cities extending out into rural areas. Gut feeling on this is that the overheads to carry out the project will be high for only four plots and my immediate thinking is that making 7 plots would be more attractive depending on the area. However a lot of this will depend on the local market and how long you can wait to sell while bleeding money on a mortgage. There is likely to be a lot of local variation to the rules and some of the advice may not apply or there may be additional rules. I believe your best starting point would be to have a meeting with a surveyor and they could tell you the type of issues they deal with. If they know the site they may have additional information. I would not base the potential profits on the sale of a 6000 sqft house as most of the value of the sale is the house itself. Why not start your first project as something less ambitious and more affordable? Find a property with a single house and a large section that you could subdivide and build on. You'd need enough finance to buy the property but then rent it out/live in it while the works are carried out. Have enough money put aside to build the additional house and complete the subdivision. A site with water, sewage and power at the street would drive the development cost down considerably.
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Feb 10, 2015 05:14
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Thanks for the reply. Sounds like you've danced to this tune before. We're obviously new at this, and there are a lot of unknowns, but this seems like a good deal based on the location of the property and the approx $6,400 / acre asking price. The local market is fairly depressed, despite that one odd sale I mentioned, and I couldn't find any recently sold wooded lots in the area to compare. Listings of wooded parcels further inland and away from towns sit at about $2,500-$4,500 per acre for properties in the 80-100+ acre range. I guess that the seller's reserve price is probably somewhere around $5,000 / acre based on that information, so there may be room to negotiate off the $99,000 asking price for the plot.Devian666 posted:It sounds like you've never done a development like this before. It is higher speculative with the large number of unknowns they will have never come across before. I know people that have made huge amounts on these developments and some who have done this on a smaller scale. You're right. We've never done this before. It's important to us to consider the "stages" of development we're willing to attempt. The simplest thing is to buy the land, do nothing except maybe selectively clear some timber, and wait. We've got plenty of time to sit on it. Next in complexity would be developing it for our own use; an outcome with which I'd be fine. Next, and stop me if I've skipped a step, would be to do perc tests for septic systems, subdivide into X lots, and sort out a road, curbs, drains, and utilities like cable, internet, and grid hookup. That is probably the most complex endeavor we'd be willing to take on. Devian666 posted:The size of the land suggests you could fit a large number of houses and there will be rules relating to land area, spacing between buildings (to prevent fire spread) and site coverage. You will likely need an architect to develop some generic house plans unless you can just sell the land subdivided. Dividing such a large area into only four plots seems low to me but I am accustomed to high density developments on the fringe of cities extending out into rural areas. Yeah, as I mentioned in the OP, the zoning currently limits us to 1 house per 2 acres. We could potentially fit 6-7, but more likely would want 4-5 to keep lot sizes similar to the adjacent development. When that went up 20 years ago, each finished lot sold for $59-79k. We have no interest in building houses on spec. I think that getting the lots to build-able condition is all we're up for unless an experienced third party would take an interest and want to partner.
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Feb 11, 2015 01:02
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Hired_Sellout posted:You're right. We've never done this before. It's important to us to consider the "stages" of development we're willing to attempt. The simplest thing is to buy the land, do nothing except maybe selectively clear some timber, and wait. We've got plenty of time to sit on it. Next in complexity would be developing it for our own use; an outcome with which I'd be fine. Next, and stop me if I've skipped a step, would be to do perc tests for septic systems, subdivide into X lots, and sort out a road, curbs, drains, and utilities like cable, internet, and grid hookup. That is probably the most complex endeavor we'd be willing to take on. The next step would be to find the right consultant to make sure you aren't missing anything. Unfortunately all of my experience (while it overlaps a lot) is in New Zealand. We have different rules where you will like have other rules that apply that will involve federal, state/county specific regulations to satisfy. Professional advice costs money but it's worth it if it saves you from problems or costs. Best to get that advice before committing substantial sums to work. It's easy on projects to focus on something that might not be required and add unnecessary costs. If you are comfortable with financing the land and using it for forestry then that at least provides some revenue rather than just being a money pit. If you are experienced at dealing with forestry or have someone who can manage the processes then this is good. What a lot of developers do is buy land in strategic locations and wait for the price and housing demand to increase. This might take years or a decade or two. So if the land is suitable for a forestry investment you could consider a long term forestry project and clear fell the trees in preparation for subdivision in a couple of decades. As I say if there is another source of revenue from the land then the numbers will be more likely to stack up. Assuming it is suited to the purpose. This would also provide another income (even if long term) to fund the costs of subdivision. I just don't want you to end up like one in-law who bought a piece of land from a farmer (a farmer who needed some cash to sold a piece of land) and he thought he'd build a house. Instead there were no services including water, so he decided to plant trees to produce fruit. Of course the trees died due to no water being available. I don't know what he ever did with that piece of land but he probably still owns it for the purpose of growing weeds. My family and extended family carry out forestry/farming and wine making. They either have applicable expertise or pay to get appropriate advice.
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Feb 11, 2015 01:23
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I've been on the engineering/consulting side of land development for quite a few years so I may be able to offer a little outline. It sounds like a buy and hold on the land your thinking about wouldn't be a great idea. Typically buy and hold works out better for county land (pre-annexation, zoned for agriculture) or if it still zoned agriculture within city limits, otherwise your paying residential/commercial rate taxes for who knows how long. It sounds like the piece your looking at is within city limits or just on the outskirts. If your even thinking about subdividing and selling lots you'll want to get a consultant on board sooner rather than later. Doubly so since you've never done this sort of thing before. Be prepared to pay a lot up front as land development is all about upfront cost for a, hopefully, large payout. If I was doing the project I'd want a concept plan so I could put together a pro forma. I'd take that concept plan to the City/county planner and get some quick input on it. I can't tell you how many projects have gone up in flames because the developer didn't consider stormwater management or they required larger public road improvements. Since you said state road you'd take it to the DOT too as they'll have some sort of LRTP or connectivity they may want you to follow. I'm guessing you'll be on the hook for: Public sewers Public Water Stormwater (both water quality and water quantity) Permit costs Dry utility extension (gas, electric, cable) Public Roads Improvement District Costs That's just for possible pubic costs. You'll still have to fund grading/services/landscaping/ect. Once you get these parameters defined you can put a cost together add a contingency fee and compare to see if the project works. If your still in the black then your finally ready to put an option on the land and begin your due diligence. You'll want a phase II assessment to check for wetlands, stream buffers, conservation, and historic landmarks. You'd be pretty drat surprised how often historic features crop up in development with most of them being unmarked cemeteries. You'd also do the ALTA survey at this time to confirm easements and covenants. I'd recommend getting a geotech out their at this time to do borings to check for rock/ground water issues. Once your phase II and ALTA come back clean you'd buy the property and start the fun stuff. Your consulting firm should submit plans for permit, help you hire up contractors, and be there for you to yell at when poo poo goes wrong. Hopefully in the year+ it takes you from concept to selling lots the residential market is still strong and you turn a profit. Even if you don't go the subdivision route you'll still be doing most of the above, minus the public improvements, to place a private residence on the land. You mentioned wells/septic for sewer and water. Never dealt with Maryland before but DNR's have been trying to stop septic systems going in for properties with "reasonable" access to city/public sewer & water. Obviously has huge impacts to your development so I'd get that cleared up first thing. Anyways, you could always put the option to buy before starting the concept planning if you so desire. Developers around here do it both ways. Keep us posted, I've been kicking around the idea of developing my own piece of land so I'd be curious if you go through with it.
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Feb 11, 2015 05:21
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I haven't done it but did a lot of research as it was an option a few times as we were looking for a house, where we'd have a sub dividable piece of land that was a candidate for us to build a house and develop. I don't know where you are but if you're buying 15 acres for < 100k, I would not presume that holding it undeveloped would be a good investment. The potential for investment gains would be to develop it and what you need to understand is that, when you are buying raw land, you are assuming all of the risk that it cannot be developed further. As you progress in developing it, it increases in value because you have eliminated some part of the risk. Even just preliminary approvals to sub-divide increase the value, and then on down the line to ready to develop lots where there is next to no risk for buyers. I will second the concern that if the thought of 20% down concerns you that you probably aren't in a great spot to be able to do this because of the numerous costs fishhooked out lined once you get the land.
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Feb 11, 2015 17:19
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