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Thought I would share one of my personal favorites from a few years ago. It amply demonstrates how a little creativity can go a long way towards creating a substantial profit.

A realtor showed me a starter home on four acres. It had been on the market for only two days and the existing financing was assumable. The home was well maintained but otherwise rather ordinary. What caught my attention however were a number of other factors primarily related to the land. There was road frontage (lots of it) and the realtor stated that the zoning allowed one acre lots.

The asking price was $92,000. which I felt was about 10 grand below market considering the acreage. If the land would perk, there existed the possibility of immediately subdividing and creating two additional lots since the existing home occupied a central position on the parcel. Since I felt the deal was sound with or without the additional lots, I made and got accepted on the same day an offer of $90,000.

It turned out that the land perked just fine, but the land area required for one lot was encumbered by the water well serving the existing house and the land area required for the second lot was encumbered by the drainfield serving the existing house. The execution of a water well access easement solved the first problem. To get around the second problem I constructed a new drainfield to serve the existing house ($1500.) thus freeing up the second parcel. I was unsuccessful in obtaining a release from the lender to enable the marketing of the newly created lots so I sold the existing house (now on 1.5 acres) for $90,000.

Bottom line: I acquired two building lots (one complete with drainfield) worth approximately $40,000, for the cost of a survey and miscellaneous fees related to the required minor subdivision and drainfield approvals.

I tied up $5K for about six months, achieved about an 800% return on investment during that period and was in control throughout the entire process.

I ended up building a rent house on one of the newly created lots and got the builder to take the other lot as partial payment for the cost of construction. I took the financing short and structured the note so that the rent would pay for all principal, interest, taxes and insurance. I now own the house free and clear. I have the rental income forever plus any future appreciation.

Regards,
FoolMeOnce
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How long did the process take to subdivide? How hard was it to get all the requirements together? Was there much risk of the subdivision being denied?

This sounds like a sweet deal!
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How long did the process take to subdivide? How hard was it to get all the requirements together? Was there much risk of the subdivision being denied?

The entire process took about six months. 90 days of that was consumed by the local planning commission which in my locale has final approval of minor subdivisions. The rest of the six months was consumed by marketing and closing on the existing house, arranging approval of the drainfields and getting the survey work done. Once I established that the land would perk, there was virtually no chance that the subdivision would not be approved. Since there was no road construction, the State Highway Dept. wasn't involved. The land was already zoned appropriately. Planning commission oversight was only required to insure compliance with the local subdivision ordnance.

Regards,
FoolMeOnce

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