Need Some Strategic Advice Please
Need Some Strategic Advice Please
Hello. . .
My wife and I have found are very interested in building our own home. After driving around for over a year, we believe we have found the lot we are looking for. It’s within our price range, and is in the location we have been holding out for.
We now need some additional guidance.
The lot we discovered is adjacent to two other lots as well. When my wife called to inquire about one lot, the seller indicated that he would be willing to part with all three lots for 500K. We only have 500K to both purchase and build our home.
Does anyone know of a creative strategy whereby we could “prevent” the seller from selling the other two lots? Some sort of option to buy perhaps? We feel that we would be in a position to purchase the other lots in a few years time, and would like to prevent other builders from building that close to us.
The lots are essentially as raw as can be right now, filled with trees and deer. They are waterfront, and the total acerage of all three lots is 3 acres.
Please let me know if you have any suggestions.
Thanks,
3rdChimpanz
In what way do you "have" $500 K to purchase and build? Is that the most you can borrow or is it all cash?
Granting, for the moment the assumption that you cannot meet the asking price at this time there are a number of options but they all require more information than you have posted because you need to know the sellers motivation on issues other than money. Is he in a hurry to unload the lots? Does he think they will be worth more in the future if he holds them?
You might buy the center lot which would have a negative impact on the value of the lots on either side. You could then try to get a "right of first refusal" to purchase the other lots in case the seller gets an offer.
I think it unlikely that he would sell you a multi-year option unless he also had some out in the event somebody came around waiving cash. But you never know and it doesn't hurt to ask.
You could try a lot of things. CommercialKing has offered a few ideas.
Will he sell on terms so that you can get the house built and then refinance to pay him off.
You could buy all three and sell them with restrictions. The restrictions will impact the value so you might be paying for the privilege of creating the restrictions.
If you can not buy three can you buy two and be to one side?
Can you buy three and wait while you market one or both of the others to other buyers?
What about buying three and then getting a loan secured by all three to build a spec house that you sell and repay the construction loan?
Control the development or find more cash and prevent the development.
John
[addsig]
Thanks for the prompt reply.
500K was the construction loan I was approved for. I wish I was able to acertain the sellers motive for selling. All I do know about him is that he is a managing director of an international financing corporation that seeks to build business in emerging parts of Africa. He seems to be an expert in international finance, and has served under the first George Bush. (This is all the information I was able to acertain from his website)
I am not sure what his motivations are for selling, but there is a high probability that he has had the lots up for sale for some time. I say that because the grass where his signs were placed were growing so high, that they obstructed its view. My hunch is that he placed those signs there when the grass was lower, so it’s had to have been atleast a few months.
Hmm, purchasing the middle lot seems like a *FANTASTIC* idea. I need to talk that over with my wife. (Though the lots are in more of a Y formaion. With the tail end of the Y being the lot we initially wanted to go for since it is the one with the most water frontage.)
I need to learn more about the “right of first refusal”. I think a multi-year option is something I am interested in atleast offering the seller. Thanks for the tip.
I need to explore the ramifications of refi-ing to pay off the other two lots. The purchase and resale with restrictions does seem like a good idea, but I doubt other buyers would be willing to purchase with those restrictions.
Buying two, and living on one side does seem like a good idea, but I would need to talk the seller down. Each lot is roughly 160K now. . . and our house plans are going to run 300K. So. . . unless the seller comes down on the price of one lot, we might not be able to pull that off. Though it is a good idea, with potential I believe.
I am not sure I understand the spec house strategy, can you please explain a bit further?
Thanks very much,
3rdChimpanZ
You could go down to the courthouse and run a title search. This will tell you when the seller bought and how much he paid. Sometimes thats helpful information sometimes not.
Have you actually talked to this guy or just reviewed the offering on the web site? What else is there? Does he seem to have a lot of properties or is this the only one?
Only my wife has spoken to him. When she got his email address, I went to the corporations website, and found a profile on him.
I would imagine he has other properties, since he lives in different parts of the world, and since his cell phone is an internation one.
Inquiring at the court house seems like a terrific idea. What should I do with the information though? Say I found out that he bought the land for 50K in total. . . .
How do I use that as leverage?
Thanks very much,
3rdChimpanz
3rdChimpanZ,
I wasn't sure I quite understood the business about the "Y" formation. Are any of the lots flag lots?
Do you know if the lots are buildable--in other words, what the current zoning requirements are, utility situation, deed restrictions or other restrictive covenants? What would you say new homes are selling for on their lots in that area?
By the way, weren't you and your wife buying a $900K lot a few months ago or am I mistaken?
Great Memory Nancy!
We were strongly considering it, however, we decided to back out and persue something a bit smaller. After talking with a few financial advisors, they were able to convince us to try something smaller first.
By Y lot, I mean, if you were to take an arial snapshot, the property would look like this:
___________
[LOT 1] [LOT 2]
[LOT 3]
___________
The area is pretty mixed. . . there are some homes that are well maintained and rather spacious, and a new community is being built there with homes starting in the 600's. But there are also houses there that are unsightly, and run down, that would surely go for much much less.
Thanks for the visual. Helps me picture this. So is Lot 2 the one that you're interested in? Where (in the context of your drawing) is the road frontage here-- do all of the lots have existing road frontage?
How far away from this site are the new homes that are selling for $600K? How far away from this site are the unsightly, run down homes?
Is each of the 3 lots separately deeded--in other words, have they already been subdivided? Are there public utilities here or would it be well and septic? Have you done any due diligence at the municipality?
I ask these questions because:
1. I would think that your area is a "hot" area and that these lots should have sold long ago for $160K each if the values of the immediate neighborhood supported housing of, say, $480-600K;
2. I'm also wondering if there are some development problems or restrictions here or something that the seller hasn't yet disclosed to you.
Thanks for the reply Nancy.
Lot 3 is the one my wife and I are interested in, and it is the one with the frontage. (You kind of need to slide Lot 3 to the right until it is in the middle of Lot 1 and 2.)
The new 600K homes are less than a mile away. . . on the same road that Lot 1 and 2 are on.
I am not sure the 3 lots are deeded seperatly. . .but there are posts, and three seperate signs for each lot. I am not sure about the public utilities either. . .and have not contacted the municipality. How do I contact them, and what information can they provide me?
Thanks for helping!
3rdChimpanZ
The zoning and planing people can be a wealth of info.
can you build what you want on that lot.?e.g. it's zoned rural habitat, no dwellings allowed an you want to build a house
they can help w/ utility POCs
How big, how tall, etc. the house can be.
set backs. Do you need a permit from the state body that regulates water ways due to the proximity of the lake.
tons of info.
I had an offer on a irregular shape lot that was VERY cheap give the location. It was 1.01 acres, shaped sorta like the state of CA. However, when I got my hand on the survey, and plotted the setbacks, I had a 20'x30' building pad.
As for your construction financing, that number sound a little conservative on the banks part. seems like more $$ should be available
what about a JV w/ the seller?
How close are the run-down homes to this property?
OK, so Lot 3 has the frontage.
Do Lots 1 and 2 front on a different street or would they get road access through Lot 3?
About your due diligence:
1. go to the website of the county where this property is located and do a search by parcel # or owner name;
2. If you have townships in VA, go to the township office where this property is located. Give them the owner name and/or parcel number(s), ask to see the tax plats or tax maps of the properties. They should be able to tell you if there are 3 separate parcels or if it's all under one parcel. Ask to see the zoning ordinance and zoning map. That wll tell you the zoning district for the property/properties as well as minimum lot size, lot width and much other info. While you're at the township office, ask them if they have public sewer and water maps you can look at. These will tell you if there are existing sewer and water lines at the property. Talk with the zoning officer about this property and find out if he/she has any file on it.
3. If the township people tell you that the parcels are separately deeded, ask to see the subdivision file for the property and any subdivision plans that were recorded.
4. You can also have a local title company search the title for you, get you a copy of the deed and any documents recorded against the property.
Restrictive covenants and deed restrictions should show up in a title company search as well as in prior subdivision proceedings on the property.
Great, thanks for all the advice. . .
My wife received the following email from the seller yesterday, when she asked if we could tour the property when he gets back from vacation:
--------Original Message--------------
I am back the week of the 22nd of June. Could show you the property the
weekend of June 26-27. In the meantime you are also welcome to visit it.
As I told you on the voice mail, we are selling the three lots (#55, 56
and 60) in one package of 2 total acres for $500,000. Lots 55 & 56 are on
top on the road and lot 60 extends below them down to the river. I can fax
you the lot diagams upon returning if you give me a fax number.
--------Original Message--------------
So it does indeed look like he wants to sell all three lots at one time. . . which we can’t really afford. I also looked at some tax records, and found the following on the lots:
Land Use Code Vacant Land
Land Area (acreage)
Land Area (SQFT) 23,177
Zoning Description RE(Res Estate 1DU/2AC)
Utilities WATER AVAILABLE
SEWER NOT AVAILABLE
GAS NOT AVAILABLE
County Historic Overlay District
Street/Road PAVED
Site Description NON-BUILDABLE-NO PERC-NO SEWER
Also, on another site it said the assessed tax value for each of the lots was $12,000.00 in 2003. I also learned that the buyer has a lot of properties all over the place in my area. . . so at some level he must be doing realestate as atleast a side business.
Has anyone heard of stricking a deal with a custom home builder? One of my coworkers said, that I could go out there, buy all three lots, and sell it to a custom home builder.
What do you all think??
If you only want to buy one lot and build one house, it doesn't matter if the seller has 3 or 30 lots to sell you. Please make you offer to buy 1 lot get a discount of at least 20% for all cash offer and do comparable sales research before you make offer.
Above all, stay focused on your goal and stop being distracted by opportunites that are not opportunities right now.
Thanks superman profits. . .
It's good and timely advice. . .
The tone of the sellers email makes me think he is *ONLY* selling the three together as one package though. . .
I'd LOVE to just get one lot, but am not sure if he is willing to sell just one.
So I figure i need to find out how to either get all three, or convince him to sell just one to me.
:-?
It's not clear to me if the 2 acres have been subdivided and even if they have, whether any of the 3 lots is buildable. My first priority would be going to the muncipal office and verifying if any subdivision has been done and getting straight on the utilities situation here. I would also confirm with them the current zoning requirements.
"Site Description NON-BUILDABLE-NO PERC-NO SEWER "
Unless I miss my guess this means that the lot lies so low next to the river that a septic tank cannot be installed because the leaching field won't leach.
In other words, Unless you have the money to run a sewer line from where-ever it is (may not be too far since they've run a water line) and install a pumping station (think big bucks) I think you'd better move on.
Thanks for the reply. . .
I am thinking of bringing in an expert to scope out the land for me. . .
Does anyone know what are those experts called?
Nancy, I think the lots might be subdivided, since there are three seperate listings in the tax records. . .
Yea, I am not too sure about the septic and other general "buildability" of the lot, which is what an expert can hopefully provide me with.
Concerning the septic, if the owner had the land tested for anything, he will have reports.
I would strongly suggest that if you decide to put an offer in, you have a RE attorney prepare it for you so that it includes the appropriate contingencies. You don't want to be on the hook to close with the seller unless you can build on whichever lot and have all the other relevant facts you need to make your decision.
What about negotiating a reduction in price and a lease option with a subordination clause on the property ? that would free up your cash to build at which time you would refinance and have better cash flow. Construction loans are generally pretty high. I you could refinance at a lower rate you might be able to afford more and pick up the other lots.
QUOTE] Site Description NON-BUILDABLE-NO PERC-NO SEWER
[/QUOTE]
Be sure what this means! I am not sure, but NO PERC doesn't sound good!
Cyndi
Yea, I am not sure what those messages on the tax records really mean. I will ask the seller when he gets back.
Also, how does a "subordination clause on the property" work. . . what does that mean exactly?
When ever you buy land you should make sure it is buildable. The lot must meet certain building requirements: setbacks, frontage, utility easements, covenants & restrictions and wetlands.
If you have wetlands on the property are they flagged? You will need to flag the wetlands before you can begin construction and the conservation commission will need to be contacted to approve the start of construction. Wetlands can be a pain in the neck, but it’s a way to negotiate down the price of the property.
Determine whether water & sewer are public or private. If the sewer is private you will need to do a PERC test to determine whether water will drain appropriately. The PERC test will also determine the Seasonal Ground Water Table (“SGWT”) of (“GWT”). GWT determines how many inches or feet to the water table. If you have a high water table (anything under 72" inches or 6' feet) then your basement will have to be mostly out of the ground. This will result in hauling-in fill or gravel, which can be quite expensive to haul. GWT is also another reason to negotiate down the price of the property.
If these lots are near the water you may need flood insurance and may have to build the house on pilings. If you have to build on pilings because you are in a flood zone you wont have to worry about hauling-in fill or gravel because the house will sit about 10’ feet of the ground anyway. Building on pilings is more expensive than basement foundation walls.
Do your due diligence before putting in an offer to purchase any property.
Thank you,
George C. Barbosa
[ Edited by NancyChadwick on Date 06/09/2004 ]